Is Lincare 'close to bottoming out'?

Sunday, May 31, 2009

CLEARWATER, Fla.--You know its tough out there when even a profit machine like Lincare coughs up bad news. The national provider reported in May a 10.5% drop in revenues for the first quarter of 2009, blaming Medicare reimbursement cuts and the 36-month oxygen cap.

“Lincare is the most efficient operator in the business and they are operating at about 10% (margin),” said Rick Glass president of Steven Richards & Associates, a Tarpon Springs, Fla.-based M&A firm. “Common sense says this has to be close to bottoming out. I don’t know how long (anyone) can provide these services with those kinds of returns.”

Lincare’s first-quarter revenues were $371.7 million, down from $415.4 million for the same period in 2008.

“This is the first time in a long time I remember them having a decrease in revenues,” said Bruce Burns, president of Albuquerque, N.M.-based Affinity Ventures, an M&A firm. “But they are extremely heavy in Medicare and oxygen, and I would bet the cap affected them more than the 9.5% cut.”

The drop was not a surprise to analysts or to Lincare, which in February predicted the full-year impact of the cuts to be between $240 million to $255 million.  The impact of the cuts will continue to ripple among providers large and small, analysts say.

“People have been scrambling to take as much cost out of doing business as they can,” said Bob Leonard, an analyst with Pittsburgh-based M&A firm The Braff Group. “You get to the point where there’s not much left.”