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Invacare: New Medicare competitive bidding has little impact on business

Home health products maker  Invacare (NYSE: IVC) reported that a controversial new Medicare competitive bidding program for durable medical equipment has had “no significant impact” on its business. The Elyria, Ohio-based company said it expects the program to be “neutral” to its 2011 earnings, according to a statement announcing its second-quarter financial performance. The first […]

Home health products maker  Invacare (NYSE: IVC) reported that a controversial new Medicare competitive bidding program for durable medical equipment has had “no significant impact” on its business.

The Elyria, Ohio-based company said it expects the program to be “neutral” to its 2011 earnings, according to a statement announcing its second-quarter financial performance.

The first round of the durable medical equipment (DME) competitive bidding program, which took effect in January in nine metropolitan areas, replaced a fee schedule program that determined what Medicare paid for the equipment. It’s raised controversy because some DME suppliers have essentially been frozen out from the Medicare program because their pricing bids were undercut by competitors. Some suppliers have complained that the bid winners weren’t legitimate medical equipment suppliers.

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A Deep-dive Into Specialty Pharma

A specialty drug is a class of prescription medications used to treat complex, chronic or rare medical conditions. Although this classification was originally intended to define the treatment of rare, also termed “orphan” diseases, affecting fewer than 200,000 people in the US, more recently, specialty drugs have emerged as the cornerstone of treatment for chronic and complex diseases such as cancer, autoimmune conditions, diabetes, hepatitis C, and HIV/AIDS.

One of the threats to Invacare from the new program could come in the form of lower prices for its DME via the bidding process. The second round of the program is scheduled to launch in July 2013 and will be far more extensive than the first, with plans to roll it out to 91 markets. So, it’s possible the wider rollout could have a greater impact on Invacare.

Turning to Invacare’s financials, the company reported a solid quarter with adjusted earnings per share of 45 cents, which beat Wall Street analysts’ consensus estimate of 41 cents per share. CEO Gerald Blouch attributed the strong quarter in part to 3.8 percent growth in organic sales, compared with the like quarter last year. Overall, net sales increased 8 percent to $466 million.

“The company’s focus on sales growth continues to deliver results,” Blouch said in a conference call with analysts and investors.

The company’s sales growth helped offset lower margins and higher tax rates that it said it faced in the quarter.

Invacare revealed that it had decided to cease operations at two facilities — one in the U.S. and one in Europe — but provided little further detail. No analysts asked about the closures during the call and an Invacare spokeswoman didn’t immediately respond to an inquiry for more information about the closures.

As Invacare has focused on paying down debt for the last year or so, the company’s mergers and acquisition activity has essentially gone dormant. Blouch hinted that could be changing in the future, but warned that the company is being “cautious” because “multiples are looking a little rich in the mid-market.”

“We don’t have anything that’s at the finish line yet, but we’ve got some good choices,” he said.

The company maintained its previous full-year guidance of $2.05 to $2.15 in adjusted earnings per share.