Lincare Signs Oxygen Contracts in Miami, Charlotte

CLEARWATER, Fla. — In announcing its second quarter financial results July 19, Lincare Holdings said it had accepted two oxygen contracts in Round 1 of competitive bidding in Miami and Charlotte. The company bid in all nine MSAs.

“We decided to execute the contracts we were offered because we believe we can support the Medicare beneficiaries in those markets by subsidizing their care with the resources we have available to us as a national company,” Lincare CEO John P. Byrnes said in a release. “We have serious concerns about the care that will be available to similar patients in the other seven markets,” he continued, adding that the company “has no current plans to acquire contracts from winning bidders in those seven markets.”

Lincare’s bids were 19 percent higher in Charlotte and 16 percent higher in Miami than the new payment rates CMS set in those competitive bidding areas. Rates for oxygen supplies and equipment across the nine CBAs average a 31 percent reduction off current reimbursements; the average reduction across all product categories in the bid is 32 percent.

Byrnes also included a lengthy warning that low reimbursements resulting from the bid were the result of a flawed pricing mechanism and could mean “the sacrifice of critical patient services:”

“We believe that the pricing mechanism used by CMS to determine the payment rates within each of the nine markets is fundamentally flawed. Rather than contracting with each winning bidder at the actual bid amounts submitted by those providers, CMS sets rates for each item within the bid markets at the median bid prices submitted by the winning providers.

“We believe that many providers submitted bids at rates that are unsustainably low (expecting that the median price established by CMS would be higher) in an attempt only to ‘make the list’ of winning bidders, encouraging a ‘race to the bottom’ and the sacrifice of critical patient services. Further, CMS has stated that a significant number of contracts were awarded to companies that do not currently provide the contracted equipment and services to patients in those markets.

“We are concerned that the 32 percent price reduction is an indication that such providers may not understand the specific state regulations which require clinical support and intervention for patients in conjunction with the equipment provided. We encourage CMS to release all appropriate bid information used to set the median prices for all of the items in each of the nine markets so the bidding process is fully transparent for review by the Congress, patients and caregivers, and providers.”

Continued Byrnes, “We urge CMS, prior to expanding competitive bidding to additional markets, to implement simple changes that would bring additional protections for patients and integrity to the bidding process.

“Specifically, CMS should reduce the risk of artificially low bids by accepting contracts for each selected bidder at the actual bid rates submitted by those bidders. Such changes are essential to ensure that the expected savings generated by the competitive bidding program are not overwhelmed by increases in aggregate health care expenditures for the Medicare program (and for Medicare beneficiaries).”

In its announcement, Lincare reported net income of $46.4 million for the second quarter of 2010, compared with net income of $33.5 million for the same period a year ago. At 47 cents a share, earnings were a penny better than the 46 cents expected by Lincare analysts.

Revenue for quarter ended June 30 was $418.4 million, a 10 percent increase over revenue of $380.4 million for the same three months in 2009.

For the six months ended June 30, net income was $90.1 million, a 51.5 percent increase over net income of $59.5 million for the first half of 2009.

“We are pleased with Lincare’s operating and financial performance in the first half of 2010,” Byrnes said.

Separately, Lincare announced that CMS’ average sales price (ASP) data for the third quarter of 2010 includes reductions in the Medicare payment rates for inhalation drugs that will result in a reduction in the company’s net revenues of approximately $7 million per quarter.

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