Invacare’s Blouch: Shocked Industry Struggles with Response to Bid Rates

ELYRIA, Ohio — “We could spend two hours talking about the
flaws in the program,” Invacare interim CEO Gerald Blouch said of
national competitive
bidding. “Many of the things CMS was criticized for in the
first round have not been addressed and not been corrected.”

As for the Round 1 rebid
rates, he said, “In a general sense, I don’t think even the
government anticipated the depth of the average reduction.”

Blouch, who made the comments during the manufacturer’s
second-quarter earnings call July 22, also announced that Invacare
Chairman Mal Mixon would return to the position at the end of the
month following a mild
stroke.

“He’s announced that he’s going to continue his rehab and he’s
returning at the moment as chairman of the board,” Blouch said.
“Jim Boland, who’s been acting chairman, will go back to his role
as lead director. Mal is phasing himself back in, and we’ll see
what the future holds.”

Blouch called industry
reaction to the July 1 bid rates announcement one of
“shock.”

Within 48 hours, he said, HME’s major players including
associations, manufacturers and providers got together to caucus on
the direction the industry should take now in response to the bid
program. Reaction “ranged from ‘let it crash and burn’ to ‘buy your
way out of it,’ as was the case in the trial program a couple of
years ago,” he said.

“I don’t think there’s a consensus right now on the approach the
industry will take,” Blouch added. “I don’t know if the industry
can afford to take an across-the-board cut, and we’re not sure
whether the rest of the industry who didn’t participate in the bids
wants to pay for the folly of a handful of people in a flawed
process.”

Bloch said Lincare CEO John P. Byrnes had summarized the
situation well. In a statement accompanying the giant
provider’s Q2 earnings report, Byrnes said the average 32 percent
payment cuts resulting from the bid came from a flawed pricing
mechanism and warned they could mean “the sacrifice of critical
patient services.”

“One of the key things is you’ve got people who clearly bid low
in hopes they would get a bid [thinking] then they could live on
the average,” Blouch said.

“I think that’s it going to be an interesting six months,” he
said, “and hopefully the government will find a more constructive
way to achieve what they’re trying to achieve in the future.”

While Invacare
reported a strong second quarter with net sales up 4.4 percent
to $430.8 million, the company paid down debt to end up with a
small loss. But Blouch said as a result, Invacare would benefit
from lower interest expense for the rest of the year. The company
is also looking at refinancing its remaining debt.

Other highlights from the quarter ended June 30:

• Adjusted earnings per share increased 30 percent to $0.39
  versus $0.30 last year.
• Free cash flow increased to $40.2 million versus free cash flow
  of $39.6 million last year.
• Reported net sales increased 4.4 percent and organic net sales
  increased 2.7 percent compared to last year’s second quarter.

About the outlook for the U.S. HME market, Blouch said the
competitive bidding “light fire exercise always causes a halt or
reservation on people to buy …  so we think the domestic
market is a little soft at the present time.” However, he
continued, “we feel good in the aggregate about our overall
performance.”

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