AWP cuts zap supplier revenues

Sunday, April 25, 2004

April 26, 2004

YARMOUTH, Maine - Respiratory medication providers in their first quarter earning statements reported the first, bruising blows of the 15% reimbursement reduction for drugs such as albuterol and ipratropium.
The reimbursement rate that took effect Jan. 1 whittled Lincare’s first quarter revenues by more than $12 million and cut Apria’s by $9 million. Both providers, however, did declare an overall increase in revenues - 16% and 5% respectively when compared to the same quarter last year.
"We took a hit," said Todd Christopher, CEO of privately held Home Care Supply. "We would have had a better first quarter obviously had we not been hit by the cuts, but the bigger concern is not these cuts but the uncertainly of 2005."
Although this year's cuts have taken their toll, providers consider 2005's average sales price plus 6% reimbursement model Public Enemy No. 1. Lincare predicted in an annual report filed with the SEC that the ASP provision, if implemented, could result in an 80% cut in reimbursement under 2004 rates.
"I've seen 6-point plans and new programs left and right, but I have never seen anything like this that left unchanged would totally blow up a distribution channel," said Christopher.
Home Care Supply will consider exiting the respiratory business if the current ASP model takes effect, added Christopher. In its annual SEC report, Apria echoed this, saying it would begin withdrawing from the business as early as the third quarter.
Despite the upcoming setbacks, Lincare considered this month's earnings report a positive. Net earnings for the quarter were $62.9 million compared with $52.9 million in 2003, and the company's shares climbed 9% after the report was released.