Senior spotlight: Valley health business success story. (An Advertising Supplement to the San Fernando Valley Business Journal).

With an economic climate in which other manufacturers are cut ting back, one Chatsworth-based local business serving the senior market is seeing its biggest surge in ten years.

The Valley-based medical equipment manufacturer has jumped from $12 million in sales in 2000 to nearly $19 million in the span of one year, and 54% increase in overall sales.

The manufacturer of a state-of-the-art line of electronic and pneumatic oxygen conserving devices designed to treat chronic lung disease, CHAD had been established as the market leader for several years following the introduction of the first conserving device in 1986. But the company experienced a sales decline in the 1990s due to a sudden flood of competitive devices into the market, many at much lower prices.

Acquisition cost is a factor that drives the market. Beginning with Medicare reimbursement cuts of 25% in 1998, followed by an additional 5% in 1999, the oxygen supply business has become a less friendly place for home care suppliers. At onetime, insurance reimbursement had been provided for the volume of oxygen used.

With flat rate reimbursement for services and supply and frequent cutbacks, cost savings are crucial. CHAD's OXYMATIC electronic oxygen conservers, which fall into the high end of the product category, were often seen as too pricey, given equipment reimbursements, even as providers sought for ways to cut their oxygen refill costs.

"Unfortunately, price becomes an issue any time the economy gets tight," said Thomas E. Jones, President and CEO. "What many providers don't realize is that a conserver is not just a conserver. There are varying levels of efficiency among products."

That need for more efficient oxygen delivery is the foundation for the conserving device market. For decades patients have had to wheel around large oxygen cylinders on carts, but now the trend is for lighter, more user-friendly tanks, which means more frequent deliveries for providers. Conserving devices serve to ameliorate that problem.

Rather than delivering a continuous stream of oxygen from the tank, the conserving device delivers oxygen only upon the patient's inhalation, conserving between 50% to 80%. Different conservers provide different savings ratios.

"We feel we have the most efficient and clinically effective device on the market," said Jones. "The difference in oxygen cost alone between a 50% savings and our 80% savings can be more than $30 per month for a high usage patient not to mention associated delivery costs."

Lyn Morris, owner of Respiratory Therapy Homecare in Paramount CA, agrees. After 22 years in the oxygen therapy business, he is no stranger to challenges associated with providing home oxygen. "The conserving device is a godsend," said Morris. "The cost to deliver refills is at least $42.50 [per trip], excluding the goods delivered. Obviously the less trips you make to the patient's home, the more profit you can make." Multiplied by the over 300 patients that Morris' company services at any given time, expenses can skyrocket into the thousands for deliveries alone.

CHAD answered that concern in 1998 with the introduction of the first cylinder-filling oxygen concentrator, the TOTAL 02[R] Delivery System. To many market executives, the home-filling ooncept was the next logical step in the development of oxygen concentrators, which have been in use since the 1970s. The TOTAL 02 system virtually eliminates all oxygen deliveries by extracting oxygen from ambient air and compressing it into small portable cylinders in the patient's home. The small cylinders may then be used in conjunction with their CHAD conservers.

Surprisingly, the concept has been slow to catch on, with CHAD reporting disappointing sales figures in its first three years on the market. But according to Jones, the TOTAL 02 system has begun to develop a loyal following that he believes will continue to grow as providers learn the patient benefits and cost savings associated with the product.

Even in the shadow of further reimbursement reductions, CHAD executives believe the future is bright for their company and customers alike. The company has repeatedly stated that they will continue to develop and provide cutting edge technology, such as the TOTAL 02 Delivery System, to help providers remain profitable even in difficult market conditions.

"Manufacturers of this type of equipment are closely tied to the home care providers they supply," said Jones. "When we can help them become more profitable, we become more successful as well."

Carla Laureano is Marketing Manager for CHAD Therapeutics.