Analysts cautiously bullish about oxygen cut

January 10, 2005 BALTIMORE - Buoyed by a CMS decision Dec. 15 to delay announcement of the size of the Medicare oxygen cuts until the OIG seeks clarifications of data from FEHBP plans, a critical mass of Wall Street analysts predicted a lower-than-expected reimbursement cut for oxygen. “We believe this [delay] is likely to result in a 2005 Medicare oxygen cut closer to 5% than 10%,” wrote Legg Mason analysts Jerry L. Doctorow and Eric T. Gommel in a report published Dec. 17.  On the same day, Wachovia upgraded its assessment of Lincare's financial outlook. Three weeks later, both Lincare and Apria share prices are up a few percentage points over where they were before CMS issued notification of its delay. The industry, meanwhile, remains cautiously bullish. While nearly every one agrees the delay was a positive for suppliers of home oxygen, some are less aggressively positive than others. At Pacific Growth Equities in Boston, analyst Balagi Ghandi is about half as optimistic as the Legg Mason analysts. “I feel as if there's a double count going on,” he said. Initially, Ghandi's analysis of the OIG's recommendations about federal employee health benefit plan pricing portended a 15% oxygen cut. Some weeks later, CMS health insurance specialist Joel Kaiser's remarks at an Open Door meeting pointed toward an 11% cut for stationary oxygen and a 7% cut for portable oxygen. “To allow for his 7% and 11%, and then take another 500 basis points off of that seems like double-counting,” said Gandhi. “I think we're talking about 100 to 200 basis points being the gap.” Late last week, the OIG declined to update progress on its review of FEHB plans payment information for portable oxygen. Some in the industry believe the OIG will be hard-pressed to complete its work by Jan. 15. “I think it's going to beyond the deadline of Jan. 15,” said one industry insider. “I suspect they will get close to that date, but they won't have enough data, and they'll keep the reimbursement where it is.”