LAKE FOREST, Calif.--Citing Medicare reimbursement cuts for oxygen, respiratory giant Apria Healthcare announced a drop in net profits for the 2005 second quarter, ended June 30, to $22.8 million, down from $29.1 million for the same period last year. Revenues for the quarter were $374.9 million, a 4.3 percent increase over revenues of $359.6 million in the second quarter of 2004.

"We are pleased with our second quarter results," according to company CEO Lawrence Higby. "We increased pretax earnings over the first quarter despite the fact that the Medicare reimbursement reduction for oxygen went into effect at the beginning of the second quarter. An improved gross margin and lower bad debt expense due to rebounding cash collections helped offset the effect of the reimbursement cuts."

The company said it expects revenue growth between 5 and 6 percent for the year because of lower Medicare reimbursements and related product pricing changes.

Apria--which announced it was up for sale last month--made seven acquisitions worth $67.3 million during the second quarter, most notably Paris-based Air Liquide's $20 million U.S. home care operation, with 18 locations mostly in the northern half of Florida (see HomeCare Monday, July 11).

According to a statement accompanying the earnings results, Apria is under investigation by the U.S. Attorney's office in Los Angeles and the U.S. Department of Health and Human Services "concerning a liability that may result from incomplete or inaccurate documentation supporting a portion of the company's Medicare billings" from mid-1995 through 1998. The company and government representatives are "having discussions seeking to narrow their differences with respect to information developed in the course of the investigation. The outcome of these discussions cannot be predicted."