Lincare Accepts Oxygen Bid Rate in Miami and Charlotte
Lincare Holdings, Clearwater, Fla., has accepted contracts with Medicare to provide oxygen equipment in two of the nine initial markets impacted by competitive bidding, specifically Charlotte, N.C., and Miami.
According to a report by Susquehanna Financial Group and a company statement, management decided to execute the contracts in these markets despite the fact that its own bids were higher than the accepted rates.
CEO John P. Byrnes made an extensive statement about the problems in the competitive bidding program: "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 that 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.
"Lincare submitted bids in all nine markets at rates it believed were consistent with maintaining high quality care for the Medicare beneficiaries in those markets. Lincare has been offered contracts to provide oxygen equipment in just two of the nine markets — Charlotte and Miami — and we have executed those contracts even though the composite bid prices submitted by Lincare in those markets exceed the new rates established by CMS in Charlotte by 19 percent and in Miami by 16 percent. 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. We have serious concerns about the care that will be available to similar patients in the other seven markets. Lincare has no current plans to acquire contracts from winning bidders in those seven markets.
"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 program are not overwhelmed by increases in aggregate health care expenditures for the Medicare program (and for Medicare beneficiaries)."
This news comes at the same time the company announced better-than-expected quarterly earnings. After the market close on July 19, Lincare reported second quarter earnings per share of 47 cents, which was a penny ahead of analysts' estimates. The earnings represent a 44 percent increase, compared with second quarter earnings of 33 cents a year ago.
Second quarter revenue was $418.4 million, about a 10 percent increase from the $380.4 million second quarter revenue figure from a year ago. Management noted that internal revenue growth was 9 percent and acquisition-driven revenue growth was 2 percent.