Lincare Holdings (LNCR)

TOP CONTRIBUTORS

Matthew D'Auria

Alan Ibrahim

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.^[1] 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.^[2] 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.^[3]

Company Overview

Lincare provides three main types of products and services:^[4]

• Home Oxygen Equipment - This segment includes two major methods of oxygen delivery. The first is a stationary unit called an oxygen concentrator that provides continues oxygen flow through filtering out oxygen in the air. This is the most common form of stationary oxygen supply. The second form of oxygen supply is through a liquid oxygen system. This is a thermally insulated container used to hold oxygen in its liquid state. Theses systems are more common among patients with mobility requirements.

• Other Respiratory Therapy - Other major services offered by Lincare include: aerosol therapy for patients suffering from chronic obstructive pulmonary disease and asthma, continuous positive airway pressure devices that provide airflow for customers suffering from obstructive sleep apnea, non-invasive ventilation for patients with neuromuscular disease, and ventilators for customers who can no longer breath without the assistance of a machine.

• Home Infusion Therapy - In select geographical markets, Lincare also provides a variety of infusion therapies such as parenteral nutrition, enteral nutrition, immunoglobulin therapy, chemotherapy, continuous pain management, and central catheter management.

Business Growth

FY 2009 (ended December 31, 2009)^[3]

• Net revenue declined 6.8% to $1.55 billion. Sales of the company's oxygen and other respiratory therapy products fell 8.4%, which was offset by a 10% increase in its home medical equipment and other products.
• Net income fell 40% to $136 million.

Trends/Forces

Reduction in Medicare Reimbursements

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.^[1] 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.^[5] 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.

Third-Party Receivables

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.^[1] Filing for these reimbursements is a lengthy and complicated process because each organization has their own procedure and set of requirements.

Aging American Public

The population of individuals over the age of 65 is projected to increases by 13.7% over the next five years.^[6] 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.^[7]

Competitors

National Home Health Care Providers

• Apria Healthcare Group (AHG)
• Gentiva Health Services (GTIV)
• American HomePatient

Apria Healthcare Group is the nations largest provider of home healthcare products and services by revenue.^[8] Much like Lincare, the majority of Apria's revenues come from the distribution of medical oxygen to their 1.3 million patients.^[9] Gentiva Health Services, however, operates more as a distributor to local and regional providers as opposed to individual patients.^[10] 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.^[11]

References

1. ↑ ^{1.0 1.1 1.2} LNCR 2009 10-K "Company Operations" pg. 2-4
2. ↑ LNCR 2009 10-K "Medicare Reimbursement" pg.5-6
3. ↑ ^{3.0 3.1} LNCR 2009 10-K "Selected Financial Data" pg. 20
4. ↑ LNCR 2009 10-K "Business Strategy" pg. 1-2
5. ↑ New York Times "Oxygen Suppliers Fight to Keep a Medicare Boon"
6. ↑ Home Care Providers in the US - Industry Report "Outlook" pg.42
7. ↑ LNCR 2009 10-K "The Home Respiratory Market" pg. 1
8. ↑ IBIS World Industry Report - Home Care Providers in the US "Major Players" pg.23
9. ↑ www.apria.com Investor Relations - Corporate Profile pg.1
10. ↑ www.gentiva.com About Gentiva pg.1
11. ↑ www.ahom.com About Us - Broad Geographic Coverage pg.1