Wheelchair Profiteering, Part III: The Strategy of Ultra-Customization – Erik Kondo

In Part II, I expanded on the money making strategy of Ultra-Commoditization. While this strategy is effective, it pales in comparison to Ultra-Customization.

As a profit generating strategy, Ultra-Customization is far superior. Your end goal is to sell products with the greatest profit margins to as many wheelchair users as possible. Profit margin is defined as Sales Revenue-Production Cost. Therefore, increasing the Production cost is acceptable as long as the Sales Revenue increases to a greater degree.

For example, if I use more expensive materials that double my material cost from $500 to $1,000, but I increase my sales price from $1,000 to $2,000. I am now making $500 more per sale. If my fabrication costs increase from $1,000 to $2,000, but my sales price increases from $2,000 to $4,000, my profit per sale increases another $1,000. Example:

• Wheelchair #1 = $500 in materials + $1,000 in labor. Sells for $2,000. Profit = $500.

• Wheelchair #2 = $1,000 in materials + $2,000 in labor. Sells for $4,000. Profit = $1,000.

• Wheelchair #3 = $2,000 in materials + $3,000 in labor. Sells for $8,000. Profit = $3,000.
  

Using the above examples, Wheelchair #3 clearly has the highest profit margin per sale.

All things being relatively equal, in a free market, there would be the most sales of Wheelchair #1 and the fewest sales of Wheelchair #3 due to the pricing structure. But wheelchair sales are NOT a free market.

The goal of Ultra-Customization is to get wheelchair users to buy Wheelchair #3, rather than Wheelchair #2 or Wheelchair #1. In a free market, Wheelchair #3 would likely be the most desirable wheelchair due to its purposely designed high quality characteristics (and associated high price). But wheelchair sales are NOT a free market.

Did I mention that wheelchair sales are not a free market? The influence of health insurance reimbursement both establishes a pricing floor and also creates strong incentives to upsell more reimbursable components (desirable or not) . Note wheelchair sellers that don’t accept insurance don’t have these same incentives. But they are competing against companies that do which influences their products and prices. In the real world, Wheelchair #3 not just a wheelchair. It is a “wheelchair system” comprised of multiple insurance reimbursable components which is must justify its high cost so that health insurance (or wealthy cash customers) will pay for it. In other words, Wheelchair #3 is the best one to SELL, but not necessarily the best one to BUY. The current evolution of wheelchairs by for-profit companies is driven not by their performance characteristics, but by their profitability characteristics disguised as “must have” performance characteristics. Here is how the price gets so high.

For example, I have private health insurance with a 30% copay for durable medical equipment. Therefore, a $10,000 wheelchair will cost me $3,000. A $5,000 wheelchair will cost me $1,500. The goal of the Ultra-Customization strategy is to convince me to purchase the $10,000 wheelchair and also convince my insurance company to pay $7,000 for my wheelchair.

Assuming my insurance company, like most, follows the lead of Medicare billing codes, it will allow for a certain amount per billing code. The code for an ultra-light wheelchair is K0005. In Massachusetts, the allowable amount is $2,458. This amount is a long way from $10,000. So how do we get there?

Remember, I am not buying just a wheelchair. I am buying a “wheelchair system”. If my wheelchair system only contains K0005, then only $2,458 is allowable. Therefore, the strategy is to add as many billable codes as possible to the “wheelchair system” such that the total allowable is at least $10,000. All of these add-on codes must be deemed medically necessary. Therefore, my insurance needs to be convinced and also, I need to be convinced that I require them for my health and wellness. Afterall, if I stick with the basic K0005 ultra-light wheelchair, my copay will be 30% of $2,458 = $737, a reasonable amount.

