The result of this embarrassing defeat for Bush is that National Competitive Bidding is delayed for 18 - 24 months. The homecare industry will however concede 9,5% in price reductions on previously awarded NCB products.

When the rollback of awarded contracts will happen has yet to be determined, as will be the numerous law suits that are / will be issued as a result of companies having been awarded, and now denied contract awards.

What a mess.

More from CNN here

New consumer company parent Phillips will no doubt be pleased with the recently announced direct ship to consumer program that Respironics has instituted in the United States for several of it’s obstructive sleep apnea consumables.

Full details are available from their sleepapnea site which lists their business provider services.

The service provides suppliers the opportunity of having sleep apnea supplies shipped directly to consumers homes, thus eliminating one additional step in the supply chain. The local supplier simply places the order online, elects to have the goods shipped directly to the consumers point of use - and that’s it. The supplier retains their customer without having to bother with inventory, logistics and other unwelcome costs.

Smart innovative move in the current industry environment where innovation in some cases seems to have taken a back seat to Medicare and competitive bigging squabbles.

You will recall two days ago the market noise that Resmed was about to be picked up by German Linde. We blogged about it here.

Now CNBC’s Jim Cramer talked about them benefiting from the potential reversal or low impact of competitive bidding. (I don’t think competitive bidding will be substantially reversed just to be clear.

Jim Cramer goes on to issue a potential target price of $53 which is a cool 30% premium.

The program officially started today, with all the competing and conflicting flavors of a bitter sweet chocolate. Despite a last minute lobbying effort - and one missing vote, at least 3 failed lawsuits - the program started.

“Industry” is saying that there is still a chance it will be reversed (temporarily) however that’s a long shot.

I used quotes when using the word “industry” because - industry was late to the party in presenting a united front and in the later stages “industry” unraveled somewhat when companies awarded contracts protested about delays to implementing the program, as well as arguments over higher and lower spec products being included (see Scooter Store) etc. The approach was also somewhat un-imaginative with the usual “lots of companies will go out of business, we provide services that cannot be obtained elsewhere etc.. to which the opposition cried the free market ethic, “If you cannot compete you deserve to go out of business”… and so on.

The main issue of course was an industry that did not recognize the seriousness of needing to provide cost savings to one of their biggest customers - namely Medicare.

There is no doubt in my mind that serious companies have been making contingency plans for this eventuality, and it is these that will ultimately win, as they had the vision to succeed - no matter what.

For all others, with all sincerity - go read “Who moved My Cheese“.

(You may be interested in our take on the NYT post a few days ago.

(Update below)

Or perhaps, why has it taken so long.

The homecare market has several business segments, ranging from care services to ambulatory home dialysis, lower value home patient aids, wheelchairs as well as higher margin and faster growing segments like respiratory and diabetic care.

One of these segments is sleep therapy. Sleep apnea is being increasingly diagnosed (and increasingly easier to be diagnosed) in larger numbers of patients. The principle treatment is a CPAP (and variations) machine which essentially minimizes periods of apnea during sleep - a syndrome that not only effects a persons ability to function 100% during the day but also has been clearly shown to increase the risk of heart disease and premature death.

Some companies that sell respiratory products into the home, segment their business according to oxygen therapy and sleep therapy. CPAP falling into the later category.

Oxygen therapy (oxygen concentrators, liquid oxygen) is slower growing and tends to follow population growth while sleep therapy is fast growing.

At the end of 2007 Phillips acquired Respironics - a leading full line respiratory products company - to enter the homecare space. This provided them the opportunity of entering the homecare medical business at the higher value end. Speculation immediately followed as to how long it would take for Resmed, Respironics prime competitor in the sleep business to be snapped up.

According to this press report out of Australia (the home of Resmed founder - Peter Farrell), Linde, German gasses multinational is rumored to be in talks to acquire Resmed.

Synergies are clear - combine the medical gasses business with the high growth and margin medical homecare segment and strengthen their homecare presence.

