The State of HME: Demographics, Figures & Projections Affecting the

HME Industry

Compiled and Edited by Mark J. Higley, VGM GroupAugust, 2003

Age

The growth of the population age 65 and older affects every aspect of our society, presenting challenges as well as opportunities to our policymakers, families, businesses, and, of course, homecare providers. Here’s some detail:

There are an estimated 36 million people age 65 or older in the United States, accounting for almost 13 percent of the total population. The number of older Americans has increased more than ten-fold since 1900, when there were 3 million people age 65 or older (4 percent of the total population).

Despite the growth of the older population, the United States is a relatively young country when compared with other developed nations. In many industrialized countries, older persons account for 15 percent or more of the total population.

In 2011, the “baby boom” generation will begin to turn 65, and by 2030, it is projected that one in five people will be age 65 or older. The size of the older population is projected to double over the next 30 years, growing to 70 million by 2030.

As in most countries of the world, there are more older women than older men in the United States, and the proportion of the population that is female increases with age. In 2000, women are estimated to account for 58 percent of the population age 65 and older and 70 percent of the population age 85 and older.

The population age 85 and older is currently the fastest growing segment of the older population. An estimated 2 percent of the population is now age 85 and older. By 2050 the percentage in this age group is projected to increase to almost 5 percent of the U.S. population, or about 19 million. Some researchers predict that death rates at older ages will decline more rapidly than reflected in the Census Bureau’s projections, which could result in faster growth of this population. The size of this age group is especially important for the future of the homecare industry, because these individuals tend to be in poorer health and require more services than the younger old.

As you would expect, the proportion of the population age 65 and older varies among states. This proportion is partly affected by the state mortality rate and the number of older persons who migrate to a state. It is also affected by the number of younger persons who move to other states. Today, the states with the highest proportions of older persons are Florida, West Virginia, Pennsylvania, Iowa, and North Dakota.

From 1950 to 2000 the total resident population of the United States increased from 150 million to 281 million representing an average annual growth rate of about 1 percent. During the same time period, the elderly population (65 years of age and over) grew twice as rapidly. Projections indicate that the total population will increase more slowly over the next 50 years and the elderly population will increase more rapidly.

There are about 65,000 people age 100 or older in 2000, and the number of centenarians is projected to grow quickly so that there may be as many as 381,000 by 2030!

During the past 50 years, the U.S. population has grown older. From 1950 to 2001 the percent under 18 years of fell from 31 percent to 26 percent while the percent elderly rose from 8 percent to 12 percent. From 2002 to 2050 a small decline in the percent of the population under 18 years of age is anticipated, while a sizeable increase in the percent elderly is expected. As the ‘‘baby boom’’ generation turns 65, beginning in 2011, the size of the elderly population will grow substantially. By 2050 it is projected that one in five Americans will be elderly.

Today Americans enjoyed the longest life expectancy in U.S. history – almost 77 years. The life expectancy of men is 74 years and for women almost 80 years. A century earlier, life expectancy was 48 years for men and 51 years for women.

Men and women who reach age 65 now live, on average, to ages 81 and 84, respectively. For older Americans, the increase in life expectancy is largely due to the sharp drop in deaths from heart disease and stroke.

U.S. HME (DME) Expenditures

Overall, Americans spent $1.3 trillion on health care in 2000, or 13.2 percent of the gross domestic product, far more than any other nation.

Approximate national health expenditures are as follows: one-third of every health care dollar was spent on hospital care, one-fifth on physicians, one-tenth on prescription

drugs, and about 1.5% on home medical equipment and supplies. Most certainly, the aging of the population has important consequences for our homecare industry. As the elderly fraction of the population increases, more homecare equipment and services will be required for the treatment and management of chronic and acute health conditions.

Note that estimated HME expenditure increases, by percentage, for 2010 remain relatively constant with hospital and nursing home projections, or about an increase of 70 – 80%. This is equal to an estimated a $32 billion projection.

