Invacare Says Medicare Changes Cloud Market Outlook

ELYRIA, Ohio–Uncertainty about Medicare reimbursement changes
for oxygen and power mobility has “seriously disrupted” the
domestic market, Invacare Corp. announced in its third-quarter
earnings report Thursday.

“The Medicare changes are so dramatic that if they are
implemented in their current form, there will be customers who will
not be able to change their infrastructure quickly enough to
survive,” the company stated. “As the industry’s largest creditor,
[Invacare] would certainly encounter increased bankruptcies in its
customer base if there are no meaningful adjustments.”

Net earnings for the quarter, ended Sept. 30, excluding charges
related to restructuring activities, were $12 million, down from
$17.2 million for the same period last year. Net sales dropped 4
percent to $379.5 million versus $395.3 million in 2005.

For the North American market, net sales decreased 5 percent to
$248.3 million from $260.5 million last year.

Respiratory product sales decreased 15 percent for the quarter,
largely because of slower demand for its HomeFill oxygen system,
the company said, and sales to small providers and independents
dropped 34 percent.

Medicare’s overhaul of the oxygen reimbursement payment
structure and the Deficit Reduction Act’s 36-month rental cap on
oxygen equipment (see HomeCare Monday, July 31) have slowed
purchases until providers have a clearer view of future
reimbursement levels. And a September Office of Inspector General
report that calls for further reduction of the rental cap to 13
months compounds providers’ concerns, Invacare said.

Rehab sales decreased 9 percent, consumer power wheelchairs were
down 17 percent and custom power sales dropped by 12 percent during
the quarter. New documentation requirements for power mobility
devices are causing problems, the manufacturer stated, and sales
continue to be “acutely impacted” by Medicare- and Medicaid-related
reimbursement issues.

Following the release of CMS’ new power mobility fee
schedule–which cuts reimbursements by more than 40 percent for
some items–providers have reduced their purchases and lowered
their inventory levels for PMDs, Invacare said.

“There is no way to predict the potential consequences to our
provider customers if the new fee schedule is implemented in its
present form,” the company’s statement read, adding that “the
financial viability of a portion of the provider base which is
focused in this product line will be compromised.”

“Our provider customers are frightened and concerned about the
future viability of their businesses,” said Chairman and CEO Mal
Mixon. “They are more aggressively refurbishing used equipment and
purchasing only equipment that is absolutely necessary.” Providers
also are hesitant to invest in new ambulatory oxygen systems, such
as HomeFill, because they would not be able to recover their
investments if the capped rental period is reduced to 13 months, he
continued.

“In addition, the rate of physician approvals on power
wheelchairs has fallen as physicians balk at the necessity to spend
significantly more time responding to provider requests for
increased documentation to prove medical need,” Mixon said. “The
industry is currently caught in a major web of reimbursement
uncertainties and disabled consumers are not getting the product
they need.”

Because of the reimbursement changes, Invacare said previously
announced cost-cutting measures–including head count reduction,
transfer of additional manufacturing to China and increased Asian
sourcing, and shifting resources from product development to
manufacturing–continue. The company has eliminated approximately
535 positions since a restructuring in July 2005.