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Finance:

Medicare Cuts Signal Hard Times For Entire Industry

Published on Thu Apr 22, 2004

Medicare reductions cost Lincare $12.3 million in the first quarter.

Lincare Holdings Inc. saw earnings climb in the most recent quarter, despite a bite out of Medicare payments.

The Clearwater, FL-based respiratory equipment giant reports a 16 percent increase in revenues to $306.9 million for the quarter ended March 31, beating analysts' projections. Lincare's net income increased to $62.9 million, compared to $52.9 million in the same period of 2003.

Those stellar figures were despite Medicare payment rate cuts that reduced revenues by $12.3 million during the quarter.

The company completed the acquisition of three companies in Arizona, California and Missouri, with combined revenues of $3 million, during the quarter. And it opened 12 new locations from internal expansion, it says. That brings Lincare's total locations to 745 in 47 states.

American HomePatient Inc. also saw an earnings increase for the quarter ended Dec. 31, a 6 percent rise to $86.9 million. The Brentwood, TN-based respiratory, infusion and home medical equipment company emerged from bankruptcy last July.

Warning: AHP warned of tough times ahead for respiratory and HME suppliers in its earnings announcement. Reducing nebulizer drugs' Medicare payment rates from 95 percent of average wholesale price to 80 percent of AWP Jan. 1 was bad enough (see Eli's HCW, Vol. XIII, No. 1). But future payment changes could be disastrous.

Next January, the drugs' rates will switch to average selling price plus 6 percent. "As this 2005 reimbursement rate will not cover the cost of providing inhalation drugs, management believes that the Company and other providers of inhalation drugs will exit the inhalation drug business," AHP warns. That will mean beneficiaries could have a hard time obtaining needed medications and therapies, it says.

And the Medicare Modernization Act didn't end its changes with drugs. It also will reduce a number of durable medical equipment items to Federal Employee Health Benefit Plan payment rates and freeze inflation updates for all DME (see Eli's HCW, Vol. XII, No. 43).

Plus, President Bush in his fiscal year 2005 budget proposes eliminating the capped rental program, AHP protests.
 
"If this provision of the budget is approved, the fourteenth and fifteenth month rental and semi-annual maintenance payments" for capped DME "would be eliminated," says the company, which has 286 locations in 35 states.

Other earnings news includes:

  • Invacare. "Slower sales of consumer power products, resulting from the tightening by the Centers for Medicare and Medicaid Services (CMS) of power wheelchair eligibility rules for seniors and people with disabilities, were more than offset by increased sales of custom power products," Invacare Corp. says in its earnings release for the quarter ended March 31.

    The Elyria, OH-based wheelchair manufacturer and supplier saw sales of respiratory products increase 38 percent, "standard" products decrease by 11 percent, and rehab products increase 22 percent. Invacare reported $15.2 million in earnings on $321.3 million in revenues for the quarter.

  • Rotech. Rotech Healthcare Inc. has adjusted downward its 2003 earnings due to reevaluated debt costs, it says in an April 14 release. The Orlando, FL-based respiratory and HME company has shaved $1.3 million off its 2003 earnings, bringing the figure to an $8.4 million profit for the year.

    Rotech, which has 500 locations in 48 states, had to ask for an extension on its annual 10-K filing with the Securities and Exchange Commission to complete the reevaluation.

    Rotech recently inked a $25 million deal with Melville, NY-based Gentiva Health Services to furnish respiratory therapy and HME to Gentiva CareCentrix managed care clients in 33 states, and to furnish CPAPs and sleep apnea products to patients in 48 states (see Eli's HCW, Vol. XIII, No. 10).

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