2010 2000 1990 1980Total NHE $2,639,226,000,000 $1,299,463,000,000 $695,999,000,000 $245,758,000,000Hospital $737,280,000,000 $412,103,000,000 $253,918,000,000 $101,549,000,000Physician $559,442,000,000 $286,439,000,000 $157,539,000,000 $47,073,000,000Home Health Care $66,379,000,000 $32,426,000,000 $12,567,000,000 $2,378,000,000Prescription Drugs $376,006,000,000 $121,808,000,000 $40,290,000,000 $12,049,000,000Nursing Home $157,401,000,000 $92,247,000,000 $52,705,000,000 $17,674,000,000HME $32,109,000,000 $18,537,000,000 $10,606,000,000 $3,863,000,000

NHE - PROJECTED INCREASE 2010Total NHE 103.10%Hospital 78.91%Physician 95.31%Home Health Care 104.71%Rx Prescription Drugs 208.69%Nursing Home 70.63%HME 73.22%

National Health Expenditures and Selected Economic Indicators, Levels and Average Annual Percent Change:

Calendar Years 1980-2011 

  Projected

Item 1980 1990 1995 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

National Health Expenditures (billions) $245.8 $696.0 $990.3 $1,149.8 $1,215.6 $1,299.5 $1,423.8 $1,545.9 $1,653.4 $1,773.4 $1,902.2 $2,036.6 $2,174.9 $2,320.0 $2,476.1 $2,639.2 $2,815.8

National Health Expenditures as a % of GDP 8.8 12.0 13.4 13.1 13.1 13.2 14.0 14.7 15.0 15.3 15.6 15.8 16.1 16.3 16.5 16.8 17.0

National Health Expenditure Per Capita $1,067 $2,738 $3,698 $4,177 $4,377 $4,637 $5,039 $5,427 $5,757 $6,126 $6,519 $6,926 $7,338 $7,768 $8,228 $8,704 $9,216

Gross Domestic Product (billions) $2,795 $5,803 $7,400.5 $8,781.5 $9,268.6 $9,872.9 $10,201. $10,509. $11,043. $11,612. $12,227. $12,880. $13,546. $14,247. $14,984. $15,754. $16,589.

Gross Domestic Product (billions of 1996 $) $4,900 $6,707 $7,543 $8,508. $8,856. $9,224. $9,316. $9,381. $9,622. $9,855. $10,086. $10,309. $10,516. $10,727. $10,943. $11,159. $11,398.

Gross Domestic Product Implicit Price Deflator 0.570 0.865 0.981 1.032 1.046 1.070 1.095 1.120 1.148 1.178 1.212 1.249 1.288 1.328 1.369 1.412 1.455

Consumer Price Index (CPI-W) - 1982-1984 base 0.824 1.307 1.524 1.630 1.666 1.722 1.773 1.824 1.878 1.936 1.998 2.064 2.132 2.202 2.275 2.350 2.428

HCFA Implicit Medical Price Deflator 0.377 0.775 0.971 1.044 1.073 1.109 1.152 1.196 1.239 1.285 1.334 1.386 1.440 1.496 1.556 1.618 1.683

U.S. Population (millions) 230.4 254.2 267.8 275.2 277.7 280.2 282.5 284.9 287.2 289.5 291.8 294.1 296.4 298.7 300.9 303.2 305.5

Population age less than 65 years 204.6 222.7 233.9 240.5 242.9 245.1 247.3 249.5 251.6 253.6 255.6 257.5 259.3 260.9 262.5 264.2 265.7

Population age 65 years and older 25.8 31.5 33.9 34.7 34.9 35.1 35.2 35.4 35.6 35.9 36.2 36.5 37.1 37.7 38.4 39.0 39.8

SOURCE: Centers for Medicare & Medicaid Services, Office of the Actuary.

HME Expenditures Aggregate and per Capita Amounts, Percent Distribution and Average Annual Percent Change by Source of Funds:

Selected Calendar Years 1980-2011

 

