Medicare cuts decrease earnings for Apria, Lincare

Sunday, April 24, 2005

WASHINGTON -- Medicare reimbursement cuts for respiratory meds and other DME items that began Jan. 1 took a bite out of first quarter net income for Apria (down $2.6 million) and Lincare (down $8.3 million) compared to the same period last year. Nevertheless, officials at both nationals expressed confidence last week in their companies' ability to grow and operate effectively despite the reductions.

"We are well positioned to absorb the significant reductions in Medicare pricing for our services in 2005," said Lincare CEO John Byrnes. "Our operating centers experienced strong customer growth in the first quarter and our acquisition program is off to a good start in 2005."

Commented Apria CEO Lawrence Higby: "We are very pleased by the strong sales growth in the first quarter despite the Medicare reductions. We are also encouraged by positive trends in our revenue metrics, such as patient census and starts."

For the quarter ended March 31, 2005, Lincare's revenues were $305.2 million, a 1% decrease from revenues of $306.9 million for the first quarter of 2004. Apria's revenues were $371.9 million in the first quarter, a 6% increase over revenues of $350.9 million for the first quarter in 2004.

Overall, before calculating in the effect of the Jan. 1 Medicare cuts, first quarter revenues from internal sources grew 11.3% over last year, Lincare reported.

Excluding the cuts and a large managed care contract it terminated last year, Apria's revenue growth exceeded 10% in the first quarter, the company reported last week.

During the first quarter, Apria closed seven acquisitions for $28.1 million. Lincare acquired six companies with annual revenues of about $25 million.

During the second quarter, in addition to the Jan. 1 cuts, Lincare and Apria will have to deal with (as will all providers) a Medicare cut for oxygen equipment of 8.7% on average. That reduction took effect April 8, and Lincare estimates it will reduce its revenue by $15 million to $16 million per quarter.

Apria's management now estimates that the EBITDA impact of the Medicare reimbursement reductions and related product pricing changes to be about $45 million for 2005.