Commoditization vs. Customization: Are Trends in O&P Affecting You?
July 2006 Issue
Editor's Note: Some roads are smooth and winding with scenic vistas while others are rocky and call for careful footing. The path before the O&P profession includes both anticipated obstacles and unmapped forks, each challenge requiring well-thought-out navigation. In this month's editorial focus, we look at some of the trends that will shape the future of O&P and how the industry is preparing for them. Miki Fairley writes about customization vs. commoditization and Edward Neumann takes on the subject of approaches to evidence-based practice. In addition, don't miss "Seeing the Light at Sunriver: AOPA Plans Ahead." In this insightful article Miki Fairley looks at AOPA's initiatives in partnership with other O&P leaders to set the future course of the profession.
Industries and products, like people, have life cycles-and O&P is no exception.
Where is the orthotics and prosthetics industry in this continuum? Where is your O&P business?
The O&P profession long has taken pride in its unique ability to evaluate and provide custom-designed solutions for the specialized needs of individual patients. However, market forces, developing technology, demographics, and even the demand for outcomes studies and evidence-based practice seem to be driving a trend toward increased "commoditization" of orthotics and prosthetics. But at what level? And is this necessarily bad for O&P as a specialized, educated profession?
According to economist Chester R. Wasson, the industry life cycle stages are: 1) market development, 2) rapid growth, 3) competitive turbulence, 4) saturation/maturity, and 5) decline. Economists Charles W.L. Hill and Gareth R. Jones describe the industry life cycle stages as 1) embryonic, 2) growth, 3) shakeout, 4) maturity, and 5) decline. Some business experts believe the shakeout phase follows maturity rather than preceding it. From all indications, the industry currently is in the "shakeout" or "competitive turbulence" phase. However, "maturity" and "decline" do not necessarily automatically follow. Other dynamics can-and are-changing the picture.
Another factor is that products too have life cycles, and experts note that, overall, their lives from introduction to commoditization are becoming increasingly shorter.
First, what is "commoditization"?
"When a product becomes indistinguishable from others like it and consumers buy on price alone, it becomes a commodity," according to the online Financial Dictionary.
By this definition, even doomsayers likely would agree that the industry overall is not yet at that point. But is it on the slippery slope?
It may be cold comfort, but the O&P field is not alone: an Internet search reveals that the healthcare field overall and many other industries have been bitten by the commoditization bug and are facing challenges similar to those confronting the O&P industry.
Otto Bock Pioneers Modular Componentry
The move toward standardization in O&P could be said to have started with Otto Bock, headquartered in Duderstadt, Germany, which pioneered modular prosthetic componentry. Propelling this development was the situation in Europe between the two World Wars, with six million veterans suffering traumatic amputations. This huge demand far outstripped the supply of prostheses. Otto Bock's technology premise was "to industrially produce prosthetic components that could be assembled by the prosthetist." The three major components were a foot/ankle unit, a knee/shin unit, and a socket unit, all alignable in three planes.
The concept of pre-manufactured assemblies continued as standard practice. In the late 1960s, the company commercialized its modular structural component system, and materials moved away from wood to steel, aluminum, and titanium.
Modular components along with manufacturing technology in off-the-shelf (OTS) orthoses have resulted in faster, less costly to produce, and more efficient results for O&P. Can we imagine if every single device, whether prosthetic or orthotic, were still completely made by hand? What if prosthetists or technicians had to hand-carve wood for each prosthesis? So, standardization and even commoditization have in some ways benefited both O&P companies, payers, and end-users.
In the orthotics area, most agree that off-the-shelf (OTS) orthoses and foot orthotics have improved considerably in quality and meet the needs of patients more effectively than they have in the past. With better OTS products and easier, more user-friendly CAD/CAM systems, physical therapists, athletic trainers, sales representatives, and other non-credentialed (in O&P) providers are coming onstage in ever-increasing numbers.
"Some [people] knowledgeable about the devices tell me that possibly 75 percent of the orthoses used can be prefabricated devices," says healthcare attorney John Latsko, Schottenstein, Zox & Dunn, Columbus, Ohio. "Currently the number may be 30-35 percent."
The lines between orthotics and rehabilitation products are becoming blurred, noted Bert Harman, president and CEO Americas, Otto Bock HealthCare, Minneapolis, Minnesota, at the recent meeting of the Ohio Chapter of the American Academy of Orthotists and Prosthetists. Otto Bock's research indicates that there will be a rapid growth rate in orthotics, although it indicates the prosthetics market will remain stable.
