Piggyback pricing


As I was writing up a story on our most recent HME Newspoll results (see Monday’s HME Newswire), I remembered some comments made by Inogen officials during the company’s recent conference call to discuss its second quarter financial results.

In our poll, we asked readers whether or not new Medicare pricing (new pricing went into effect in non-bid areas on Jan. 1 and July 1, and in Round 2 areas on July 1) has impacted third-party pricing in their state. An overwhelming majority—more than 80%—said yes.

Inogen officials back up those results.

This, from Scott Wilkinson, president and COO:

“We have also seen some private insurance payers reduce their rates for oxygen services in the second quarter of 2016 in response to the lower Medicare reimbursement rates. We do expect these private payer rates to continue to decline in alignment with the new Medicare Round 2 re-compete competitive bidding pricing. Looking ahead, in spite of these significant reimbursement changes, we believe we are well positioned to continue our total revenue growth in the oxygen therapy market with best-in-class and patient-preferred products and services with the competitive total cost of ownership.”

Ali Bauerlein, CFO and co-founder, described the impact of this piggyback pricing on Inogen’s second quarter:

“Turning to rental revenue, direct-to-consumer rental revenue in the second quarter was $9 million, representing a decline of 22.8% from the same period in the prior year, primarily due to the anticipated Medicare rental reimbursement cuts that took effect in the first quarter of 2016 and reductions in private-payer rates as they followed the decrease in Medicare rates and higher rental revenue adjustments.”

She also described the impact on the company’s full-year guidance:
“We expect additional rental revenue headwinds, due to the additional private insurance rate reductions, higher provisions for rental revenue adjustments, and lower net patient additions as we focus on sales versus new rental. We currently expect total rental revenue to decline as a percent of total revenue and decrease approximately 25% in 2016, compared to 2015.”