Praxair finally gets ‘serious’ about HME

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Tuesday, August 31, 2004

DANBURY, Conn. - Three years ago, some industry insiders watched with amusement as industrial gas giant Praxair moved gingerly in the home medical equipment market, like a swimmer testing the water with his toe.

“If they are going to get serious about home respiratory and the broader HME business, they’ve got to make major acquisitions and not onesies and twosies,” scoffed one guru. “That makes sense for Lincare because they are rounding out their network, but not Praxair.”

Well, thanks to the company’s June acquisition of Home Care Supply - the largest independent HME in the United States - for $245 million, Praxair now provides HME in 27 states. That critical mass will allow Praxair to “accelerate our hospital to home strategy,” said a company official.

While some feel little synergy exists between Praxair’s industrial gas business and home respiratory services, Praxair officials beg to differ. The company provides oxygen and other services to hospitals, and “more and more we are trying to leverage our institutional presence into home care referrals,” said another Praxair source.

Praxair’s strategy calls for maintaining a service mix that is 60% respiratory or greater. With the addition of Home Care Supply, the company’s HME business exceeds that, say company officials.

Approximately 45% of Home Care Supply’s revenue comes from Medicare, and respiratory medications account for less than 10% of its revenue. Praxair doesn’t plan to make additional large acquisitions this year. Instead, officials expect to grow through organic growth, new locations and small add-on acquisitions, according to company officials.

During the next three to five years, Praxair officials expect industry consolidation to continue, “likely at an accelerated pace” due to reimbursement cuts contained in the Medicare Modernization Act. Some M&A experts say the acceleration has already begun: smaller players moving up their exit strategies, and larger companies acquiring market share in an effort to grow through the cuts. (See HME News 08/2004).

As the cuts come into play, companies with large market shares and economies of scale - companies like Praxair - stand a better chance of weathering the storm, say industry watchers.

Praxair officials seem to agree.

“In areas where (we) operate, size will help (us) compete vigorously,” the company stated in an email to HME News.

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