Lincare Holdings Inc.

views updated

Lincare Holdings Inc.

19337 U.S. 19 North, Suite 500
Clearwater, Florida 33764
U.S.A.
Telephone: (727) 530-7700
Fax: (727) 532-9692
Web site:http://www.lincare.com

Public Company
Incorporated: 1990
Employees: 4,700
Sales: $703 million (2000)
Stock Exchanges: NASDAQ
Ticker Symbol: LNCR
NAIC: 62161 Home Health Care Services; 551112 Offices of Other Holding Companies

Lincare Holdings Inc., based in Clearwater, Florida, is a major provider of oxygen and other respiratory equipment and services to home-care customers in 42 states. In its area of coverage, the company maintains approximately 430 offices, and it continues to expand despite the fact that the 1997 Balanced Budget Act put a cap on Medicare and Medicaid reimbursements on the services it provides, payments which had accounted for approximately 60% of the company’s revenue. In addition to providing oxygen, Lincare provides infusion therapy, including palliative care, hydration therapy, chemotherapy, AIDS-related therapies, inhalation therapy, and enteral and parenteral nutritional care; and some home-use medical equipment, including ventilators, wheelchairs, walkers, and hospital beds. The company has established specific programs, with education components as well as therapeutic equipment, including AIM (Asthma Intervention & Management); Pulmonary Rehabilitation; PRO (Positive Respiratory Outcomes); and The Heart-Steps Program, primarily designed for patients suffering from CHF (congestive heart failure).

1972-89: Origins and Spin Off

The forerunner of Lincare Holding Inc. was Linde Homecare Medical Systems, which was formed in 1972 as a unit in Union Carbide Corporation’s industrial gasses division, or what would later become Praxair. Linde was a name associated with Union Carbide since 1917, when Union Carbide & Carbon Corporation (UCC) was organized from the merger of two chemical producers—National Carbon Company (founded in 1886) and Union Carbide (founded in 1898)—plus Linde Air Products, Prest-O-Lite, and Electro Metallurgical. At the time, Linde Air Products was primarily a producer of oxygen for industrial use.

In the 1980s, Union Carbide ran into some very difficult times. In a partnership arrangement with some indigenous companies, in 1975 it had built a pesticide plant in Bhopal, India. Disaster ensued in 1984, when a storage tank at that facility leaked five tons of poisonous gas, killing more than 3,000 people and leaving 50,000 more with life-long injuries. Partly because the company faced a major liability suit in India, in 1985 it was subjected to a hostile takeover attempt by GAF, a chemicals and roofing materials manufacturer. In order to fend off the attempt, Union Carbide bought back 55 percent of its stock, but in the process went $3 billion into debt. To help retire that immense debt, Union Carbide began selling off some of its holdings, including its battery division (even its Eveready branded products) as well as its agricultural and home and auto products businesses. In 1987, it also spun off Linde Homecare’s operations as Lincare Inc., and later, in 1992, it also spun off Praxair, the industrial gasses division to which Linde Homecare had once belonged.

1990-94: The Mixed Blessings of Government Policy and Regulation Changes

In 1990, with the help of investors, Lincare Inc.’s managers bought out the spun-off company, renaming it Lincare Holdings. Specifically, Lincare Holdings was a partnership of two venture capital firms, Dean Witter Capital Corp., and Lincare Inc.’s management. Dean Witter Capital was an affiliate of IPO underwriter Dean Witter Reynolds. The partner-owners took the company public, making an initial public offering in March 1990. The 3.9 million, $14 per share IPO raised $49.2 million, and within ten months, Lincare’s stock more than doubled in market value, fluctuating at close to $30 per share.

In December 1992, the company made a second offering of 1.7 million shares at $28.50 per share. By that time, Lincare was providing in-home respiratory therapy from a network of 115 operating centers. Its revenues had also started a rapid rise, and so had its net income. For example, its third quarter net income in September 1992 had risen to almost $4.7 million, up from $936,833 from the same period in the previous year, before the company went public.

Because most of the executives of the newly formed Lincare Holdings had been with the company when it was part of Union Carbide, they had considerable experience and expertise to bring to the task of managing and expanding the company, and analysts attributed much of the company’s success in the early and mid-1990s to their sure-handed guidance. Andrew M. Paul, who had served as chairman from 1990, stepped down in 1994, but he remained an active director. James T. Kelly, who had been CEO since 1986 and president since 1987, replaced Paul as chairman. James M. Emanuel, Lincare’s CFO, had held that post since 1984. Howard R. Deutsch, who was executive vice-president, general counsel, and board member, proved to be another key figure, credited with overseeing Lincare’s aggressive acquisitions strategy.

With the capital raised from it stock offerings and rapid growth in revenue and profits, the company was soon able to embark on its accelerated growth through the acquisition of smaller competitors and entries into new markets. In 1993, along with Abbey and Homedco (which merged as Apria Healthcare Group Inc. in 1995), the industry’s other chief operators, Lincare became a principal beneficiary of a costly and complex claims process that the federal government put into effect, one that forced many of Lincare’s smaller, mom-and-pop competitors to sell out. The government also reduced the number of insurance companies under contract to process claims from 60 to just four, a move that further discouraged small operators from staying in business. Until these changes came into effect, home oxygen and respiratory services had been dominated by small, $1 million to $3 million operations that Lincare and its chief rival began buying up.

By the summer of 1994, Lincare’s centers had grown to 161 operating in 34 states and servicing over 55,000 customers. It had become one of the country’s three largest providers of respiratory and other home-care services, and it was poised for even greater growth. Its policy was to purchase existing companies in new market areas rather than open a new Lincare office in a place where its name was unknown. In effect, Lincare treated each purchased company as a small business, customizing operations to fit the specific location of each of its new acquisitions.

