Lincare versus Apria: Who has better strategy?

Monday, March 31, 2008

By the numbers
Lincare and apria both reported revenues of $1.6 billion for 2007. But Lincare’s net income was $226 million to Apria’s $86 million.

Lincare and Apria finished 2007 neck-and-neck, both reporting in February $1.6 billion in revenues for the year. The specter of additional cuts to home oxygen therapy, however, has industry watchers wondering whether either of the two HME giants, which differ vastly in product and payer mixes, is in a better position moving forward.
Because Lincare continues to rely on oxygen and Medicare for the bulk of its revenue, it’s more vulnerable to the possibility of additional oxygen cuts, industry watchers said. Those cuts could take the shape of a reduction in reimbursement or a reduction in the 36-month cap.
Apria, which relies on a diversity of products (HME, oxygen, home infusion) and payers (Medicare, managed care), appears more insulated from the possible cuts, industry watchers said.
“If Medicare takes another hit this year, Apria would definitely be less affected than Lincare—that’s the good news for Apria,” said Bob Leonard, an analyst for the Pittsburgh-based The Braff Group. “The bad news: They’re not as profitable today.”
Even though their revenues were the same for 2007, Lincare reported a net income of $226.1 million for the year, while Apria reported a net income of $86 million. What does that mean?

While the industry doesn’t make a practice of announcing it, oxygen and Medicare are still two of the most profitable products and payers, watchers said.
That’s why Lincare may be making the right decision by trying to squeeze as much out of oxygen and Medicare as it can, while it can, industry watchers said.
“If you can get $200 for an oxygen concentrator from Medicare, why would you run to get $88 for a concentrator from other insurers” said Rick Glass, president of the Tarpon Springs, Fla.-based Steven Richards & Associates. “If Medicare lowers its rate to $88, then you can run after other insurers. Lincare’s certainly more exposed to a cut right now, but if there is a cut, they’re still in as good as shape as Apria.”
Time (and whether the proposed oxygen cuts materialize) will tell, industry watchers said.
“The cuts wouldn’t be easy for anyone,” Leonard said. HME