Awakening a Sleeping Giant

• By Patrick T. Gates, Paul W. Schmitt, Mimi San Pedro, Miriam Lieber
• Jul 01, 2002

Awareness of Obstructive Sleep Apnea (OSA) by both the medical community and the public is growing dramatically, and the market for CPAP products and services for home medical equipment providers is poised for growth. Sleep apnea is more prevalent than asthma, affecting four percent of the male population and two percent of the female population. Untreated OSA can lead to hypertension, heart disease, weight gain and stroke.

Consider the following consequences of untreated sleep disorders. Annually, 200,000 motor vehicle accidents are due to falling asleep while driving, many involving fatal trucking accidents. The direct cost of sleep-disordered breathing for the American public is estimated at $16 billion annually, with another $150 billion in indirect costs. Hospitalization for sleep apnea costs approximately $42 million per year. All of the following disasters are linked to fatigue-related impairment in the workplace: Exxon Valdez, Bhopal, Challenger, Chernobyl and Three Mile Island.

Sleep Market Size and Scope

The U.S. sleep apnea equipment market was estimated at $385 million in 2000 with an annual growth rate of 19 percent. The global market for sleep apnea may reach $600 million by year-end and could reach more than $1 billion by 2007. An estimated 12 million Americans already are diagnosed with sleep apnea, and another 10 million are suspected to have the condition. When you consider that CPAP patients have a lifelong dependence on treatment, the existing and potential demand for CPAP equipment and the annuity income from disposable sales, the OSA market truly is awakening.

The market is driven by favorable reimbursement, new technologies that enable remote testing, an increase in the number of sleep labs, and growing public concern for the consequences of untreated or undiagnosed OSA. New product introductions by market share leaders Respironics, Murrysville, Pa., and ResMed, Poway, Calif., have helped increase patient compliance and mask-related patient comfort.

Market Trends, New Technology and Comprehensive Services

Industry analyst SG Cowen recently published the results of an OSA survey conducted with home medical equipment providers. According to the survey, new technologies such as compliance tracking software, removable smart cards, the increased acceptance of humidification, a higher than expected use of bi-level and auto-adjust devices, and improvements in the patient interface have at least two benefits. In addition to increasing patient compliance, they also have allowed expanded business opportunities in the higher margin consumables business such as masks, head gear, and tubing. At present, the split between OSA devices and accessories is estimated at 70/30 percent. This split may move to 60/40 during the next few years, indicating an opportunity for increasing annuity revenue in consumables.

There are a number of new high-tech solutions for compliance. Two of the objectives of DeVilbiss Sleep Solutions include providing comprehensive clinical solutions while reducing operational costs-specifically by reducing the number of home visits. According to Nick Macmillan, global sleep product manager, Devilbiss, Somerset, Pa., a division of Sunrise Medical, offers compliance management software that makes it easier for the provider and payer to monitor patient compliance.

"Compliance data is becoming more important for both sleep practitioners and payers," Macmillan said, adding that, "costs for home visits can be reduced by providing 24/7 data access and the ability to make a pressure change remotely." Remote access saves the time it would take to retrieve a smart card, and by using a protected server, provides confidential access to patient utilization data.

According to the researchers at SG Cowen, in-home diagnostic services are becoming more sophisticated, and usage is increasing. SleepQuest Inc., Redwood City, Calif., offers comprehensive sleep disorder diagnosis, monitoring and treatment including titrations, CPAP treatment, patient education and compliance monitoring. Robert Koenigsberg, SleepQuest president and CEO, reports patient compliance rates of 93 percent due to a combination of scheduling patients within one week of referral, timely reporting to the referring physician, using only board-certified sleep physicians and offering a range of educational services including sleep apnea seminars and on-line forums. According to Koenigsberg, "Patients undergoing treatment need excellent education and training, constant motivation and the ability to troubleshoot problems as they occur." SG Cowen also reports that an increasing number of insurance companies are providing reimbursement for in-home testing, which has the additional benefit of costing less than a hospital-based sleep lab.

CPAP Cost Benefits

While the benefits of treating OSA have been recognized for years, the potential cost benefit to health insurers is just beginning to be established. A research study published in 1999 in the journal Sleep, concluded that physician costs fell 33 percent after treatment for sleep apnea. Duration of hospital stays for compliant sleep apnea patients also decreased. A recent position statement issued by the American Academy of Sleep Medicine (AASM) concluded that the diagnosis and treatment of sleep-disordered breathing are justifiable on the basis of short-term and lifetime cost savings. AASM reported that the diagnosis and treatment of sleep disorders are more efficiently accomplished by physician evaluation and sleep monitoring rather than physician evaluation alone. A study examining home sleep apnea diagnostics is presently being conducted by the American Thoracic Society, the College of Chest Physicians, the AASM and two international organizations. A review paper and guidelines are expected later this year. With long waiting lists at some sleep labs, the number of undiagnosed OSA sufferers and the forecasted growth rates for CPAPs, the opportunity to demonstrate the cost effectiveness for all diagnostic and therapeutic modalities is now.

