Invacare draws line in sand

Sunday, March 31, 2002

ELYRIA, Ohio - After surveying HME provider opinion on direct-to-consumer efforts by manufacturers and distributors of medical supplies, Invacare said a majority of the respondents preferred that manufacturers refrain from selling to end-users.

As a result, in a March 1 letter to 12,000 Invacare "partners," the company said it would continue to refrain from selling supplies to consumers, "but to do this, we need your support by purchasing supplies from ISG (Invacare Supply Group) instead of our mutual competitor."

The letter identifies Independence/Edge Park Surgical as a distributor that sells to both HME providers and consumers, and further, two other giants in the home medical equipment industry - Sunrise Medical, through its Dynavox assistive technology division and Medline, a provider of record in the Polk County Demonstration project.

"Now that the camel (Sunrise, Medline, Independence/Edge Park) has his nose under your tent," writes Louis F.J. Slangen, senior vice president of sales and marketing at Invacare, in the March 1 letter, "how far will you allow the camel in? Will you allow the camel all the way in the tent, and, in effect, finance their entrance into direct-to-consumer sales."

Invacare's line in the sand surprised two of the named competitors who say their direct-to-consumer efforts are isolated and do not portend further direct sales efforts. Sunrise Medical said its Dynavox subsidiary sells assistive technology that its customers do not sell.

Medline said it bid to become a provider of supplies in Polk County because, during the project's roll-out, Medline feared that its Polk County nursing home supplies business would be rolled into the demonstration. It was not. Since becoming a Polk County provider, Medline said it hasn't received any referrals to provide supplies.

"In order to get referrals, you have to call on referral sources," said Tim Dundon, Medline's vice president of sales. "We have made no calls on referral sources."

Of the companies named by Invacare, sources say Independence / Edge Park Surgical does market and sell medical supplies to both HME providers and to consumers. Independence did not return calls for this article.

Invacare entered the medical supplies business in January 1998 when the company bought Suburban Ostomy. Later that year Invacare sold Peiser's Medical Supplies, a $17 million Suburban subsidiary, because a portion of Peiser's business included sales to consumers.

Until the spring of last year, Invacare's supply business has been soft, according to Slangen, but picked up in the latter half of the year. Slangen describes the business as "robust" this year, citing double-digit growth. Given Medicare reimbursement rates that providers describe as abyssmal, especially in wound care and ostomy, decent margins are hard to come by in the supplies business.

"We're one of the top-three [supplies] companies in the nation," said Cheryl Hornberger, director of sales at Shield Healthcare, "and we have to work really hard to get the efficiencies to make the money."

Although Shield is a traditional provider of supplies, it shaves costs by purchasing direct from manufacturers of supplies, such as Convatec and Hollister, just like the Invacare Supply Group. But while Shield Healthcare and Edge Park go direct to the end-user, Invacare distributes to providers, adding an extra link to the supply chain and an extra challenge to profitability.

"The market opportunity for the Invacare Supply Group is shrinking," as distributors go direct to the end-user, said Slangen.

"As Invacare reaffirms its commitment to you," Slangen writes in his letter, "we would like you to reaffirm that you will not support manufacturers / distributors that compete against you."

Invacare believes that HME providers will respect the line in the sand. Alan Grogan doesn't.

"I understand what they're saying," said the president of Grogan's Health Care in Lexington, Ky., "but it's going to be hard to get much mileage out of that. People buy because of self interest, not because of an acceptance of the model of sale."

Providers also point out Invacare's Wal-Mart sales channel as a violation of the traditional model.

Slangen defended mass outlet sales by describing the various channels through which any business in any industry sells its product. While HME providers sell from store fronts, the Internet and through catalogs, Invacare sells through HME providers and department stores, he said.

"There is a very fundamental difference between the issue of selling to Wal-Mart and selling to consumers," Slangen said. HME