Year  Total

Out-of-Pocket Payments

Third-Party Payments

Medicare MedicaidTotal

Private Health Insurance

Other Private Funds

Public

Total Federal

State and Local

Historical Estimates Amount in Billions

1980 $3.9 $2.7 $1.1 $0.6 -- $0.5 $0.4 $0.1 $0.3 --

1990 10.6 6.9 3.7 1.5 -- 2.2 2.0 0.1 1.8 --

1995 14.2 7.7 6.5 2.6 -- 4.0 3.8 0.1 3.5 --

1998 16.5 8.6 7.9 3.1 -- 4.8 4.7 0.1 4.2 0.0

1999 17.6 9.1 8.4 3.4 -- 5.1 4.9 0.2 4.4 0.0

2000 18.5 9.6 8.9 3.6 -- 5.3 5.1 0.2 4.6 0.0

Projected

2001 19.9 10.2 9.6 4.0 -- 5.7 5.5 0.2 4.9 0.0

2002 21.1 10.9 10.2 4.2 -- 5.9 5.7 0.2 5.1 0.0

2003 22.2 11.5 10.8 4.4 -- 6.3 6.1 0.2 5.4 0.0

2004 23.5 12.1 11.4 4.7 -- 6.8 6.5 0.2 5.8 0.0

2005 24.8 12.7 12.1 4.9 -- 7.2 7.0 0.2 6.2 0.0

2006 26.0 13.2 12.8 5.1 -- 7.7 7.5 0.2 6.7 0.0

2007 27.3 13.8 13.5 5.2 -- 8.3 8.0 0.2 7.2 0.0

2008 28.7 14.4 14.3 5.4 -- 8.9 8.6 0.3 7.8 0.0

2009 30.4 15.1 15.3 5.7 -- 9.6 9.3 0.3 8.5 0.0

2010 32.1 15.8 16.3 5.9 -- 10.4 10.1 0.3 9.2 0.0

2011 33.9 16.5 17.3 6.1 -- 11.2 10.9 0.3 10.0 0.0

SOURCE: Centers for Medicare & Medicaid Services, Office of the Actuary.

Miscellaneous U.S. Health “Quick Facts”

Three in five adults ages 20-74 are overweight. One in four Americans is considered obese. Almost 40 percent engaged in no physical activity during leisure time, and women were more sedentary than men. One in 10 Americans age 45-54, 1 in 5 of those 55-64 years, 1 in 4 of those 65-74 years, and 1 in 3 of those 75 years and over reported being in fair or poor health.

Hospital stays keep getting shorter: just 4.9 days on average in 2000. Twenty years ago patients spent more than 7 days in the hospital. Sixty-three percent of all surgeries now are performed as outpatient procedures, with patients being sent home after a short stay in a recovery room. A decade earlier, one-half of all surgeries were on outpatients. In 1980 only 16 percent were done on outpatients.

Federal and State government programs – principally Medicare and Medicaid – paid 43 percent of all medical bills. Private insurance covered 35 percent, and other private sources paid 5 percent. Consumers paid 17 percent out of their own pockets.

Major HME Markets.

The Respiratory Market

CMS figures project that during the next decade millions of baby boomers will reach Medicare age. Between now and when the first baby boomer turns 65, however, Americans will report more than 170 million new cases of asthma and as many as 150 million cases of bronchitis, according to the National Center for Health Statistics in Hyattsville, Md. More than 2 million Americans currently receive some type of oxygen therapy at home.

According to a new report from the market research firm Kalorama Information, the current $464.5 million industry should grow at an annual rate of 7.8 percent during the next four years, and will reach an annual revenue of $677.4 million by 2006.

VGM member Mike Kuller, president of Allstar Oxygen Services in Concord, Calif., was recently interviewed by an industry publication. In the article, Mike suggested that the Kalorama study might be selling the market's potential short. “I see tremendous growth driven by an aging population, so I think that [Kalorama's] statistics are probably underestimated”, he noted. Further Mike pointed out that Allstar's CPAP population has grown 50 percent during the past six months, and his oxygen patient population has grown 30 percent. Other VGM members who have reviewed the report suggest that Kalorama is underestimating the size and growth potential of the oxygen market, and that could be affecting the firm's overall growth predictions. Despite insisting that oxygen patients' desire for mobility is a primary force driving revenue in the home respiratory equipment market, Kalorama predicts only modest growth for portable oxygen systems: 3.2 percent annually between now and 2006.

Generally, the firm's predictions for oxygen concentrators are positive. Recovering from the 1997 reimbursement cuts that drove down prices, the oxygen concentrator market may see a 7.3 percent annual growth between now and 2006, according the report.

The home respiratory market is growing steadily, “as the forces driving this market overshadow reimbursement woes, predicting growth for a market that includes devices to treat sleep-disordered breathing may be nearly impossible right now”, suggest industry experts.

While as many as 12 million Americans suffer from sleep apnea, 80 percent to 90 percent of these people have not yet been clinically diagnosed. Awareness about the far-reaching implications of sleep apnea is increasing, and government research findings recently

prompted Medicare to extend the coverage of CPAP devices to include mild and moderate sleep apnea.