Let’s assume, we add the following reimbursable upgrades to my “wheelchair system”:

· K0038 = $27 – Calf strap

· K0040 = $86 – Adjustable angle footplate

· K0108 = $300 – Sideguards/finders (unspecified accessory code)

· K0065 = $118 – Spoke protectors

· E2207 = $218 – Crutch holder

· E2611 = $233 – Back upholstery

· E2613 = $450 – Back Cushion

· E2620 = $627 – Rigid Back support

· E1015 = $272 – Two shock absorbing casters

· E2219 = $98 – Two caster wheels

· E2231 = $153 – Solid seat pan

· E2624 = $383 – Positioning and skin protection cushion

· E0961= $66 – Two wheel lock extensions

· E0971 – $116 Two anti-tippers

· E0973 = $198 – Two detachable armrests

· E0978 = $49 – Seat belt

· E2211 = $109 – Two tires

· E2212 = $15 – Two inner tubes

· E2213 = $81 – Two tire inserts

Total is $3,497

These add-ons have increased the insurance allowable amount by $3,599. Therefore, the total for my wheelchair system is now $6,057. My copay has now increased to $1,817.

We are still a long way from $10,000. Next comes the upselling of items not necessarily paid for by insurance. These items have no associated Medicare code.

· Performance wheels - $1,500

· Ergonomic pushrims - $500

· Custom frame paint - $500

· Various frame upgrades such as front end tapering, ergo seating, etc. - $400

· Fold down push handles - $200

· Upgraded cushion - $300

· Carbon fiber sideguards/fender upgrade - $280

· Caster wheel upgrade - $150

· Titanium quick release axles - $175

Total = $4,005.

Total price of the wheelchair system is now $10,062. My copay is $3,019.

There is no reason for the For-Profit Wheelchair Industry that also manufactures and sells a power assist devices to stop here at $10K. The insurance reimbursement allowed for a power assist is $8,398 (code E0986).

Permobil sells the Smartdrive for $8,000+ depending upon the extras you choose. Sunrise Medical sells the Extender for at least $9,000. These devices likely have profit margins in the thousands of dollars per device. Permobil places the Smartdrive at the very beginning of its wheelchair order forms to highlight its “importance”.

Assuming I get a Smartdrive, my wheelchair system is now $18,062. My copay is now $5,419.

The above is how the price of an ultra-light wheelchair goes from $2,458 to $18,062, and my associated copay went from $737 to $5,419. There is not a lot of profit in selling a $2,500 wheelchair, but there is by selling a $18,000 wheelchair system.

The Need for Justification

The justification for all of these customization upgrades requires taking the position that they are all medically necessary or somehow critical for optimum wheelchair performance (maybe there are and maybe they are not). Therefore, it is imperative for the wheelchair system to be seen as something incredibly complex that only the “experts” can understand and advise upon. Comparing the wheelchair to a prosthesis mentally anchors the wheelchair to both a very high price point and also the need for medical expertise.

It makes sense that a prosthesis must be “made to measure” and fit perfectly. A prosthesis is a replacement for a body part that must be snuggly anchored to the body. On the other hand, a wheelchair is an external mobility device that is more like a bicycle. There is no perfect bicycle fit and there is no perfect wheelchair fit. The optimum fit will depend upon how these mobility devices are used, and the environment in which they are used. These factors will change and vary over time, terrain, weather conditions, skill acquisition, and clothes/body size fluctuations.

Custom “made to measure” wheelchairs and the “wheelchair is a prosthesis” analogy are marketing strategies that are part of the Ultra-Customization methodology that is designed to justify expensive manufacturing methods and materials in the name of increased user health and performance. And as marketing selling points, they work really well.

Note: Customizable/adjustable is not the same as custom. It is possible to widely produce customizable wheelchairs (properly fitted and optimized) much cheaper than one-at-a-time created custom wheelchairs.

In a world of unlimited resources, my clothes would be custom made. My car would be custom made. My house would be custom made. So would all my furniture and recreational equipment. The list is endless. But almost everyone’s resources are limited. If someone knowingly wants an ultra-customized wheelchair, they should have the opportunity to buy one. But they shouldn’t be duped (or strongarmed) into putting their limited resources into purchasing a style of wheelchair that is much more beneficial for the for-Profit Wheelchair Industry to sell than it is for them to buy.