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Bidding hits FL company hard

By Mike Wells

7/7/2010 © Health News Florida

Medicare's new competitive bidding system, which offers taxpayers and beneficiaries better deals on home medical equiment, has already dealt a blow to at least one Florida firm even before the bid-winners are announced.

Clearwater-based Lincare Holdings (Nasdaq: LNCR) is among the public companies that analysts have placed on a watch list of fast-falling stocks that are trading with unusual volume. Lincare is one of the nation's largest providers of home oxygen equipment, with more than 750,000 customers.

Florida is a major player in the initial phase of bidding, with one of the selected metro areas including Miami-Dade, Broward and Palm Beach counties. Another includes Orange, Lake, Osceola and Seminole counties.

Last Thursday, as Health News Florida reported, the Centers for Medicare & Medicaid Services announced the bidding program will save taxpayers and beneficiaries 32 percent next year, on average, and even more than that in the Florida counties that are participating.

The announcement provoked a market response because the cuts were much steeper than analysts expected.

Sean Schwinghammer, the executive director of industry groups in Florida and nationally, said Thursday that medical-equipment suppliers had expected cuts around 27 percent. "To hear 32 percent is even more shocking,'' he said at the time.

Today, he said: "The situation is disastrous.... No company will prosper when this (program) is over. Most won't survive." 

While CMS officials have emphasized the benefits of cost-cutting for taxpayers and beneficiaries, who pay part of the bill for home equipment, Schwinghammer predicted that beneficiaries will be hurt by service cuts that follow the payment cuts. 

On Thursday, Lincare’s stock closed at $31.64 a share, near its 52-week high of $33.45. The next morning, shareholders started dumping it. The stock closed Tuesday at $26.43 a share and was at $26.42 as of noon today.
A spokesperson for Lincare could not be reached for comment.

Lincare gets two-thirds of its revenue from government sources. The Medicare bidding program, which is expected to save the government more than $17 billion over 10 years, will be used to determine the price that Medicare pays for medical equipment, such as prosthetics, orthotics and supplies. It replaces current fee-schedule amounts with market-based prices.

The competitive-bidding program begins next year in nine areas: Miami, Orlando, Charlotte, Cincinnati, Cleveland, Dallas, Kansas City, Pittsburgh and Riverside, Calif.

Susquehanna analyst A.J. Rice told the Wall Street Journal that Lincare likely won't be a winning supplier in any of the nine initial metropolitan areas served by the bidding program. He said the total revenue exposed to the first round of cuts is about $50 million, with 2011 earnings potentially lowered by 10 cents to 20 cents a share. The company's 2009 revenue was $1.55 billion.

Last month, Lincare announced that its board of directors had approved a quarterly cash dividend payable at an annual rate of $0.80 per share of common stock outstanding. The first quarterly dividend of $0.20 per share is set to be paid on July 29 to stockholders of record as of July 15.

At the time, Lincare CEO John Byrnes said the dividend reflected confidence in the company's long-term growth opportunities and financial strength. 

Statistics below are for first-quarter returns, and are from Google: 

Net profit margin
2010:  10.64%
2009:   8.78%

Operating margin
2010:  19.72%
2009:  16.61% 

Employees: 9,867 

--Mike Wells is an independent journalist in Tampa. Questions or comments can be addressed to Editor Carol Gentry.