We understand competitive bidding, Linde says

Friday, July 6, 2012

MUNICH, Germany – Analyst after analyst asked executives at The Linde Group to reassure them that acquiring Lincare Holdings made good financial sense during a conference call last week.

One noted: “Margins have fallen from the mid-40s to the mid-20s—a straight line in the opposite direction. How can you reassure us that it won’t decline further?”

One of the biggest reasons for Linde’s confidence: Lincare’s performance in Round 1 of competitive bidding, which reduced reimbursement for oxygen concentrators, on average, about 32% in nine areas.

“The recovery after the reimbursement cut was very fast and strong,” said CEO Wolfgang Reitzle.

In a Power Point presentation provided for the call, Linde states: “Experience from CB1 indicates price reductions, but volume increase for successful bidders and further industry consolidation.”

Other notable quotes from Linde execs on Lincare and competitive bidding: “When we’re talking about (Round 1), one company is a clear winner and that’s Lincare” and “We are confident that we have understood (competitive bidding) in all dimensions and we believe what we have a plan that’s achievable.”

The cornerstones of that plan: 1.) the demographics driving demand for Lincare’s products and services; and 2.) the provider’s strategy emphasizing scale, product and service diversity, and continued organic growth.

Additionally, Linde execs pointed out that by adding Lincare to its portfolio, it’s not only buffering itself from volatility in the industrial gas industry but also the fragility of the euro.

“We will have significantly more resilient profiles, because healthcare sales will still be stable or increase slightly, where industrial segments will suffer,” Reitzle said.