Shield puts brakes on new Convatec business

Saturday, January 31, 2004

VALENCIA, Calif. - While reimbursement for ostomy supplies continues to languish, Convatec’s decision to raise prices again in 2004 is prompting some suppliers to say enough is enough.

Shield Healthcare stopped accepting assignment on Convatec products for new ostomy customers Jan. 1. Klein Medical Equipment in Cuyahoga Falls, Ohio, is transitioning its Medicaid patients from their existing brands - largely Convatec and Hollister - to a lower-priced alternative, Genairex.

Shield cannot say yet what the 2004 increase will be, but after 2003’s 6% jump and rumors of a similar hike coming, Shield, one of Convatec’s largest customers, drew a line in the sand.

“When you have a product line that barely has its head above water and combine that with another cut and a 6% price hike, it doesn’t take a rocket scientist to see that it doesn’t make sense,” said Todd Smith, Shield’s marketing manager.

This boycott is not a first for Shield. Two years ago, the company quit buying product from Coloplast after the manufacturer bought Sterling Medical, a Shield competitor.

Sheild’s reimbursement pressures are particularly acute in California, where the state was expected to implement a 5% cut last month after across the board cuts last year. Over the next two or three years, Shield expects additional cuts to one of its principal product lines.

Smith says that Convatec has been lobbying Medicare to raise reimbursement for ostomy products, but he’s not complaining about Medicare reimbursement.

“It’s the cost of the product,” he said. “We ask them to help us understand why this plastic bag goes up every year for the past 15 years.”

Some speculate that Convatec’s price increases are driven by stock market pressures since the company is a division of a public company, Bristol Meyers Squibb.

Genairex said it hasn’t raised prices on its ostomy products in four years.

Byram Healthcare, which is also facing a price hike from Convatec, wouldn’t comment on its response to what one v.p. called “an annual rite of passage.”

“We have presented with a price increase, and we are not happy about it,” said Steve McCoy, senior vice president for marketing and development.

For most of her Ohio Mediciad patients the combination of annual price increases and shipping costs has forced Sally Thompson’s hand.

“There are products out there that are comparable [to Convatec],” she said, “and less expensive.”

The annual 5% price hikes frustrate Patti Langenbach, president of Medical Care products in Jacksonville, Fla., but she can’t envision steering around either Convatec or Hollister, which command about a 90% market share.

Convatec is my largest vendor,” she said. “I’d lose a pretty large customer base.”