ELYRIA, Ohio--Despite the nature of the current market, both net earnings and sales were up for HME manufacturing giant Invacare, according to the company's posting of fourth-quarter figures on Wednesday.
In financial results for the quarter and year ended Dec. 31, 2007, Invacare reported Q4 earnings were $19.9 million versus $10.4 million in 2006, and sales increased 10.8 percent to $426.8 million versus $385.1 million. For the year, earnings were $42.9 million compared to $37.8 million in 2006, and sales increased 7 percent to $1.6 billion from $1.5 billion.
"I am extremely proud that our management team met and exceeded challenging commitments for adjusted earnings per share, free cash flow and cost reduction," said Invacare Chairman and CEO Mal Mixon. "We are also encouraged by the improving organic net sales growth trends. As well, during 2007, two national accounts have made significant purchases of our HomeFill oxygen technology. European business continues to perform well with improved sales and earnings over last year.
"We also generated strong free cash flow, totaling $44 million for the quarter and $73 million for the year, driven by stronger than expected cash collections on receivables and by inventory reductions," Mixon continued. "This enabled the company to reduce debt in the quarter by approximately $38 million. Cost reduction and reducing our debt levels were our top priorities for 2007 and we were successful in achieving both."
The company's cost-reduction initiatives, principally related to product sourcing savings, headcount reductions and manufacturing consolidation, totaled $40 million for 2007, slightly better than expected. A company statement, however, said "a significant portion of this benefit was offset by continued pricing pressures and product mix shift toward lower-margin product in the U.S. as a result of Medicare-related reimbursement changes."
The company said it intends to continue and expand cost-savings initiatives in 2008 for additional savings. Even so, Invacare anticipates the benefit will be "tempered by continuing reimbursement uncertainties, primarily the implementation of competitive bidding in the U.S., and continued global pricing pressures in the industry."
"Don't expect more acquisitions in '08," Mixon told reporters in a Q&A session following the company's presentation. "We're looking to pay down debt and get earnings up."
In additional comments on the domestic market, Mixon said it's hard to anticipate the effects of competitive bidding "realizing that we have never been through something like this before, and there are a lot of unanswered questions."
As far as pricing resulting from the program, he said, "It's strictly conjecture at this point. We don't even know how many bidders there are at this point."
While Invacare's business in the first 10 MSAs--which Mixon put between $25 million and $30 million--will be impacted in the last half of the year if CMS hangs to its current July implementation date, he has other concerns about the program. "We think competitive bidding will be traumatic enough this year, not only in terms of the pricing, but we're very concerned that it's going to put hundreds of small players out of business and will be very disruptive to patients. I don't think the government understands what they have done yet," he said.
The company is "lobbying in Washington heavily to amend or end this program, which I think is very ill-conceived ... and we intend to pursue vigorously and aggressively legislation to affect it," Mixon said, referring to the Tanner-Hobson (House) and Hatch-Conrad (Senate) bills currently in Congress.
Another rough spot could be the oxygen rental cap that will kick in Jan. 1, 2009, when Mixon said "the first of patients who received 36 months of reimbursements will suddenly learn they don't have the government paying for their reimbursement anymore at sufficient levels, and I think Congress is going to get thousands of phone calls from these beneficiaries who suddenly aren't being recognized.
"By leading a call for reform, we intend to ask the government to stay any further cuts in oxygen," Mixon continued, pointing to the possibility that oxygen reimbursement cuts and elimination of the first-month purchase option for power wheelchairs could be included in a Medicare bill later this year.
He noted, however, that new oxygen technologies should remain at current reimbursement levels. "While we don't want any cuts in oxygen and we are the industry's largest creditor and don't want to see any of our customers have their P&Ls hurt," he said, "we are very encouraged that CMS and the House and Senate and the president all in one way or another have recognized this new technology."
Observing that the industry is better organized than ever, Mixon said, "Together we continue to fight these battles. We had a lot of ups and downs during the year of '07 but we were successful and perhaps lucky that there were no reimbursement cuts ... and we're hoping to get back-to-back years here of getting through this and working with the government to lead in the reimbursement reform."
But like many of the industry's providers, Mixon said Invacare is preparing to reduce its dependence on Medicare-related business:
"The component of our business that is impacted by Medicare--and by 'impacted by Medicare' I mean Medicaid and insurance companies that follow suit--today represents probably 40 percent of our business. We are working hard to reduce our dependence on U.S. Medicare-Medicaid, and we've set an internal goal of trying to reduce that to 25 percent over the next three years ... We want to fix it if we can, but we'd like to be less dependent on [government]."