If this one does not happen another one will - soon.

Update July 1, 2008:

Resmed have reacted to the market rumor by issuing the following statement on on the Australian stock Exchange:

“ResMed notes the comments in the Age and Australian Financial Review newspapers published today, 1 July 2008 to the effect that the company “is being stalked by German industrial and medical gases giant the Linde Group” (Age) and to “rumours of an agreed
cash bid” (AFR) under the headline “Sceptics doubt ResMed rumour”.The company confirms that it is not aware of any information that would require disclosure to the ASX in terms of listing rule 3.1.

Further, the company has a policy of not commenting on market rumours.”

The market likes the rumor anyway??

Resmed is trading at $38.34 up 7.7% at time of writing July 1, 2008

http://finance.yahoo.com/q?s=RMD

The story and the argument is not particularly new. What is somewhat new is the direct and stern criticism leveled directly at certain companies that the New York Times allege directly benefit from this delay. They name Invacare, Pride, Praxair and the Scooter Store and criticize Invacare’s Cara Bachenheimer who they allege does not want to see any substantive changes to the current system.

At the hub of the issue is the fact that consumers can purchase (according to the Times) – for example – a walker on the internet for about half the price of what national insurer Medicare (and therefore (directly / indirectly) the tax payer) pays.

It is true that in several cases the internet price of products is less expensive than the Medicare price. It is also true that the internet does not particularly serve well 90 year olds with Alzheimer’s or other incapacitating conditions who have no idea how to use the internet.

Unfortunately there have been documented cases of Medicare issues which have not helped the industry. Although it has changed somewhat, the industry has also not been able to get its act together in terms of a plan that makes sense to all. This continues today in some cases for example with the Scooter Store recommending that even higher specified products should be part of the competitive bidding process. Much to the chagrin of several industry stalwarts.

Adversity has made for strange bed fellows and time will tell if the new industry initiative will prove effective.

(In an unrelated event, Dan Meuser, President of Pride and former Republican candidate, will be hosting a Sen. John McCain lunch on July 23).

Update:

New York Times Opinion piece continues the onslaught “Medicare Savings vs The Lobbyists” - perhaps in part referring to the disclosure of a major homecare company spending $230,000 on lobbying in Q1.

If you would like to see our related post referring to the Office of the Inspector General and their report it is here - Pricing vs Reimbursement In The Homecare Industry - And The Competitive Bidding Solution

And a quick rebuttal from AAHomecare which actually is a little challenged in terms of winning this fight. You decide.

Blackstone group has bid a 33% premium to take homecare services and distribution company Apria private. The Blackstone investment is $920 million which is big in the homecare industry although relatively modest in Blackstone terms.

All this despite the homecare industry cries of Medicare foul over the what is clearly the biggest pressure on pricing and reimbursement in recent history - especially through the much hated new National Competitive Bidding program.

This investment is clearly good for the industry (however there must be some lawmakers and lobbyists scratching their heads as to how to explain why such a supposedly handicapped industry is attracting investors like Blackstone).

Of course the argument will be made about unlocking the value in Apria which has suffered from some self inflicted wounds in recent years - true - but it also makes great strategic sense as well.

About two years ago I blogged about the coming changes in the industry “(Why) Would You Invest In The Home Healthcare Industry?”

It’s a fairly lengthy analysis however one of the key take aways was that National Competitive Bidding and the future environment would benefit distribution owned groups (like Apria) - looks like Blackstone might be in agreement.

As always the market tells the story. We note that in smaller private deals investors are paying 4 to 6 times multiples for manufacturing companies while distribution companies are fetching double digit multiples today.

In the above analysis the summary takeaway applies even more today than it did then.

Just to be upfront the recommendation is going to be to invest in “change”. Identify what the change will be and buy into it. Divest companies (or management) that believe “nothing much will change”. It is not a place for the faint hearted. It is certainly not business as usual. Past performance is definitely not a reliable indicator in the homecare business today - or rather tomorrow.