Pending cuts shrink valuations
with Richard Glass
Q. I am worried about the cuts mandated by the Medicare Modernization Act and how it will affect the value of my company. Will the value of my business be adversely impacted? Has there already been a negative effect?
A. The biggest effect on HME valuations thus far relates to the pending 2005 cuts on respiratory medications. Even though it is not yet clear how the new rates will be established, buyers have reacted swiftly in their evaluation of respiratory medication businesses. In a recent sale of a pure play respiratory medication provider, the value was down 60-70% from prior to MMA. And depending on how the bill is ultimately implemented, valuations in this segment could potentially go lower still. Thankfully, most providers revenues are not 100% respiratory medications, and the affect of MMA on your particular company will depend on a number of factors, including your specific product and revenue mix. Respiratory providers without pharmacies have actually experienced rising values over the last six months.
This year may be a good time to explore your options. I view 2003 / 2004 as similar to 1997 /1998, when the industry last faced large cuts. Like then, the demand from buyers is strong and I believe it will remain so into mid-2005, after the reimbursement cuts take effect. You should take this time to review your long term strategy and make sure you aren’t missing a window of opportunity.
Richard Glass is the President of SRA, specializing in the growth and sale of HME/Respiratory companies. 800-813-4984.