The rapid expansion brought Lincare some problems, however. In 1994, after buying a small California company, it briefly came under the scrutiny of the Federal Trade Commission office in San Francisco. Also, because of questionable marketing and administrative services it had provided to a Florida pharmacy between 1989 and 1992, the company came under a 1994 grand jury investigation in Tampa. Although neither of these investigations resulted in serious financial difficulty for Lincare, they were the first in a series of problems that beset the company during the rest of the decade. Another was the mounting possibility that Congress might cut Medicare, something it periodically considered during the Clinton administration. That offered a major threat to Lincare, since, by 1995, Medicare accounted for 60 percent of the company’s revenue.

1995 and Beyond: Expansion Despite Challenges

It was in 1995 that Lincare came close to selling out to the Denver-based, home health giant, Coram Healthcare. Lincare agreed to a $1 billion stock swap in April of that year, occasioning analysts to laud it as a very sensible merger that would benefit both companies. Coram was experiencing growing pains of its own, however, and when its debts and losses both mounted, its stock value fell to an unacceptable level. By July the merger value of Coram’s stock had fallen to $840 million and, as a result, the parties called the merger deal off.

Despite the fact that in 1996 the company had to pay the federal government $1 million to settle the investigation of the services it had provided the unidentified pharmacy, neither government nor judicial probes nor jettisoned merger plans slowed Lincare down. The company seemed to have an almost uncanny ability to make a strategic move at just the right time. For example, in September 1996, just two days before the American Association of Retired Persons moved its large and lucrative health insurance business to the United Healthcare Group, United had named Lincare as one of its principal service providers. Moreover, Lincare simply continued to expand at a record clip. In 1996, it snapped up another 17 competitors, and in 1997 acquired 24 more. It was also diversifying, something that the scotched merger with Coram would have made easier but that Lincare now had to undertake by itself. By the end of 1996, it was servicing over 105,000 customers in 37 states, and by 1998 the figures had risen to 170,000 customers in 41 states. In 1997, its revenues had reached $443.2 million, with about 90 percent of that coming from delivering oxygen to patients in their homes. Still, because Medicare and Medicaid accounted for about 63 percent of the company’s sales, Lincare remained at the mercy of unpredictable, government mandated policy changes, a major risk factor in the health-care industry.

Company Perspectives:

The mission of Lincare is to set standards of excellence for providing respiratory care, infusion therapy and medical equipment to patients in the home. Our company’s success, which is characterized by responsiveness and clinical excellence, has been founded on the dedication of our professionals to quality care. Physicians, care givers and patients trust Lincare to provide the quality care they expect and deserve.

The federal government, which was carefully monitoring that industry because of ever rising health care costs, began new investigations of Lincare in 1998 and 1999, first in California and Oregon and then in Florida. Although the company called such investigations routine and inevitable, the probes provided some bad publicity and somewhat tarnished the company’s image. In November 1998, the company was also sued by whistle-blower Kirk Costello, a former employee who charged that the company and its top competitors, Apria Healthcare Inc. and RoTech Inc., habitually gave physicians fraudulent consulting contracts, free equipment, and other kickbacks in return for patient referrals for oxygen and other health-care services. No government agency was party to the suit, however.

The success of Lincare in the final years of the twentieth century make such investigations and legal entanglements seem more like petty annoyances than serious setbacks. By July of 2000, just prior to its acquisition of United Medical Inc. of Wynne, Arkansas, Lincare was operating 429 health-care centers in 42 states and servicing over 225,000 customers. The purchase of United Medical brought an additional 42 locations and a $60 million increase in annual revenue, which, at the end of 1999, had already reached $581.8 million, from which the company Generaled a very healthy net income of $100.7 million—a net profit margin of $17.3 percent. The fact that between 1993 and 1999 Lincare’s net profit margin averaged 18.3 percent annually must in part account for the close scrutiny it received and continues to receive from external agencies.

Altogether, in 1999, Lincare purchased the operating assets of 18 local and regional competitors plus the common stock of four other companies. These increased the aggregate total revenues of Lincare by about $61 million. Additionally, in 2000, the company acquired the operating assets of another 15 regional and local competitors, adding about $82 million to its annual revenues. The acquisitions made in the two years brought another 48 centers into Lincare’s expanding network.

In truth, at the outset of the new century, the proverbial sky seemed to be Lincare’s only limit—unless, of course, the federal government came up with more troublesome obstacles. The company was certainly thriving. In fact, it did even better in 2000 than in 1999, with its gross revenues reaching $702.5 million and its net income almost $116.9 million. Still, the business risks remain real and to a large measure beyond the company’s control. The ballooning cost of health care in the United States will undoubtedly lead to new or revised regulations and the continued oversight and scrutiny of health-care providers, including Lincare and its chief competitors.

Principal Competitors

American HomePatient, Inc.; Apria Healthcare Group Inc.; Coram Healthcare Corporation; In Home Health, Inc.; RoTech Medical Corporation; Transworld HealthCare, Inc.

Key Dates:

1972:: Linde Home Medical Systems is formed as part of Union Carbide’s industrial gases division.
1987:: Union Carbide spins off Linde Homecare as Lincare Inc., an autonomous affiliate.
1990:: Investors help Lincare management buy the company, which is renamed Lincare Holdings, Inc.
1992:: Company goes public on the NASDAQ.
1994:: Lincare Holdings buys Home Oxygen Plus Equipment and Meridian Medical.
1996:: Lincare acquires 17 competitors.
1997:: Company purchases an additional 24 competitors.
1998:: Federal government scrutiny of Lincare’s production plants and billing records.
2000:: Federal grand jury begins an investigation of alleged irregularities.