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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. In 2007, 64%, of Lincare's total revenues came from Medicare and Medicaid reimbursements.^[1] In both 2006 and 2007, the company saw reductions in the level of reimbursement from Medicare due to new legislation passed by the Bush Administration. The legislation 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] Prior to 2006, Medicare would pay for the rental of oxygen equipment rather than purchasing the equipment outright. This practice resulted in Medicare paying up to $8,280 for a service that can be purchased for less than half this price at a drugstore.^[3] 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 president's 2008 budget proposes to reduce this period further to 13 months^[4] Lincare’s executives expect the new legislation to reduce revenues by $100 million in 2008.^[5]

Although traditionally, LNCR has provided its services to adults, in recent years, it has begun serve children as well. LNCR acquired a pediatric respiratory provider at the end of 2006. ^[6] While this segment is still a small part of the company's overall revenue, management expects it play a bigger role over time. ^[7]

Contents 1 Company Overview 2 Financial Overview 2.1 Financial Data 2.2 Revenue by Segment 3 Trends/Forces 3.1 Reduction in Medicare Reimbursements 3.2 Third-Party Receivables 3.3 Aging American Public 3.4 Pediatric Services & Sleep Therapy 4 Competitors 4.1 Market Share 5 References

[edit] Company Overview

Lincare provides three main types of products and services.

• 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.

[edit] Financial Overview

[edit] Financial Data

Revenues at Lincare have been increasing fairly steadily from $1,147,356 in 2003 to $1,595,990 in 2007.^[8] However, the company's operating margin has decreased from 36% in 2004 to 24% in 2007.^[9] This reduction can be attributed to an increase of 4.4% in cost of goods and services over the past three years.^[10] This is due to an increase in the sale of medical supplies and nutritional products which carry a lower gross margin.^[11] Lincare operates exclusively within the United States out of 1,019 locations, servicing nearly 700,000 customers.^[12]

[edit] Revenue by Segment

[edit] Trends/Forces

[edit] 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.^[15] 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.^[16] 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.^[17]

[edit] 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 67% of the company's revenues come from Medicare and Medicaid programs alone.^[18]Filing for these reimbursements is a lengthy and complicated process because each organization has their own procedure and set of requirements. The difficulty involved in filing for reimbursements resulted in 20.6% of Lincare's outstanding receivables being aged over 120 days at FYE 2007.^[19]

[edit] Aging American Public

The population of individuals over the age of 65 is projected to increases by 13.7% over the next five years.^[21] 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.^[22]

[edit] Pediatric Services & Sleep Therapy

In the forth quarter of 2006, Lincare purchased a pediatric respiratory provider. The company sees this acquisition as an opportunity to expand the sale of nutritional supplements as well as basic medical services.^[23] Lincare has also seen significant growth in the sale of its sleep therapy products in 2007.^[24]These products include machinery for customers suffering from sleep apnea, as well as accompanying accessories. Although both the pediatric services and sleep therapy product lines contribute little to the company's total revenues, Lincare sees them as an area of future growth potential.^[25]

[edit] 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.^[26] Much like Lincare, the majority of Apria's revenues come from the distribution of medical oxygen to their 1.3 million patients.^[27] Gentiva Health Services, however, operates more as a distributor to local and regional providers as opposed to individual patients.^[28] 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.^[29]

[edit] Market Share

This market is dominated by Lincare Holdings, Apria Healthcare Group, and Gentiva Health Services. However, these three providers make up less than 8% of the total market. The remainder of the market consists of over 2,000 local and regional providers.^[34]

[edit] References

1. ↑ Lincare Holdings, Inc. FY2007 10-K "Company Operations" pg.3
2. ↑ Lincare Holdings, Inc. FY2007 10-K "Medicare Reimbursement" pg.4
3. ↑ Oxygen Suppliers Fight to Keep a Medicare Boon pg.1
4. ↑ Oxygen Suppliers Fight to Keep a Medicare Boon pg.1
5. ↑ Lincare Holdings Inc. pg.1
6. ↑ Lincare Holdings, Inc. FY2007 10-K "Cost of Goods and Services" pg.21
7. ↑ Lincare Holdings, Inc. FY2007 10-K "Cost of Goods and Services" pg.21
8. ↑ Lincare Holdings, Inc. FY2007 10-K "Selected Financial Data" pg.18
9. ↑ Lincare Holdings, Inc. FY2007 10-K "Selected Financial Data" pg.18
10. ↑ Lincare Holdings, Inc. FY2007 10-K "Cost of Goods and Services" pg.21
11. ↑ Lincare Holdings, Inc. FY2007 10-K "Cost of Goods and Services" pg.21
12. ↑ Lincare Holdings, Inc. FY2007 10-K "General" pg.1
13. ↑ Lincare Holdings, Inc. FY2007 10-K "Selected Financial Data" pg.18
14. ↑ Lincare Holdings, Inc. FY2007 10-K "Results of Operations" pg.21
15. ↑ Lincare Holdings, Inc. FY2007 10-K "Medicare Reimbursement" pg.4
16. ↑ Oxygen Suppliers Fight to Keep a Medicare Boon pg.3
17. ↑ Oxygen Suppliers Fight to Keep a Medicare Boon pg.3
18. ↑ Home Care Providers in the US - Industry Report "Major Players" pg.26
19. ↑ Lincare Holdings, Inc. FY2007 10-K "Accounts Receivable" pg.26
20. ↑ Lincare Holdings, Inc. FY2007 10-K "Accounts Receivable" pg.26
21. ↑ Home Care Providers in the US - Industry Report "Outlook" pg.42
22. ↑ Lincare Holdings, Inc. FY2007 10-K "The Home Respiratory Market" pg.1
23. ↑ Lincare Holdings, Inc. FY2007 10-K "Cost of Goods and Services" pg.21
24. ↑ Lincare Holdings, Inc. FY2007 10-K "Cost of Goods and Services" pg.21
25. ↑ Lincare Holdings, Inc. FY2007 10-K "Cost of Goods and Services" pg.21
26. ↑ IBIS World Industry Report - Home Care Providers in the US "Major Players" pg.23
27. ↑ www.apria.com Investor Relations - Corporate Profile pg.1
28. ↑ www.gentiva.com About Gentiva pg.1
29. ↑ www.ahom.com About Us - Broad Geographic Coverage pg.1
30. ↑ Lincare Holdings, Inc. FY2007 10-K "Results of Operations" pg.21
31. ↑ Apria Healthcare Group FY2007 10-K "Consolidated Statements of Income" pg.59
32. ↑ Gentiva Health Services FY2007 10-K "Consolidated Statements of Income" pg.51
33. ↑ American HomePatient FY2007 10-K "Consolidated Statements of Operations" pg.62
34. ↑ Lincare Holdings, Inc. FY2007 10-K "Competition" pg.4
35. ↑ IBIS World Industry Report - Home Care Providers in the US "Major Players" pg.23

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