Nationals look to fill gaps?

Monday, June 30, 2008

It appears that at least one national HME provider plans to boost its competitive bidding winnings by acquiring other contract providers.

In late May, soon after CMS released the contract providers for Round 1, rumors began flying that Clearwater, Fla.-based Lincare had acquired or was in the process of acquiring a big winner in the Miami and Orlando competitive bidding areas with contracts for oxygen and other products.

CMS lists Lincare as a contract provider for oxygen, it’s bread-and-butter, only in Charlotte. (It’s unclear whether Lincare won bids for oxygen under other names. Officials had no comment.)

“That suggests to me that they’re going to be looking to buy,” an industry source said.

During two competitive bidding demonstration projects, industry sources pointed out, Lincare didn’t submit bids. They bought companies that won bids after-the-fact.

Because Lincare won some contracts in Round 1, that wasn’t necessarily the provider’s strategy here, industry sources say.

“They probably made intelligent bids, and they probably didn’t count on not winning this many bids,” said Balaji Gandhi, an analyst with New York-based Oppenheimer & Co. “But, in the end, they couldn’t control what other providers submitted for bids.”

Lincare and others will look to buy “small and cheap” contract providers to fill in gaps, predicts Rick Glass, president of Steven Richards & Associations, a Tarpon Springs, Fla-based M&A firm.

“They’re going to try to buy access into bid areas for as little money as possible,” he said.

But even if Lincare and others have to pay premiums to acquire contract providers-some contract providers believe they’re holding onto gold mines-it still makes sense, industry sources say.

“If Lincare has to pay $3 million for a $1 million company, but it protects $20 million in business, it’s not a bad strategy,” one source said.

Industry sources agree that Lincare and others aren’t without plans.

“I don’t think they’re overly worried about being shut out of competitive bidding,” said Carl Wallman, president of Galaxy Medical in Fort Lauderdale, Fla., part of the Miami CBA. “They have a strategy.”