Provider Giants Report 2004 Earnings

LAKE FOREST, Calif. and CLEARWATER, Fla.– According to earnings
reports released last week by two of the HME industry’s largest
providers, both Apria Healthcare and Lincare Holdings saw revenue
growth and substantial acquisition activity last year–but also
felt the effects of Medicare respiratory drug cuts to 80 percent of
AWP (Average Wholesale Price).

Apria, Lake Forest, Calif., ended the year with $1.45 billion in
revenue, a 5.1 percent increase from 2003 revenues of $1.38
billion. The company’s net income fell by $2 million, to $114
million. According to a company statement, earnings were affected
by respiratory medication cuts, which cost the company $15.2
million for the year.

Meanwhile, Lincare, Clearwater, Fla., reported 2004 net income
at $273.4 million, compared to $232.1 million for the prior year–a
16 percent increase. Revenue now stands at $1.27 billion, an 11
percent increase. The drop in respiratory drug pricing last year,
however, reduced the year’s revenues by $14.3 million, the company
said.

While Apria acquired 27 companies worth more than $148.7 million
last year, Lincare acquired 26 companies with annual revenues of
$49 million. Those numbers encompass numerous New England
acquisitions, including Lincare’s buy of the medial gas division of
Charlestown, N.H.-based Merriam-Graves and Apria’s purchase of
Raymond, N.H.-based LifePlus.

The acquisitions are part of an industry consolidation that’s
been occurring for the last quarter-century, according to Bob
Leonard, managing director at Pittsburgh-based merger and
acquisition firm The Braff Group. Both Apria and Lincare “have the
money and the wherewithal and the need to buy more than others,” he
said. “They’re truly national in scope and well-capitalized.”

Apria serves customers through approximately 475 branches in 50
states. Lincare has 804 locations serving customers in 47
states.

Apria closed another deal at the end of last month, acquiring
Knoll Medical Supply, Topeka, Kan., owned by former AAHomecare
Chairman Steven Knoll. While “it’s been quite a healthy business,”
Knoll said in an interview with Topeka’s Capital-Journal,
one reason he decided to sell is because Medicare policy is pushing
out small providers and making it too risky to do business. “The
paperwork can trap you,” he told the newspaper. “Medicare can ask
for its money back.”

But Braff’s Leonard said he feels there will always be a place
for small players in HME, despite the tightening reimbursement
climate. “Even though there’s been nonstop acquisition, it’s never
going to be a monopolistic business,” Leonard said. “The business
is inherently local. Aggressive local guys can out-service a big
bureaucratic company and establish a nice niche for
themselves.”