Lincare's earnings take big hit

CLEARWATER, Fla. - You know its tough out there when even a profit machine like Lincare coughs up bad news. The national provider reported last month a 10.5% revenue decline during the first quarter of 2009, blaming the fall-off on Medicare reimbursement cuts and the 36-month cap on oxygen.

"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 revenue was $371.7 million, down from $415.4 million a year earlier, the company reported last month.

"This is the first time in a long time I remember them having a decrease in revenues," said one analyst. "But they are extremely heavy in Medicare and oxygen, and I would bet the cap affected them more than the 9.5% reduction."

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 across-the-board reimbursement cuts will continue to ripple among providers large and small, analysts say. But there is only so much room to maneuver.

"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."

With lower reimbursements forcing even the most well run companies to cut to the bone, industry watchers hope CMS will realize there's not too much more they can squeeze out of HME providers.