Bone densitometry market stumbles due to reimbursement confusion

October 29, 1997

The bone densitometry market appears to have hit a rough patch. The once-hot segment has stumbled over the last several months as international demand slows, while equipment purchasing in the U.S. has been affected by confusion over proposed changes in

The bone densitometry market appears to have hit a rough patch. The once-hot segment has stumbled over the last several months as international demand slows, while equipment purchasing in the U.S. has been affected by confusion over proposed changes in Medicare reimbursement rates. Help could be on the horizon, however, both from new products reaching the market and from recent initiatives to increase the use of bone-mass measurement tests by U.S. physicians.

Bone densitometry's most recent boom cycle began in late 1995, when Merck & Co.'s Fosamax treatment for osteoporosis hit the market. Fosamax gave clinicians an alternative to hormonal-based drugs for treating osteoporosis, and prompted the acquisition of bone densitometry scanners in the U.S. to diagnose and track the progression of the disease.

Warning signs began to appear this summer indicating that the market might be cooling off, however. Hologic of Waltham, MA, reported anemic revenue growth for its third quarter (end-June), while Lunar of Madison, WI, and Norland Medical Systems of White Plains, NY, issued warnings that their revenues would be lower for the quarter ending in September. Hologic's upcoming financial results may reflect a slowdown in hospital sales for the quarter, according to an executive at the company, but this slowdown might at least be partly offset by increased sales to physician offices.

Several factors have conspired to cause sales to stumble in the last few months. Demand in overseas markets, for several years the mainstay of bone densitometry sales, has pulled back. Lunar, for example, has experienced a drop in Asian sales, particularly in Japan, for the company's products. Confusion in the U.S. market over future Medicare reimbursement rates is making matters worse.

Revised Medicare rates for bone densitometry, developed by the Health Care Financing Administration and published in the Federal Register in June, indicated a marked increase in payment for the use of peripheral densitometers and a dramatic decrease for larger axial scanners, bringing payment for axial scanning below the rate paid for the use of peripheral systems. Currently, axial scans are reimbursed at a rate of $121 and peripheral scans at $38. The new proposed rates published in the Federal Register pegged reimbursement for axial scans at $40 and peripheral scans at $57.

The new rates shocked the industry, because axial scanners, which are about twice the price of peripheral scanners, are widely believed to provide the best indication of fracture risk for the hip and spine and, therefore, are the preferred means for assessing patients suspected of osteoporosis. The figures turned out to be an error on the part of HCFA staffers that has had major consequences for densitometry firms.

"They made some serious mistakes for densitometry billing," said James Hanson, Lunar vice president of marketing. "We're in this quagmire, waiting for it to be resolved."

HCFA has acknowledged publishing erroneous figures, according to industry sources, and is expected to publish the correct rates soon, perhaps as early as November. The agency, which administers Medicare, may not be rushing to publish a correction because the new rates will not take effect until Jan. 1, 1998. But the rates published in June had an almost immediate effect on the industry, according to executives.

Many hospital administrators may have put off purchasing bone densitometry equipment until the rate question is resolved, Hanson said. But Mark Duerst, vice president of sales and marketing at Hologic, believes the problem may be even broader than that.

"HCFA's gone back and re-evaluated all the codes, and they're in the process of introducing differences in the way hospitals are paid versus private-office physicians," Duerst said. "I think that because we offer a technology that's not as critical to the daily operations of radiology departments or hospitals, they may be slowing purchasing in some areas to see how all the codes sort out."

Peripheral market is bright spot.

If there was a bright spot to the confusion created by the apparently incorrect numbers, it was in the sale of peripheral systems. Attracted by the proposed increase in payment to be allotted to peripheral scanners, some customers may have chosen these systems rather than the more expensive axial scanners. Norland, which is best known for peripheral systems, reported increased sales of its peripheral products, but that increase did not fully compensate for lower-than-expected sales of axial systems, which had been contributing most of the revenues to Norland's bottom line over the last year.

Norland and other vendors might be able to put the sales doldrums behind them as early as the next quarter, if Medicare rectifies the supposedly erroneous reimbursement tables, according to Jan Garey, Norland's marketing director.

"I think it's short-term," she said. "As soon as we get the standardization of reimbursement established, we'll see an opening of the market."

Sales might get an added boost as early as spring, when a new genre of densitometers based on ultrasound is rolled out. A Food and Drug Administration advisory panel two months ago recommended approval of Hologic's Sahara ultrasound system, which according to the company should receive formal clearance by the FDA soon (SCAN 9/17/97). Lunar hopes to avoid the panel review process for its Achilles offering, obtaining a decision directly from the FDA for the ultrasound-based device. Norland has rights to an ultrasound densitometry scanner, called Paris, that is under development by Canadian vendor IMRO (SCAN 9/17/97).

Each of the three devices uses very low frequency ultrasound waves, transmitted through the heel bone, to indicate bone density. Unlike conventional ultrasound, in which images are the result of sound waves bouncing off tissue, densitometry ultrasound systems deliver measurements on the basis of how well sound travels through bone. Prices of the units are expected to be under $25,000, low enough that private practitioners will be tempted to buy them. These systems should be especially attractive to private practitioners because many states do not require radiologic training to operate ultrasound devices. The products, designed with that in mind, will be easy to use. Sahara and Achilles, for example, are operated with the push of a single button.

"As quantitative ultrasound moves into the primary-care arena, it's a matter of having something that is very easy and convenient to use in the private office, but still gives a very reliable measurement," said Gerry Mitchelmore, ultrasound product manager at Lunar.

The expansion of these low-cost products is not seen as a threat to the sale of high-end, more costly axial scanners, because the data will be used for different purposes. Axial x-ray scanners would be used for rendering definitive diagnoses, while ultrasound systems would be relegated mostly to screening or following the progress of patients on drug therapy. As such, the introduction of these ultrasound products promises to spark new demand and perhaps bring the industry back to double-digit growth, executives said.

Another possible boost for bone densitometry companies could come from the National Osteoporosis Risk Assessment (NORA) study, a huge program launched by Merck to build a database of 500,000 women to promote increased use of bone- mass measurement (see story, page 5). NORA could lead to a short-term boom in equipment sales as physicians buy systems to participate in the study, and a long-term benefit if the program supports more frequent use of bone densitometry.

Bone densitometry makers received more good news last week when a group of congressional representatives introduced legislation designed to reduce the prevalence of osteoporosis. The bills are designed to increase funding for osteoporosis research, expand bone health and osteoporosis education programs, and improve access and reimbursement for bone-mass measurement tests. The bills were introduced by Representatives Connie Morella (R-MD), Carolyn Maloney (D-NY), Eddie Bernice Johnson (D-TX), and Lynn Woolsey (D-CA).

Morella's bill would require the Federal Employee Health Benefit Program (FEHBP) to include coverage of bone-mass measurement tests, while Maloney's bill would require private insurers in all states to cover bone density exams. Johnson's bill would increase funding for osteoporosis research at the National Institutes of Health by $50 million, while Woolsey's legislation would expand funding for public education on bone health and osteoporosis.