Lighter, quieter, better technology rules the roost

Thursday, July 31, 2003

Oxygen manufacturers have made some significant innovations to their systems over the past few years, developing new high-tech product genres such as portable concentrators, portable liquid systems and transfilling units. And for the most part, this new technology has impressed providers, patients and referral sources alike.

Yet the lion’s share of the respiratory market still belongs to the original stationary oxygen system and manufacturers say it most likely will remain so for some time to come. As long as Medicare reimbursement continues to keep stationary oxygen the most renumerative product segment for providers, it will be the “bread-and-butter” category for the industry.

“Stationary concentrators are still a very good market from our perspective, and I don’t see that changing over the next few years,” declared Joe Priest, president of Buffalo, NY-based AirSep. “It is still a primary selection and it is a wonderful market for providers to expand upon.”

If anything, market dynamics portend a growth surge in stationary systems, Priest said.

“We’re seeing steady growth in our customer base with new and current customers,” he said. “Respiratory diseases are still on the increase – one of the few that is growing. There is no cure for COPD and treatment is in great demand.”

That means providers shouldn’t get complacent when it comes to referral source marketing campaigns, manufacturers say. To intrigue referral sources about conventional oxygen machinery, manufacturers are making the units lighter, quieter, more dependable, more energy efficient and with stronger clinical capabilities than previous models.

“The consumer has become more sophisticated and they’re researching what’s out there,” said Ed Radtke vice president of marketing and sales for San Diego-based SeQual Technologies. “They want a stationary system that doesn’t make a lot of noise, throw off a lot of heat and use a lot of power.”

By and large, manufacturers estimate that stationary systems still comprise 75% to 80% of their business. They see the potential for that changing, but like the symbolic point Puritan Bennett made by terminating its PB 590 portable, reimbursement for the new generation of products is currently substandard, vendors contend.

“Let’s face it – reimbursement for ambulatory systems is ludicrous,” Radtke said. “You can’t make any money on it. I don’t know if this will ever change.”

Regardless of reimbursement status however, SeQual intends to eventually blur the line between stationary and portable systems. One of the biggest modifications to its stationary concentrator line is the introduction of the Integra Ten high-flow machine. At roughly the same size as the standard five-liter-per-minute concentrator, the Integra Ten provides twice the capacity.

“It’s no secret that we are involved in a multi-year project that will compress all systems into a single system with no distinction between ambulatory and stationary systems,” Radtke said. “The 10-liter concentrator is a good forbearer for this and because we can get 10-liter capacity into the same sized machine as a five-liter, we are headed in that direction.”

Likewise, Elyria, Ohio-based Invacare is looking down the road to see what its product mix might become. Stationary oxygen remains 75% of the company’s respiratory business, but the success of its Homefill refilling system is causing management to reassess the marketplace, said Scott Wilkinson, product manager for oxygen products.

“Yes, stationary oxygen represents 75% of our [respiratory] business, but if you asked me last year, I’d say it was 85% to 90%, so Homefill is quickly becoming a bigger piece of our portfolio pie,” Wilkinson said. “In the not too distant future, I could see it becoming 50-50.”

As a result, Invacare is modifying its stationary systems for future changes. For instance, the Invacare 5 Platinum concentrator has a port for Homefill compatibility.

“So even if patients aren’t using the Homefill today, they at least have the option of moving in that direction later,” Wilkinson said. “We’re telling physicians about it and it has made a difference – we gained 15 to 17 share points in the past year due to that port.”

Informing clinicians about stationary unit upgrades is an effective approach, but Priest also asserts that respiratory providers should learn more about the supplemental diseases requiring oxygen, such as congestive heart failure and sleep-related ailments.

“The bottom line is that it means growth potential with general practitioners, cardiologists and pulmonologists,” he said. “Show them how oxygen is the solution for their patients.”

The pricing pressures providers have historically exerted on manufacturers are continuing unabated in today’s marketplace. While some companies have responded by moving operations offshore, others are looking at internal cost cuts.

“Sure there are pricing pressures, here and in every segment of our business, but that drives us to improve our processes and our product,” said Rich Kocinski, senior vice president of global product development for the DeVilbiss Division of Longmont, Colo.-based Sunrise Medical. “We have an intense focus on increasing productivity and decreasing cost through ongoing redesign of the equipment and our manufacturing lines. At the same time, we have actually increased our quality of the product through process improvements that drive out variability, so when all is said and done, our customers get a better product at competitive prices.”

Radtke empathizes with the provider’s situation and understands why they keep driving prices downward. Still, he said, they need to look beyond the initial price.

“They focus on the acquisition cost because it’s a cash-starved business,” he said. “There’s no question that pressure is there, but we haven’t changed our prices in two years. We’re getting them to look at the real life cycle cost going into the buying decision.”

Priest acknowledges pricing pressures as well, but says the company compensates by seeking out patients with specialized oxygen requirements in conjunction with other therapies, such as nebulizers, high-flow units and portable concentrators. And although lowering costs has been a considerable challenge, AirSep isn’t considering moving production offshore at this point.

“I’m not convinced going offshore is any more efficient than operating here in the U.S.,” he said. “I’m not saying it can’t be done offshore, but there are some characteristics to this product that don’t lend themselves to manufacturing overseas.” HME
Category: Stationary Oxygen
Key Referral Sources:

Cardiologists, pulmonologists, general practitioners, sleep specialists, oncologists, hospital discharge planners.

Effective Marketing Techniques:

- Tout the advanced technology of new stationary systems, such as high flow capacity, low noise, dependability, energy efficiency and compatibility with transfilling units.

- Learn more about the supplemental diseases requiring oxygen, such as congestive heart failure and sleep-related ailments. Seek out the specialists serving those patients.

- Look past the acquisition price when buying new equipment and determine which brand offers the best value over its life cycle.