Various manufacturing companies are positioning themselves in view of the changing scene. For instance, Eythor Bender, president of Ossur North America, Aliso Viejo, California, says, "The simple fact is that the orthopedics market is experiencing double-digit growth. This is most extraordinary and is the direct result of a historical convergence of factors, including rapidly advancing technologies, an aging population, and a relatively prosperous economy in the US." He adds, "And in this environment, I think there is opportunity for all."
Bender likely expresses the views of other manufacturers as he notes, "That we, as an industry, are equipping ourselves on all fronts to meet the growing and increasingly complex demand for products, medical attention, and all of the derivative services is a natural and healthy consequence.
"On the one hand, there is a definite need for more specialized orthotists working closer to their increasingly educated patients and providing them with high-quality, highly technical, and customized care. Their expansion won't be the result of expediency or lower rates but rather, through careful patient assessments, attention to specific customer needs, and lots of follow-up-and this is not only appropriate but also necessary."
He continues, "On the other hand, there's an important opportunity for high-volume players-such as pharmacies and other retailers-who can now offer better-quality, lower-cost OTS orthopedic soft goods to consumers who are increasingly seeking ways to make themselves and their families more comfortable in non-emergency settings."
Bender adds, "We've been anticipating these new market patterns at Ossur, and I believe we've positioned ourselves well to address and serve the needs of all these market areas. As they grow, so will we."
Demographics: Driver for Change
"Commoditization" tends to be linked with "standardization," although they are not the same. There are several applicable definitions of "standardization":
Demographics are partly responsible for driving this development. At the Ohio meeting, Otto Bock's Harman pointed out that in 2005 only 68 percent of the total number of people requiring O&P services were treated, due to fewer numbers of practicing clinicians, as reported by Meredy DeBorde on page 13 of the June 2006 print issue of The O&P EDGE in her article titled "Ohio AAOP Chapter Holds Spring Meeting." In contrast there will be a projected 23-percent increase in the number of amputations over the next 20 years. These trends are erasing the boundaries between physical therapists, occupational therapists, and O&P practitioners, Harman observed.
Demographic projections indicate no dearth of future patients. A landmark study by Caroline C. Nielsen, PhD, for the National Commission on Orthotic and Prosthetic Education (NCOPE), updated in May 2002, noted that by 2010 the Baby Boom population will be between the ages of 46-64, creating a rapid increase in the proportion of the population at the highest risk for those diseases and disabilities requiring orthotic/prosthetic care.
By 2020 this population will be between the ages of 56-74, comprising a large proportion of the population at continued risk for diseases/disabilities requiring O&P care. Nielsen projects that the total number of persons with paralysis, deformity, and other orthopedic impairments is expected to increase by 25 percent by the year 2020, with the number of orthoses users increasing by at least 31 percent. Without an increase in the number of graduates, the number of certified orthotists completing NCOPE/Commission on Accreditation of Allied Health Education Programs (CAAHEP) education will only be able to serve 61 percent or less of this population. Without an increase in graduates, the projected number of prosthetists available in the year 2010 will be able to serve only 66 percent or less of the population using prostheses. For more information, the entire report is available in pdf format at the NCOPE website.
What about the Highly Trained Clinician?
However, where does the highly trained, educated practitioner fit into this picture? What about the O&P facility that now specializes in custom design, fabrication, and fitting as the bulk of its practice?
"Not just anybody can go out and do prosthetic devices," observes Joyce Perrone, practice administrator for De La Torre Orthotics & Prosthetics Inc., Pittsburgh, Pennsylvania, and consultant for Promise Consulting Inc., Pittsburgh. "Prosthetics is much more complex and involves long-term relationships with clients. I see a level of complexity that the average physical therapist, athletic trainer, or sales rep would never venture into doing. Prosthetics will always be carved out."
Perrone sees a similar level of complexity and expertise required in pediatric orthotics. The growth and development of children requires specialized training; they are not simply miniature adults, she believes. "We have actually heard people say, Well you do the same thing, just smaller' and that is so wrong! It's like saying, Why bother to have pediatric doctors!'"
Different types of spinal trauma, advanced surgeries, body types, and other factors require specialized knowledge, she says. "There are people that just do not fit into the off-the-shelf realm. That is where a whole different level of expertise comes into play."