Also driving the ventilator market is the trend toward sending hospital ventilator patients home sooner. Some managed care organizations are setting a limit of five weeks of hospitalization for a ventilated patient. For the ventilator market, these developments mean rapid growth, to 10.2 percent annually during the next four years. In 2002, the market approximated $116.8 million; by 2006, $189.8 million, according to Kalorama.

The Mobility Market

The mobility market is one of the largest in our industry. Market research firm Frost & Sullivan is predicting that, by 2008, the mobility market will generate more than $1 billion in annual revenue, an increase of $244 million, or 23.4 percent, from the $766 million in revenue generated in 2001.

In addition, the mobility market is one of the most expansive as well — from manual and power wheelchairs, to walkers and rollators, to scooters and ramps, not to mention the companion product category of seating and positioning, which is large in its own right.

Infusion

Growing at an annual rate of 10.3 percent, the U.S. infusion products market should, between now and 2006, outpace all other home care segments, also according to a recent report from Kalorama Information.

The report, entitled "The U.S. Market for Home Care Products," defined infusion products as ambulatory infusion pumps, nutritional supplements and pharmaceuticals, and said that, in 2001, these products generated a revenue of $815 million. Consequently, if Kalorama's growth predictions are correct, infusion products will generate a revenue of $1.33 billion in 2006, more than the respiratory and mobility markets combined.

Outlook

At VGM, we believes that sales of HME products will continue to grow during the next decade as a result of several factors, including:

Favorable Business Conditions. Interest rates are the lowest in years. Capital intensive HME businesses require credit. In 2001, a full Cost of Living Allowance was implemented. And, the recent approval of the ABN process allows new choices for consumers and additional opportunities for providers.

Growth in population over age 65. The nation's overall life expectancy continues to increase, and the current life expectancy based on 2001 data is now an all-time high of approximately 76.7 years. More than 13% of the U.S. population is 65 or older, and this percentage is expected to increase to 20% by 2030. The over-65 age group represents the vast majority of home health care patients and continues to grow. A significant percentage of people using home and community-based health care services are also 65 years of age and older.

Treatment trends. We believe that many medical professionals and patients will continue to prefer home health care over institutional care. Homecare results in greater patient independence, increased patient responsibility and improved responsiveness to treatment because familiar surroundings are conducive to improved patient outcomes. Health care professionals, public payers and private payers agree that home care is a cost effective, clinically appropriate alternative to facility-based care. Recent surveys show that approximately 70% of adults would rather recover from accident or illness in their home, while approximately 90% of the older population showed preference for home-based long-term care.

Technological trends. Technological advances have made HME increasingly adaptable for use in the home. Current hospital procedures often allow for earlier patient discharge, thereby lengthening recuperation periods outside of the traditional institutional setting. In addition, continuing medical advances prolong the lives of adults and children, thus increasing the demand for home medical care equipment.

Healthcare cost containment trends. As noted, spending on health care in the U.S. totals $1.3 trillion dollars, approximately 13% of the Gross Domestic Product (GDP), the highest among industrialized countries. In 2007, the nation's health care spending is projected to increase to $2.1 trillion; averaging annual increases of 7%. Over this same period, spending on health care is expected to increase to approximately 17% as a share of GDP. The rising cost of health care has caused many payers of health care expenses to look for ways to contain costs. Home health care has gained wide-spread acceptance among health care providers and public policy makers as a cost effective, clinically appropriate and patient preferred alternative to facility-based care for a variety of acute and long-term illnesses and disabilities. Home health care and home medical equipment will play a significant role in reducing health care costs.

Society's mainstreaming of people with disabilities. People with disabilities are part of the fabric of society, and this has increased, in large part, due to the Americans with Disabilities Act, which became law in 1991. This legislation provides mainstream opportunities to people with disabilities. The Americans with Disabilities Act imposes requirements on certain components of society to make reasonable accommodations to integrate people with disabilities into the community and the workplace.

The percentages of people with disabilities increase sharply with age (Figure 8). Disability takes a much heavier toll on the very old. Almost three-fourths (73.6%) of those aged 80+ report at least one disability. Over half (57.6%) of those aged 80+ had one or more severe disabilities and 34.9% of the 80+ population reported needing assistance as a result of disability. There is a strong relationship between disability status and reported health status. Among those 65+ with a severe disability, 68.0% reported their health as fair or poor. Among the 65+ persons who reported no disability, only 10.5% reported their health as fair or poor. Presence of a severe disability is also associated with lower income levels and educational attainment.