Zenergy Medical Industries

Start your own business plan »

Medical Equipment - Supplies Business Plan

Market Analysis Summary

Our primary customers are elderly residents living in homecare or post-acute care facilities and at risk for complications from X disease. These residents can be divided into two major markets: homecare residents, and assisted living residents, and they fit in one of three broad payor classifications for the costs of their stay: Medicare, Private Pay, or Medicaid.

A profile of the homecare market today:

  1. There are 16,121 facilities with 1,683,068 patients.
  2. Average utilization rate is 85.6%, which translates to an average of 1,440,768 patients.
  3. Disease prevalence is estimated at 18% in the general population of people over the age of 60. One Medicare survey estimated the prevalence within homecare at 24%. In the overall population it is generally estimated that diagnosed cases of the disease represent only about 70% of the true total number of these patients in the country, so these are probably conservative numbers.
  4. About 12% of residents are covered by Medicare, another 20% by private sources (family, personal assets, private insurance, managed care); the remaining 68% are covered under Medicaid.
  5. 60-70% of these patients suffer from related symptoms, which places them at higher risk for complications (ulcers,  other problems, etc.).
  6. 15-25% of these patients will suffer from complications during their lifetime.
  7. 86,000 surgeries occur per year; an estimated 50% of these are considered preventable. The cost of managing these complications has been estimated at anywhere from $2000-$13,500 per year and up to $27,000 overall for the two years following surgery.

Based on these statistics, the market size is estimated as follows:

 

Homecare "At Risk" Segment -
total # of Homecare residents 1,440,768
X Homecare disease prevalence rate 24%
# of these patients in payor category 345,784
X % with related symptoms 65%
# of at risk these patients in Homecare market 224,760
X reimbursement per year $264.04
Homecare Revenue potential $59,345,524


A profile of the Assisted Living market today:

  1. There are 32,886 facilities with 987,000 beds.
  2. Average occupancy rate is 80%, which translates to an average of 789,000 residents.
  3. Disease prevalence is estimated at 18% in the general population of people over the age of 60. One Assisted Living survey estimated the prevalence within Assisted Living facilities at 13%. In the overall population it is generally estimated that diagnosed cases of disease represent only about 70% of the true total number of these patients in the country, so these are probably conservative numbers.
  4. About 91% of residents are covered private sources (family, personal assets, private insurance, managed care); the remaining 9% are covered under Medicaid.
  5. 60-70% of these patients suffer from related symptoms, which places them at higher risk for complications.
  6. 15-25% of these patients will suffer from complications during their lifetime.
  7. 86,000 surgeries occur per year; an estimated 50% of these are considered preventable. The cost of managing these complications has been estimated at anywhere from $2000-$13,500 per year and up to $27,000 overall for the two years following surgery.

Based on these statistics, the market size is estimated as follows:

AL  "At Risk" Segment -
total # of AL residents 789,000
X AL disease prevalence rate 13%
# of these patients in payor category 102,570
X % with related symptoms 65%
# of at risk these patients in AL market 66,671
X reimbursement per year $264.04
AL Revenue potential $17,603,678

Elderly and diseased growth projections:

Between 2002 and 2020 it is projected that the overall population with the disease will grow 44% driven by increased heart disease, an aging population, and above average growth in segments of the population considered most at risk (African American and Hispanic).

The Homecare and AL markets will continue to grow due to continued growth in the elderly population (65+), which is projected by the Census Bureau to grow from 34.7 million in 2000 to 53.2 million by 2020, a total increase of 53%.

During that same period, the total number of elderly patients with the disease is projected to grow from 4.6 million to 10.6 million, a total increase of 130%.

All of these dynamics will drive demand for products to manage complications of disease.

Market Segmentation

Our three highest priority target markets will be:

  1. "At risk" residents in Homecare chains.
  2. "At risk" residents in AL chains.

With Homecare and AL chains, we can leverage our relationships at the corporate office level to more efficiently gain access to the member facilities.

Homecare - top 50 chains -
total # of Homecare residents 375,000
X disease prevalence rate 24%
# of these patients in Homecare top 50 chains 90,000
X % with related symptoms 65%
# of at risk patients in Homecare top 50 chains 58,500
X reimbursement per year $264.04
Homecare Revenue potential $15,446,340

Assisted Living - top 30 chains -
total # of AL residents 167,700
X disease prevalence rate 13%
# of these patients in AL top 30 chains 21,801
X % with related symptoms 65%
# of at risk patients in AL top 30 chains 14,171
X reimbursement per year $264.04
Assisted Living Revenue potential $3,741,618

Market Analysis
Year 1 Year 2 Year 3 Year 4 Year 5
Potential Customers Growth CAGR
LTC at risk 2% 224,760 229,255 233,840 238,517 243,287 2.00%
AL at risk 4% 66,671 69,338 72,112 74,996 77,996 4.00%
Total 2.47% 291,431 298,593 305,952 313,513 321,283 2.47%

Target Market Segment Strategy

Geographically, we will focus on facilities located in the Southern U.S. that fit within our two top priority segments.

