Rotech update: Shares sent spiraling

Wednesday, May 31, 2006

ORLANDO, Fla. - Rotech's first quarter shares dropped 55%, which the company blamed on concerns over Medicare reimbursement for one of its primary respiratory drugs, the company stated in a release April 20.
The company saw its shares fall to $6.30 and warned that new reimbursement for compounded budesonide would reduce annual revenues for 2006 by $30 million.
"You cannot miss a market transition when you're dealing with an average sales price that changes once a quarter," said Mickey Letson, president of Decatur, Ala.-based Letco.
Rotech's problems can be traced to a new billing code for compounded budesonide that went into effect Jan. 1. Prior to Jan. 1, compounded budesonide was reimbursed at about $4.40 per dose. On April 17, Rotech received its first 2006 payment under the new payment methodology of 29 cents per dose.
"The profit on those products, which was the biggest piece they were doing in pharmacy, evaporated overnight," said Letson.
Rotech said it believes the new reimbursement rate is not merited, and it's working with regulatory authorities to reverse the change.
However, some industry watchers suspect the problems at Rotech may go beyond the recent reimbursement changes.
"If the cut in reimbursement drugs was so significant, it would have had a tremendous impact on other players in the industry," said one insider. "I think it's company specific."
Apria responded to Rotech's announcement in an April 20 statement, saying it would not be materially impacted by the new reimbursement and predicting that the overall impact would be a $3 million loss in revenue compared to 2005.