ELYRIA, Ohio--Last week Invacare Corp. said it expects to post lower year-over-year sales for 2006 as a result of Medicare reimbursement cuts and other changes in the HME landscape.

In a guidance statement issued Wednesday, Chairman and CEO Mal Mixon ticked through several of last year's events, noting reimbursement cuts for home oxygen; a capped rental reduction for basic DME from 15 months to 13 months; and cutbacks to power wheelchair reimbursement "with onerous new application requirements which have slowed demand in the current environment."

The company said it anticipates net sales of $1.49 to $1.50 billion against $1.53 billion for 2005.

The statement noted that excludes a fourth-quarter charge relating to "accounts receivable collectibility issues" arising primarily from Medicare reimbursement reductions for power wheelchairs.

"Due to recent changes in Medicare reimbursement regulations, specifically changes to the qualification processes and reimbursement levels of power wheelchairs, there is increased collectibility risk to Invacare," the statement continued, adding that the company is reviewing accounts of customers that are "most exposed to these issues" and is working with some in an effort to help them reduce costs, including product line consolidations and introduction of simplified pricing.

Invacare said it is implementing tighter credit policies with many of these accounts.

The company said it is undertaking additional cost reduction actions, and that these initiatives, along with previously announced plans to reduce manufacturing and distribution costs, will result in approximately $38 million in savings for 2007, and thereafter, about $50 million annually.

The initiatives include:

-- Product line simplification. The company plans to simplify its product lines and pricing processes to reduce costs and improve service levels.
--Improving product gross margins and reducing fixed costs through further product and sub-assembly outsourcing. The outsourcing of commodity products and sub-assemblies will be accelerated, and Asian sourcing is planned to double over the next three years.
--Rationalization of facilities. Today, Invacare's primary manufacturing facilities include 14 integrated fabrication plants and two assembly plants worldwide. Invacare will continue the move from integrated fabrication plants to assembly plants and is finalizing plans to close and/or consolidate several locations beginning this year through 2009.
--Product platform standardization. To further simplify and reduce production costs, as well as to leverage development and tooling investment, the company has begun the process of standardizing some of its product platforms globally.

"While the pace of change has been grueling" Mixon said, "we are confident our restructuring plans are achievable and will put us back in front of the curve by year end, with net year-over-year improved operating income."

Earlier this month, the HME manufacturing giant said it would restructure its North American HME business into a "more cost-effective and efficient business model" and that its rehab, respiratory, standard and sleep product divisions would be reorganized into an umbrella organization called the HME Group. (See HomeCare Monday, Jan. 8.) For 2007, the company projected organic growth in net sales from 0 to 2 percent.

The company also said it has received a subpoena from the U.S. Department of Justice seeking documents relating to three long-standing promotional and rebate programs. Invacare said it believes that the programs described in the subpoena are in compliance with all applicable laws and is cooperating fully with the government inquiry.

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