In the mom-and-pop world of orthotic and prosthetic services, Hanger Orthopedic Group is playing grand marshal.
Instead of rushing out to buy additional O&P practices, the Bethesda, Md.-based company is mobilizing a national network through membership contracts with smaller providers.
Launched in mid-February, Hanger's national O&P network of providers, called Opnet, already boasts 181 members, including its own 86 patient-care centers, and has received another 450 applications. The network, a wholly owned subsidiary of Hanger, has negotiated more than 150 managed-care contracts on behalf of its members, said Ivan R. Sabel, the company's chairman and chief executive officer.
In the highly fragmented O&P industry, Hanger hopes to woo about 500 small, independent shops by year-end and a total of 1,000 in the next two to three years.
Hanger's national managed-care strategy is unique to the O&P industry, in which smaller providers constitute 85% of the market. "It's the first time anyone has tried to network a group of these people together," said one Wall Street analyst who follows the public company on an informal basis and asked not to be identified.
Hanger plans to spend $1 million this year on marketing, administration and other start-up costs but expects a big payoff in incremental income. For an annual fee of $5,400 plus $1,800 per satellite facility, Opnet members get exclusive access in their geographic markets to regional and national managed-care contracts as well as preferred rates on products and supplies. Opnet members who take advantage of the buying discounts will generate incremental income for Hanger, which also manufactures and distributes O&P devices.
"If the additional revenue into the top line then can be translated into bottom-line performance, the stock should rise," the analyst said.
On a pre-tax basis, Sabel expects the buying program to add between 40 and 50 cents to the company's bottom line for each incremental $1 spent on its orthotic components and products, such as knee and spine braces.
Wary of running afoul of any federal regulations, Hanger sought and obtained the U.S. Justice Department's blessing to negotiate with payers for services at its owned and contracted clinics (Nov. 27, 1995, p. 8). "It's turned out to be a significant marketing tool for us," Sabel said.
Before rolling out the new program, Hanger also cleaned up its financial house, cutting expenses and slowing acquisitions. For the year ended Dec. 31, 1995, Hanger recorded net income of $2.1 million, or 26 cents per share, compared with a loss of $2.7 million, or 33 cents per share, in the previous year. Net sales increased 4.3% to $52.5 million.
Hanger was created in 1989 when an investor group bought the original J.E. Hanger company from family members and other private shareholders for about $9 million. The company went public in 1991. Today, shares of Hanger common stock are trading on the American Stock Exchange near their 52-week high of $4.94.