So what if it's the 21st century? Rotech Healthcare still makes house calls. The company leases and sells respiratory-assistance equipment and durable medical equipment to home-bound patients with breathing disorders and such infirmities as chronic bronchitis, emphysema, and obstructive sleep apnea. The company operates through about 420 locations across the US. Rotech makes about 90% of its sales from respiratory equipment, including nebulizers (devices that administer medication in mist form for inhalation), sleep disorder breathing therapy systems, and oxygen systems. The firm also offers nebulizer medications and other medical equipment, including hospital beds, walkers, and wheelchairs.
Rotech mainly operates outside urban areas in order to lower its operating costs and avoid competition by larger entities. The company provides its equipment and services principally to older patients with breathing disorders, most typically associated with chronic obstructive pulmonary diseases (COPD). Its patient customers are typically referred to the company by their physicians or by hospital discharge planners. Because older patients are its primary customer base, Rotech derives nearly half of its revenues from Medicare and Medicaid programs. It also contracts with insurers and managed care entities, including the Department of Veterans Affairs.
In fiscal 2011 Rotech's net revenues of $483.8 million represented a 2.5% decrease for the comparable period in 2010. Factors contributing to the decrease included decreases of $12 million in nebulizer medication reimbursement and volume, $5 million in reductions from competitive bidding, and decreases of $5.6 million in non-patient service revenue, non-core product lines, and changes in Medicare reimbursement. Organic growth in the company's core oxygen and CPAP (continuous positive airway pressure) product line patient counts, plus an increase in net revenue associated with patients transitioned onto service through equipment and asset purchases, partially offset Rotech's decreased revenues by about $10 million. The company has operated at a loss for its third straight year. Rotech's net loss in 2011 increased from its loss of $4 million in 2010 to almost $14.8 million, mainly due to a $12.6 million increase in net interest expense for the year and the company's loss on extinguishment of debt.
The company's decline in profitability in recent years is largely due to decreased Medicare reimbursement rates, especially for nebulizer medications. In fact, Rotech faces significant challenges related to Medicare reimbursements that the company expects to continue to negatively affect its financial position. Since 2009, its finances have been negatively affected by a 36-month rental cap on oxygen equipment provided to Medicare beneficiaries as well as reductions in reimbursements for oxygen and other medical equipment (as part of the Medicare Improvement for Patients and Providers Act). Additionally, potential future changes in Medicare policies could have an adverse effect on Rotech's financial condition. These could include freezes and reductions in reimbursement rates for home medical equipment, dispensing fee reductions, and changes in competitive bidding or accreditation requirements, new clinical conditions for reimbursements, and quality standards as required by health care reform laws.
Strategically, Rotech continues to work on reducing its costs, increasing operational efficiencies, maintaining internal growth, and seeking opportunities to gain market share by making selective equipment and asset purchases from companies exiting the home medical equipment market. For example, in 2011 Rotech acquired three home medical equipment providers that serve Baltimore and Philadelphia and other east coast markets. The company also implemented a new order intake system that, along with its electronic medical record system, helped it to automate and consolidate many of its former paper-based processes. Rotech is also exploring financing activities through public or private offerings of equity, debt, or convertible securities, including its stock. In mid-2011 it filed to relist its stock on the NASDAQ Global Market, but has yet to meet the $4-per-share minimum bid price that is required.
The current incarnation of Rotech Healthcare came into existence in the early 2000s as the result of a bankruptcy organization. Formerly Rotech Medical Corporation, the company emerged from Chapter 11, changed its name, and spun itself off from Integrated Health Services (which had also restructured under bankruptcy protection due to debt issues). – less