Provider exits ostomy biz

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Friday, January 31, 2003

SALEM, Mass. - The low margins on ostomy products recently drove another provider to exit the product line.

“It was a tough decision to get out of the business because we’d been doing it for so long and had relationships with patients that had built up over the years,” said Troy Burke, Hutchinson Medical’s quality assurance manager. “This isn’t about making money off these patients. It’s about not losing any more money.”

In December, Hutchinson sold its 400 ostomy patients to Byram Healthcare Centers, the $65 million supplies giant, in a patient-based acquisition deal. (Since providers can’t actually sell patients, the arrangement pays Hutchinson a set price for every patient that transitions to Byram.)

Over the six months prior to its Byram deal, Hutchinson Medical, which provides a broad array of DME, averaged gross margins on its ostomy business of about 5%. That’s far below the 30% to 40% needed to meet overhead and other expenses involved in dispensing the product, Burke said.

Hutchinson’s ostomy business combined working with a distributor to drop ship product and selling product from its Salem location. The company determined that it could supply ostomy products profitably if it stuck strictly with drop shipping, but in the end rejected that strategy. HME

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