Wall Street seems to be putting Apria Healthcare Group Inc. in perspective.
The Lake Forest home healthcare provider’s shares have surged 60% in the past six months after it beat back possible Medicare payment cuts. Apria, which provides breathing and other treatments to patients in their homes, had a market value of nearly $1.4 billion last week.
The stock has risen since September, when Apria shares fell 10% on news that federal officials were urging a 13-month limit on payments for breathing gear, instead of three years. Apria met with regulators and prevailed in its bid against the change.
“Our efforts in Washington contributed to a significant repositioning of the home respiratory industry,” Chief Executive Larry Higby said during the company’s fourth-quarter conference call. “Today, policy-makers and legislators are much more attuned to the fact that home respiratory, medical equipment and infusion therapy represents a service, not an equipment-only business.”
Some analysts remain cautious. Reimbursement cuts to Apria for treating Medicare patients could hit the company, UBS analyst Donald Hooker wrote in a research note. Hooker said he expects Medicare price cuts for respiratory drugs to generic levels by June or July.
Apria counters its exposure to Medicare is overblown.
“Medicare is only about 30% of our business,” said Chris Karkenny, Apria’s chief financial officer who came to the company four months ago.
Lincare Holdings Inc., a rival from Clearwater, Fla., gets more business from Medicare, Karkenny said.
About two-thirds of Lincare’s $1.3 billion in yearly sales is from Medicare for seniors and Medicaid for the poor.
Private insurers make up about 70% of Apria’s $1.5 billion in yearly revenue. Clients include Aetna Inc., Cigna Corp., Humana Inc. and UnitedHealth Group Inc., parent of Cypress-based PacifiCare Health Systems.
Apria got a boost in November when the Centers for Medicare and Medicaid Services said payments to Apria and others for equipment would slightly rise in 2007. The agency also kept the three-year rental cap on breathing gear before a patient can own it.
“We don’t have to change anything,” Karkenny said. “We just need to look at that and continue to exploit what we’ve already built up and spent decades building. You can’t replicate this model. We have it.”
Apria is pausing on its long-running acquisition strategy to focus on internal growth, Karkenny said.
“Doing the mom-and-pop acquisitions, the smaller ones, are probably not of greatest interest now since we have the national coverage,we’ve filled in all the gaps,” he said.
