RDI investors show nerve
BOCA RATON, Fla. - Sun Capital Partners, a private investment firm, has acquired Respiratory Distributors (RDI), despite a proposal in the Medicare Prescription Drug Act that could translate into a 58% cut in reimbursement for respiratory medications.
Some call Sun’s purchase of RDI, which sells respiratory meds and products related to the treatment of COPD, courageous, but Benjamin Emmons, a vice president for Sun, said the firm believes the respiratory meds market will grow despite the cut.
“We saw the Medicare issue as both a potential challenge and an opportunity,” Emmons said.
Where Emmons is optimistic, others are skeptical, however.
In 2005, the reimbursement formula for respiratory meds will switch from average wholesale price (AWP) to average sales price (ASP) plus 6%, and the expected result is a 58% cut in the reimbursement for respiratory meds. Lincare and Apria have already felt the sting of ASP: Lincare saw its stock price plummet by 32% when the drug act was outlined; Apria saw its stock price plummet by 17%.
“[The Medicare Prescription Drug Act] is a rifle shot right at the respiratory market,” said Mark Sheehan, owner, Cape Medical Supply in Cape Cod, Mass. “I’d tell Sun, â€˜Good luck,’ and I’d tell RDI, â€˜You scored.’”
But Emmons said the weight of the reimbursement cut will fall on the shoulders of pharmacies and HME providers doling out respiratory meds to patients - not RDI. Even if the cut results in an exodus of pharmacies and HMEs from the respiratory meds market, someone will have to pick up the slack, he said.
“COPD isn’t going away,” Emmons said. “There will continue to be firms furnishing these meds to patients, and our product offering is well positioned to provide these firms with what their patients require to treat the disease effectively.”
In 2000, an estimated 10 million adults were diagnosed with COPD, resulting in 119,000 deaths, 726,000 hospitalizations and 1.5 million emergency room hospital visits, according to the Center for Disease Control (CDC). Emmons points to aging baby boomers and smokers as populations that will cause that number to rise even further.
Although Sheehan is surprised someone would buy into the respiratory meds market right now, he said he’s not surprised an investment firm came knocking on RDI’s door. Since the drug act was passed, Sheehan said he has received at least two phone calls a week from companies - mostly investment firms - looking to buy Cape Medical.
“They think a lot of us are thinking, â€˜Geez, let’s get out while we can,’ because of the drug act,” Sheehan said. “They want to package three or four of us up and sell us to the next big fish down the line.”