Sweet Dreams, The New Reimbursement Guidelines

The expanded Medicare CPAP criteria will cover adult OSA patients with either an Apnea/Hypopnea Index (AHI) equal to or greater than 15, or an AHI equal to or greater than five but less than or equal to 14 with documented symptoms of excessive sleepiness, impaired cognition, mood disorder, documented hypertension, ischemic heart disease or history of stroke. While the change in Medicare CPAP guidelines is no surprise to home medical equipment providers, its impact on the market is just beginning to be evaluated.

"With hypopnea as part of the qualification criteria, the market will expand and make it easier to treat the patients who need CPAPs," said Pattie Wyatt, RT, owner of Phoenix CPAP Services Inc., Orange County, Calif, a provider specializing in CPAP and bi-level patients. Even though Medicare beneficiaries are a minority of those receiving CPAP therapy, the new guidelines should have a positive impact on private insurers who frequently base their coverage criteria on the guidelines established by Medicare. Industry analysts indicate that the expanded Medicare guidelines coupled with the preference most OSA patients have for home testing, and the increased public awareness of sleep apnea, will expand the home sleep market during the next few years, creating sweet dreams for both patients and providers.

Effective Marketing Strategies, Ask the Experts

While there is no formula for growing your sleep business, there are a number of proven marketing strategies. The key is to know your local and regional market, and to adapt each strategy to fit your individual market needs. Sherry Oneida, marketing representative with Ascentura, a regional home medical equipment and oxygen therapy company with offices in Las Vegas and Salt Lake City, emphasizes relationship building with key referral sources coupled with an extensive instruction and fitting program. "I see my customers every two weeks to assure that their needs are met," she said.

With physicians, she offers a number of systems to assure that the patient gets a good mask fit. When calling on a sleep lab she focuses her presentation on the reliability of the sleep system and up-to-date product technology. Regarding the patient in-service, Oneida is tenacious about the mask fit. "Mask fit and comfort are the keys to patient compliance," she said. Oneida returns to the patient's home as necessary to refit or change a mask until the patient is happy. Pattie Wyatt, a 14-year veteran of the home sleep market, confirms this strategy adding, "Anyone can sell a CPAP system, but not everyone can get a good mask fit, and a poorly-fitting mask reduces compliance."

In some markets, the physician has more control over the referral than the sleep lab. Other markets are dominated by managed care contracts, with physician preferences having less influence over referral and product recommendations.

Rothert's Hospital Equipment, Covington, Ky., emphasizes a balanced approach to meet local market demands. Clinical sales representative, Carolyn Basford, RRT, explains, "We work with the referring doctor, especially the primary care physician, to educate them about product benefits, and with the sleep lab, we demonstrate our ability to get a good mask fit so they trust our recommendations for a particular mask. Managed care organizations require constant follow-up to assure that we get the contract."

All of the experts agree that patient education, follow-up with the referral source and compliance programs are vital in keeping referral sources happy and the patient coming back for annuity sales. Regardless of local and regional market differences, there is a trend toward expanding the referral source beyond the pulmonologist, ENT specialist and the internal medicine physician to include the cardiologist. One study linking sleep apnea to hypertension and another that associates sleep apnea with the formation of blood clots, both published in The Journal of the American Medical Association, lend support to this strategy.

Don't Hit the Snooze Bar

Sleep apnea is a serious, potentially life-threatening condition that is frequently undiagnosed and untreated. On the positive side, the awareness of OSA and the impact of sleep disorders have increased tremendously. With growth rates for CPAP products estimated as high as 20 percent, technological advancements in compliance tracking software, the potential cost-effectiveness of in-home testing, and the increased acceptance of auto-setting systems, there is no reason to sleep through this opportunity. Perhaps even more significant, traditional industry estimates for private pay OSA patients have been around 80 percent, suggesting that the remaining 20 percent were Medicare eligible patients. Since most OSA patients are too young to be covered by Medicare, the recent CMS guidelines have been tempered with appropriate caution. However, new survey results by SG Cowen suggest that Medicare OSA patients may be more than 30 percent of the total, suggesting the recent guideline changes may have a more positive impact than most people were expecting. Given all of this, the future for the OSA market is promising-so don't hit the snooze bar.

This article originally appeared in the July 2002 issue of HME Business.