Originally Published MX January/February 2005
MARKET ANALYSIS
The Home-Healthcare MarketplaceThe rapidly growing home-healthcare segment represents win-win potential for both consumers and manufacturers.
Alpesh Gandhi
One of the fastest growing—and most opportunity filled—sectors of the healthcare marketplace is that devoted to home healthcare. As a product-generating sector of the medical device industry, the key segments of the home-healthcare market are those for respiratory devices, infusion-therapy devices, and durable medical equipment (DME). But the range of devices now being developed for home use is extremely diverse, including such varied products as infusion pumps and syringes, rehabilitation equipment and bedside monitors, beds and wheelchairs.
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| Figure 1. Revenue forecast for the home-healthcare segment of the U.S. medical device market, 2002–2008. Source: Frost & Sullivan. (click to enlarge) |
In 2003, the U.S. home-care medical devices market generated revenues of approximately $53.1 billion (see Figure 1). Growth of this market has slowed somewhat over the past few years as a result of requirements in the Balanced Budget Act of 1997, which directed the Centers for Medicare and Medicaid Services (CMS, when it was still the Health Care Financing Administration) to test competitive bidding for some types of durable medical equipment.1 Nevertheless, the market for home-use medical devices is forecast to increase at a compound annual growth rate (CAGR) of approximately 9.1% through 2008. And shortly thereafter, it is expected to take off at a steady rate and reach double-digit growth rates. It is projected that this market will double in size by 2011.
This article looks at some of the key trends that are influencing the direction of this growing sector, as well as the challenges and opportunities the sector presents to medical device manufacturers.
The Aging Trend
The aging of the U.S. population has had a greater impact on the development of the home-care market than on any other sector in the healthcare marketplace. By 2011, approximately 78 million Americans (one-third of the U.S. population), will have reached age 65. This rising tide of retirees belonging to the baby boom generation is a trend of increasing importance for the home-care market.
The baby boom generation is unlike any other that this market has experienced. Baby boomers are much more health-conscious and better informed than previous generations, highly aware of the products and services available to them, and willing to take an active role with their healthcare providers. Their desire for technologically advanced medical products—along with the growing availability of such devices to meet their demand—is one factor that has led to the emergence of a viable and thriving home-healthcare market.
Coping through Technology
In many respects, the U.S. healthcare system is highly fragmented and inefficient. Helping patients deal with such inefficiencies is a great business opportunity for home-care providers, and represents one of the strongest drivers for the market.
Home-care providers customize their services to the needs of each individual, enabling the prescribing provider to remain in control of a patient's care while eliminating the waste of extra services not needed by a particular individual. This practice increases the number of patients who can benefit from home-care services and drives market growth.
The technological advances of the past two decades represent another strong driver for the home-care market. Not so long ago, home care was pretty much limited to daily feeding and bathing. Today, a wide variety of services are available at extremely professional levels to patients wishing to be treated in the home.
Although many services provided by home-care providers are not dependent on technology, new technologies that can be used to monitor and treat patients in the home environment represent a major area of potential market growth. For instance, a number of manufacturers are developing home-use technologies such as software-driven infusion pumps that can minimize medication errors. These automated medication safety pumps incorporate drug-administration protocols that reduce the possibility of human error—the cause of 66% of medication errors. And because they are more expensive than earlier models, their adoption will gradually increase revenues in the home-care market.
Restrained Adoption
Although the adoption of new home-use technologies has distinct advantages for both providers and their patients, many home-care providers are small entities that cannot afford the costs required to implement high-tech solutions in the home-care environment. This limitation is hampering efforts to expand the services available to patients in the home, and has also retarded the growth of the market.
The most effective home care involves seamless coordination among the physician who prescribes a plan of treatment, the home-care provider who executes the plan, and the patient. In the current market, however, communication breakdowns frequently lead to coordination problems, causing physician dissatisfaction with home-care services and patient frustration with inadequate care.