Our model will be to leverage our relationships with these chains to get easier and faster access at the facility level for our field clinical sales team. This should allow us to achieve economies in marketing, promotions, and sales costs, and should allow our field sales team to be more efficient in working only with highly qualified facilities.

The Southern U.S. DMERC Region C will be our geographic focus because the prevalence rates for the disease tend to be higher in the Southern U.S. (5 of the top 10 states, ranked in order of prevalence rates, are in the Southern U.S.) and there tends to be a high number of chain facilities located in this region.

We will begin by targeting Homecare and A.L. chains with the majority of their facilities located in Tennessee, North Carolina, South Carolina, Alabama, Georgia, and Florida in year one, then we will expand further into Virginia, Louisiana, Mississippi, Oklahoma, and Texas in years two and three. In years three and four we will expand across the country into other DMERC regions to create a national presence. Of course, our field reps will also call on non-chain accounts within their territories where opportunities arise, but our strategic focus will be on trying to leverage corporate account relationships to open doors at the facility level for the field reps.

Demographic trends indicate that the larger African American and Hispanic populations in this region will cause prevalence rates to continue to grow at above average rates over the next 20 years.

Industry Analysis

Our industry is Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS), focusing on the elder care markets.

The  elder care market will be impacted by conflicting sets of dynamics. Consumer preference, payor desire for lower costs, and advances in pharmaceuticals, non-invasive surgery, assistive devices, telemedicine, and remote monitoring will continue to allow more elderly patients to be cared for in their homes. However, the continued growth in the elderly population and continued increase in heart disease, disease, Alzheimer's, and associated disease states will force an older and sicker resident population into institutional settings due to the intensity of care required to manage these disease states.

The net effect is difficult to predict, but it would appear likely that Homecare census will remain flat or experience slight growth (1-3% per year), while Assisted Living will likely continue to experience slightly stronger growth (3-5% per year).

HIDA estimates that the Durable Medical Equipment (DME) market's revenue has grown 4-5% per year from 2002-2004; while total national spending on Elder care grew approximately 5% per year during that period. HIDA also estimated that total distributed medical product sales from 2001-2003 grew approximately 5% per year.

These revenue growth rates may decelerate somewhat over the next several years as the industry struggles to find ways to control costs, so we conservatively estimate that growth rates in the DME institutional elder care market will probably be in the 3% per year range.

Competition and Buying Patterns

The market is currently served inconsistently and, in some areas poorly, by a variety of players including pharmacies, DME manufacturers, rehab facilities and therapists, and local dealers/distributors who lack a national presence, a clear marketing strategy, and the ability to leverage corporate chain relationships. Their field sales team mainly functions as order takers, going out and visiting facilities, targeting only residents they believe are covered under Medicare part B or an equivalent private pay coverage, then submitting orders for these residents.

Our growth will not come entirely from overall market growth, but also from taking market share away from our competitors. The market is very fragmented; CMS estimates that 95% of DMEs generate less than $350,000 per year in annual billings and 99% generate less than $5 million. We will grow in part due to the underlying trends specific to growth in disease prevalence, but also by consolidating a fragmented market by creating a regional (then a national) clinical sales channel that provides a source of competitive advantage.

One study in 1995 indicated that utilization of the Medicare therapeutic disease benefit was extremely low and could be boosted substantially via the use of a coordinated marketing approach. We believe that the combination of market dynamics along with our sales and marketing approach should allow us to grow revenue in this market rapidly over the next three years.

Currently, residents may elect to purchase therapeutic disease systems for several different reasons:  

  1. A medical exam may prompt the resident's physician to prescribe therapeutic systems.
  2. A local DME, dealer, or distributor may recommend therapeutic systems for a resident with Medicare coverage.
  3. The resident may be prompted to purchase therapeutic systems after receiving a direct mail piece, viewing a television advertisement, viewing a brochure, or through word-of-mouth.
  4. A disease-related complication may prompt them to purchase therapeutic systems.

Currently, no one effectively approaches this market on a regional or national level with the type of strategy that we have outlined in this plan.