Lincare Holdings (LNCR), a leading provider of oxygen and respiratory therapies, reported third quarter fiscal 2010 results after the closing bell on October 18. Earnings per share of 47 cents matched the Zacks Consensus Estimate while increasing from 36 cents a year-ago.
Net income surged 26.2% year-over-year to $45.5 million riding on higher sales. Revenues rose 6.6% year-over-year to $418.7 million, but missed the Zacks Consensus Estimate of $422 million. Results included an unfavorable impact of $13.1 million associated with Medicare payment changes.
Operating income climbed 26.6% year-over-year to $83.7 million with operating margin increasing to 20% from 16.8% a year ago on account of improved revenues and cost management initiatives.
Lincare generated $259.2 million (up 1.8% year-over-year) in cash from operation during the first nine months of 2010 and spent $80.3 million and $11.4 million in net capital expenditures and business acquisitions, respectively. Cash and investments increased 30% year-over-year to $197.1 million while total long-term debt rose 4% to $496 million.
Lincare has not released its guidance for the fourth quarter but expects reimbursement rate cuts by the Centers for Medicare and Medicaid Services (CMS) for inhalation drugs to trim quarterly revenues by roughly $3 million. The company has already registered an impact of $7.1 million on the account in the third quarter.
The CMS has launched a new Competitive Bidding Program for items of durable medical equipment (DME) including home oxygen in nine metropolitan markets effective 2011. The bidding is aimed at determining the reimbursement rates offered by Medicare for DME in these markets. This replaces Medicare’s current fee schedule with market-based rates.
The bidding program restricts the number of providers of DME items for Medicare beneficiaries selected by the CMS based on the minimum bid prices. Lincare has submitted bids in nine markets and offered contracts to provide oxygen equipment in two of the nine markets (Charlotte and Miami) at rates higher than those set by the CMS.
The first-round bidding results (announced in July 2010) indicated a 32% rate cut for Lincare’s core oxygen equipment product line in nine markets. The company has argued that the pricing mechanism adopted by regulators for determining reimbursement rates for oxygen equipment is fundamentally flawed and may result in poor patient care.
Lincare appealed to the CMS to make certain changes prior to extending the bidding to other markets to ensure more protection for patients. The CMS bidding program represents a major headwind for the company as it will substantially affect its oxygen business resulting from the cap on reimbursement rates.
Florida-based Lincare is one of the leading providers of oxygen and other respiratory therapy services to patients at home. It offers services for chronic obstructive pulmonary disease (COPD), emphysema, chronic bronchitis or asthma, supplemental oxygen and other respiratory therapy services.
Lincare provides services and equipment to nearly 750,000 customers across the U.S through 1,086 local centers. The company remains committed to boosting sales through its leadership in respiratory therapy services and expansion of product range.
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