Invacare, Sunrise fight for millions in MED business

Monday, March 31, 2003

LUBBOCK, Texas - In the wake of a March 10 announcement by The MED Group, heralding a broad new purchasing agreement with Sunrise Medical, the nation’s two largest full-line manufacturers of home medical equipment - Invacare and Sunrise Medical - are waging a torrid campaign to win the hearts, minds and business of roughly 250 MED members.

The new three-year Sunrise Medical contract, which retroactively went into effect March 1, is the anchor of a brand new contracting day at MED and includes all of Sunrise’s homecare products. The deal was announced after MED and Invacare failed to renew another three-year term in their longstanding contractual relations. The most recent MED-Invacare contract expired Dec. 31.

As part of its new contracting process, MED has opted to sign fewer contracts with vendors. The expectations is that MED members will do more business with its new “strategic partners.”

Just how much business will have to be conducted with new strategic partners as a matter of purchasing compliance at this point is unclear. But MED CEO David Miller promised it will not be a one-sized fits-all approach.

“Using a totally customized approach, we will define with each member an agreeable level of commitment, and then sit down and sign an updated membership agreement that we plan to mutually hold each other accountable for,” said Miller.

While Miller says that MED will “never ask [a member] to leave a current manufacturer,” there is nevertheless an expectation that members will support the new MED contracts by converting business.

“We will give people the time they need to fill out their existing orders as they need to, to meet the educational needs of their sales, to convert referral sources, to build up stock inventory in their parts, but we don’t expect that to take a year,” he said. “Over the next three, six, nine months, I think, depending what product mix a provider has, we do expect to see considerable movement to the selected vendors we have contracted with.”

On the day MED made its announcement, Invacare reacted with a blast communication to its customers that emphasized its determination to give its MED-member customers access to “the same or potentially even better pricing than you currently experience through the MED.”

At the same time, Invacare and Sunrise reps are racing to MED member’s doors as they jockey for business that could be won or could be lost. One HME dealer referred to the competition for business as “this year’s Superbowl of DME.” And many dealers believe that the HME provider, at the end of the day, is the ultimate beneficiary.

“The goods news is that MED has kicked it up a notch so the heat is under the fire,” said Fran Burke, president of Burke Medical in Chicopee, Mass. “Everything is percolating. It’s not a boring time to be in the business.”

So just how much business is at stake? Some estimates claim that MED members were buying about $100 million of product from Invacare each year. For that business, Invacare paid MED a multi-million dollar fee annually.

That fee, and MED’s ability to deliver “performance,” was at the center of the now dismantled MED-Invacare relationship, according to a Dec. 20 letter distributed by Invacare.

“The bottom line is they [MED] failed to meet their contracts,” said Invacare CEO Mal Mixon. “We tried every way in the world to try to work with them, to try to get some kind of commitment out of it, and they said, ‘Hey, your competitors are giving us great discounts. They don’t require any commitment.’ We said, ‘That’s great for them but not too great for Invacare.”

Miller refutes Invacare’s contention that MED did not meet its contractual obligations: “We have met the terms of the contract as agreed upon and executed by both parties.”

Invacare and The VGM Group earlier this year quietly terminated a “marketing agreement” the companies signed in April 2001. That three-year deal came on the heels of an eight-year span over which the two companies had no contract.

Today, Invacare is questioning the value of contractual relations with a group purchasing organization like MED. From a vendor point of view, one value proposition derives from the efficiencies delivered by the cohesion of a GPO’s members. That’s what Sunrise Medical is looking for.

The new contract “allows us to form a strategic partnership with a whole bunch of dealers through the facilitating efforts of The MED Group, rather than going off to have 200 strategic partnerships with each single dealer,” said Mike Hammes, CEO of Sunrise Medical.

Strategic partnerships, said Hammes, cultivate more intimate relations between vendors and providers in such areas as education, technology, R&D and distribution.

“Take how goods are ordered and delivered,” said Hammes. “If you don’t have a strategic partnership and you’re just dealing on a price basis, you’re not really trying to figure out and work with your customer on how to order these goods, and what’s the best way to get these goods to you. When we work together on what is best for you and what is best for us, we’re driving cost out of the system.”

Invacare says that through its products, programs and services, it has long cultivated these kinds of relationships with dealers. “We’re doing focus groups with our dealers all the time,” said Invacare’s senior vice president of sales and marketing, Lou Slangen.

While some question the ability of buying groups to provide value to vendors, and point to other industries and other companies that are opting out, Jim Walsh, president of VGM Management, doesn’t view developments in this industry as a trend.

“From our perspective, there is only one company that has opted not to actively and enthusiastically participate,” said Walsh.

Since the new MED contracting process will admit fewer vendor contracts - Miller declined to reveal the scale of that contraction - Sunrise will face fewer competitors. But that does not mean Sunrise will not face competition, said Miller.

“They (Sunrise) understand the (need) of the provider to supply the equipment or product that is appropriate for the patient, or that meets a referral source need, or that meets a market need,” he said. “Our members have to have that choice.”

MED will share its Sunrise Medical pricing with members starting April 9. That, say dealers, is where the rubber meets the road. HME