Same Game, New Rules

The more things change for the home medical equipment industry, the more the basics of the business seem to stay the same. As with BBA in the late '90s, so with MMA now. The two big laws differ plenty in detail, but in their broad impact on HME they have done much the same thing, and the industry has responded in much the same way. They raised the profit bar, and HME, for the most part, learned to jump a little higher.

BBA, the Balanced Budget Act of 1997, sharply cut reimbursement rates for oxygen. Oxygen providers tightened operations, the inefficient ones went out of business and the efficient ones came out with healthy market share and profits.

Now MMA, the Medicare Modernization Act of 2003, seems to be repeating that story, at least in the opening chapters.

The impact of MMA, which made broad changes in Medicare in addition to creating a new drug benefit, promises to be wide-ranging and will take several years to play out. It covers cuts in inhalation drugs and other DME staples as well as a planned phase-in of competitive bidding in most markets during the rest of this decade.

But even as the rules were changing, the industry could see that the game remains the same. Demand for services keeps rising, while reimbursement rates keep falling. “It's not like there's any problem with business coming your way. It's just how you get paid for it,” says Arthur Henderson, a research analyst for investment bank Jefferies & Co., headquartered in New York.

The past year saw plenty of uncertainty about the future regulations and reimbursement. But unlike 2003, there were no real shocks. HME did not wake up one morning to find that Congress had altered Medicare economics. Nor did it have to cope with any radical change from other quarters, such as Medicaid (though 2005 may be different).

In actual home medical equipment businesses, as opposed to the halls of Congress and CMS, market conditions were largely a continuation of those in 2003, which was regarded as a generally good year. These steady conditions were reflected in financial results of the large, publicly traded HME companies. In general, they saw modest gains or little change in revenue and net income.

Oxygen leader Lincare Holdings maintained its standing as the industry's most profitable company. In 2004, it earned $273.4 million on $1.27 billion in revenue. Its net income was up 18 percent and its revenue up 11 percent from 2003.