With OTS orthoses, Perrone says that unless O&P companies can figure out how to deliver the products to the end-user in an inexpensive, efficient manner, they will lose part of the business, if not all of it. "The people we compete with now are totally different. I've found myself thinking, where are these people coming from?"'
Kevin Carroll, CP, FAAOP, vice president of Prosthetics for Hanger Prosthetics & Orthotics, Bethesda, Maryland, points out the number of diabetic patients with foot problems who end up losing toes, feet, or legs to the disease. They may buy a foot orthotic at the grocery store. "What training does the public have about what is the best orthotic?" he asks rhetorically. Perhaps the consumer fit himself or was fitted at a local clinic with an OTS orthotic by a poorly trained or untrained person. "If the person does not have the training to properly choose and adjust the device, there is potential for infection and ulcers. Training and expertise are critical."
Carroll believes however, that overall, the quality of orthotics and prosthetics has improved over the years and that informed consumers are helping drive a higher standard. People easily can access information on the Internet, and also, if they receive poor service from their O&P provider, spread that news around. "Gone are the days when someone could just hang out their shingle and get by with poor work," Carroll says. "Everybody has to step up to the plate and do much better work." Plus, the pressure is on to do this in a cost-efficient manner to satisfy payers.
Dark Spots, Bright Spots
The O&P field is embroiled in rapid change, with new non-traditional competitors entering the arena. The three-year freeze on orthotics and prosthetics mandated by the Medicare Modernization Act of 2003 (zero update) expires at the end of this year. "Beginning on January 1, 2007, assuming no legislative changes-and we don't anticipate any right now-we will get an update to the Medicare O&P fee schedule based on the Consumer Price Index-Urban (CPI-U) from June 2005-June 2006," says Walt Gorksi, director of legislative affairs for the American Orthotic & Prosthetic Association (AOPA). All DME was frozen for five years, ending in 2008.
Although some Medicare rules and regulations are still up in the air, prosthetic parity for insurance coverage is gaining ground, and licensure currently exists in ten states, with more working toward it. Advanced education programs in both clinical and research areas are underway. The major O&P organizations are uniting together as never before to promote initiatives to benefit the field in legislative, business management, clinical, and research areas. Outcomes studies to hopefully show the value of custom O&P services are getting underway. Academic and clinical advanced-degree programs are progressing, developing professionals who can lead research studies plus apply the results clinically.
What about You?
But in the meantime, in this time of ferment and possible shakeout, what can you, as a company owner and clinician, do?
First of all, take a deep breath, step back, and take a broad and deep look at your business. Please see the business analysis questionnaire in this online issue for questions you can ask yourself to help ascertain where your business is now, where you need/want it to be, and if you are aware of and meeting challenges impacting your practice in your own market area.
"Will we always have a need for prosthetists and orthotists?" Randy Schmitke, CFO, oandp.com, Gainesville, Florida, asks rhetorically. "Yes," he answers, "But in what form? Who will they work for-or who will be working for them? Will the structure that has existed for the last 50 years survive the next ten?
"It all boils down to know your business,'" Schmitke continues. "Don't just assume that because you are a good practitioner, you will succeed. Don't assume that if you just keep doing what you are doing, this too [current challenges] will pass.' Know your business inside and out. Know the numbers. Know who is doing what and why."
To help in a business analysis, if you feel somewhat overwhelmed with the task, Schmitke suggests that maybe a consultant or your accounting firm can help. You might contact a local university to see if you can have some graduate MBA students do a company analysis for educational credit. And of course, there are excellent books on the subject. However, it must be noted that there is no "one size fits all" when it comes to advice for your business. Just like each patient you serve, your business is unique, despite some similarities with others in the same field. So what works for the company across town may not work for yours-a caveat to keep in mind.
Both Perrone and Schmitke suggest that higher-end practitioners with more advanced training and experience consider filling a niche, focusing on what they do best. Perrone cites a practitioner who is carving out a niche for himself and developing a thriving practice by working with burn victims, creating silicone masks. "He is very entrepreneurial, always thinking ahead of the curve, and putting himself ahead of the pack."
Says Schmitke, "I think there will be more boutique' practices-very small, niche-oriented practices with the niche being in either discipline or geography." He continues, "On the other hand, practitioners might be part of multidisciplinary practices. Certainly, industry manufacturers will always have a need for clinical experts."