Vendors disagree over market decline

Monday, January 31, 2005

ELYRIA, Ohio - Shares of Invacare’s stocks slid 13% in late December after the company, blaming slower sales on a restrictive power wheelchair policy, revised its earnings guidance for 2005. Invacare said its sales of power wheelchairs have fallen in accordance with a 40-50% drop in the consumer power wheelchair market, and also that HME suppliers had slowed purchasing of eight products that are subject to FEHBP-based reimbursement reductions.

Consequently, Invacare lowered earnings per share guidance for the fourth quarter of 2004 from a range of $0.75 to $0.80 to a new range of $0.60 to $0.65 and from $3.00 to $3.15 to $2.75 to $2.90 for 2005.

Across the industry, reaction to the dim forecast from rival manufacturers was mixed. While no one disputed the dire straits of power wheelchair reimbursement, there was some question about Invacare’s contention that the market was off 40-50%. Other manufacturers, for various reasons, said they had not seen their sales slow due to FEHBP-based cuts slated for roll-out Jan. 1.

“That’s just a fact,” said Sunrise Medical CEO Mike Hammes. “Now would our customers, without these external industry situations, be up even higher? Probably.”

Hammes disputes Invacare’s assessment of the power wheelchair drop. He said an outside marketing company survey found power chairs to be off 25-27%. Dan Meuser, president of Pride Mobility Products, said the power wheelchair market was down 30% if you discount fraud.

According to CMS data gathered monthly by HME News, Medicare paid for 78,243 K0011 power wheelchairs in the first six months of 2004. In the first six months of 2003, Medicare paid for 119,866 chairs. Those numbers suggest that the K0011 Medicare market is down 35% in 2004. The highwater mark for K0011 reimbursement was May 2003 when Medicare paid for more than 22,000 power chairs.

While Invacare and Pride acknowledge year to year wheelchair declines, Hammes said Sunrise’s power chair business is up 10-12%. Carey Winkel, president of Sunrise Medical’s commerical operations in North America, credits a number of factors for those gains.

“Whether it’s the confidence on how we’re working on the coding initiative, or confidence in the front end, confidence in the product and in the partnerships we have, it’s there,” she said. “We brought a lot of people into Fresno to give them a deep understanding of what we’re doing.”

At the same time, Hammes admits there was little concentration on growth over the first several years of his tenure at Sunrise Medical.

“First, we had to get ourself in fighting shape,” he said. “That was the first stage. Now we’ve had good solid 5-10% growth over the last 14 months.”

Like Sunrise, both Graham-Field and Drive Medical have each approached changes heralded by the MMA from different plateaus of business.

“Invacare has a much broader market share than we do,” said Mike Norby, G-F’s senior vice president of sales and marketing. “Maybe because we’re in a growth or comeback stage, but we’ve not seen that.”

Similarly, Drive launched their business form scratch five years ago. Like G-F, Drive did not play in the power chair market until recently. As a result, they were immune to the privations of Wheeler Dealer.

“We built an organization on $30-$40 walkers,” said Doug Francis, executive vice president at Drive. “Now we have items in our repertoire that are thousands of dollars and it really does catapult us in terms of revenue.”

Like Invacare, Pride was standing on the front lines as repercussions of the power wheelchair troubles rolled out of CMS and through the DMERCs.

“We did not grow last year,” said Meuser. “It was a refining year because we didn’t experience the sort of growth we experienced in other years.”

He labeled 2004 a year of recession, at least for those heavily invested in the power mobility business. But 2005, as CMS works on a new suite of coverage guidelines, promises to be another story.

“Now, [CMS] is going to be basing its medical criteria documentation requirements on activities of daily living, which is what it should be - safe walking as opposed to unsafe walking,” said Meuser.