The key to the seamless coordination of care is greater application of information technologies. Because the implementation of such technologies is costly, however, their penetration into the home-care market has been slow. The absence of mechanisms for coordinating care limits the number of patients using home-care services, and continues to be a restraint on market growth.
Challenges for Manufacturers
Because the home-care market is highly fragmented, penetrating the market can be fairly costly and requires considerable market knowledge. In most cases, lack of resources prevents manufacturers from entering this market directly. Except for companies that occupy a specialized niche in the home-care market, most small manufacturers shy away from direct-to-consumer marketing.
The home-care market is very volatile with respect to reimbursement issues. A single change in reimbursement policy can cause a company to lose market share in the blink of an eye. Although reimbursement trends are therefore very important to the viability of products in the home-care market, most manufacturers do not follow such trends very well. Companies that intend to do business in the home-care market should identify resources that will enable them to track such pertinent trends.
One example of such reimbursement-related volatility is the market for power wheelchairs and scooters. In 2003, Medicare payments for power wheelchairs and scooters totaled $1.2 billion. But at the beginning of 2004, after an investigation revealed that two counties in Texas had filed fraudulent claims, CMS halted all reimbursement payments for power chairs and scooters. Billing scrutiny faced by dealers has forced suppliers into bankruptcy. In spite of this collapse, however, significant growth in the market for power wheelchairs is still expected in the future.
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| Figure 2. The market for respiratory products is the fastest-growing subsegment in home healthcare. The market for such respiratory devices currently totals approximately $822 million. Source: Frost & Sullivan. (click to enlarge) |
By far the fastest-growing area in home-care—and the one that offers the greatest opportunities for device manufacturers—is the respiratory-care segment, which includes oxygen-therapy products (oxygen concentrators, liquid oxygen, and compressors), nebulizers, continuous positive airway pressure (CPAP) equipment, ventilators, and sleep apnea therapy products (see Figure 2). Although CPAP products represent the third-largest group, they are also the fastest- growing area, experiencing growth rates of 15–18%.
Medicare Modernization Act
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) will have major short- and long-term effects on the home-healthcare market.2 Major changes initiated by the act include a five-year CPI freeze on several DME products, which took effect at the beginning of 2004, and a round of competitive bidding in the nation's top-10 metropolitan areas beginning in 2007.
Near-Term Impact. Home-care providers are expecting a revenue decrease of as much as 20% as a result of MMA. To make up for such losses, providers are planning to reduce acquisition costs and operating expenses, and they may also reduce the level of services they provide. Providers will also be asking the manufacturing community to share the burden of the cuts.
Between 2004 and 2007, MMA cuts will lead to a much more consolidated DME market than the one that is currently in place. Many small local and regional providers will be looking to exit the market because they will not be able to survive.
Long-Term Impact. MMA will take a toll on manufacturers by way of increased pressure to reduce pricing and slower acquisitions from providers. In turn, manufacturers may offset such losses by reducing their investment in R&D. The end result may be to further slow the introduction of innovations for the home-use market—such as those in information technologies—while manufacturers attempt to hold down expenses.
Conclusion
The medical device industry is one of the largest and most stable in healthcare, but it is undergoing important changes that providers and manufacturers will need to understand in order to succeed.
In the home-healthcare market, manufacturers will do best by building strong relationships with providers that emerge as market leaders. They may also seek to take advantage of the shakeout caused by MMA by acquiring ownership of distribution channels.
To capture the double-digit growth that is expected in the future, manufacturers should invest in technologies such as CPAP, which present high-growth and high profit margin opportunities.
Finally, manufacturers will need to find ways to address the marketplace directly. Building brand and product awareness among patient populations that are likely customers—such as those suffering from obstructive sleep apnea or chronic obstructive pulmonary disease—will pay dividends when the home-healthcare market begins its rise to prominence.
References
Alpesh Gandhi is a medical device research analyst with the market research firm of Frost & Sullivan (San Antonio, TX). He can be reached at 210/247-2464 or via e-mail at alpesh.gandhi@frost.com.
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