Lincare Holdings (NYSE: LNCR) provides stationary and portable oxygen tanks to elderly and disabled individuals in their homes. The biggest challenge facing the company today is falling Medicare spending. Roughly two-thirds, of Lincare's total revenues come from Medicare and Medicaid reimbursements. Over the past couple of years, the company has had reductions in the level of reimbursement from Medicare due to governmental regulation, which aims to reduce Medicare reimbursements by more than $2.5 billion over the next decade and has specific provisions aimed at the respiratory services industry. Under the new legislation, Medicare will only rent the equipment for a maximum of 36 months before turning the ownership over to the patient. The company earned $1.55 billion in revenue and $136 million in net income in 2009.
Lincare provides three main types of products and services:
Lincare participates in the Supplementary Medical Insurance Program known as Medicare Part B. Recent legislation contains provisions that impact the amount of reimbursement that will be paid out by Medicare in the coming years. The amount of reduction is estimated at $1 billion over the next five years, and $2.6 billion over the next ten years. This reduction includes reimbursements to oxygen therapy, other inhalation drugs, as well as the accompanying equipment. These savings will come from a reduction in the length of time Medicare will pay for the rental of oxygen equipment. Previously, Medicare would pay for the rental of the equipment indefinitely. Under the new policy, Medicare will limit the rental to 36 months before transferring ownership to the patients. Legislators have also proposed a competitive bidding process for the supply of medical oxygen. Medicare will determine the amount it will pay out to these suppliers from theses bids, excluding companies with the highest prices.
The majority of Lincare's revenues come in the form of reimbursements from third-parties such as Medicare, Medicaid, and private insurance companies. Approximately 60% of the company's revenues come from Medicare and Medicaid programs alone. Filing for these reimbursements is a lengthy and complicated process because each organization has their own procedure and set of requirements.
The population of individuals over the age of 65 is projected to increases by 13.7% over the next five years. Lincare estimates this will equate to growth in the market of approximately 6% per year and also expects an increase in the amount of patients being treated in their homes.
National Home Health Care Providers
Apria Healthcare Group is the nations largest provider of home healthcare products and services by revenue. Much like Lincare, the majority of Apria's revenues come from the distribution of medical oxygen to their 1.3 million patients. Gentiva Health Services, however, operates more as a distributor to local and regional providers as opposed to individual patients. American HomePatient is also a competitor in the market and provides many of the same services as Lincare although they operate at only a fraction of the size, distributing out of approximately 280 facilities.