Q. I am worried about the cuts mandated
by the Medicare Modernization Act and how it will affect the value of my company.
Will the value of my business be adversely
impacted? Has there already been a negative
A. The biggest effect on HME valuations
thus far relates to the pending 2005 cuts on
respiratory medications. Even though it is
not yet clear how the new rates will be
established, buyers have reacted swiftly in
their evaluation of respiratory medication
businesses. In a recent sale of a pure play
respiratory medication provider, the value
was down 60-70% from prior to MMA. And
depending on how the bill is ultimately implemented,
valuations in this segment could
potentially go lower still. Thankfully, most
providers revenues are not 100% respiratory
medications, and the affect of MMA on your
particular company will depend on a number
of factors, including your specific product
and revenue mix. Respiratory providers without
pharmacies have actually experienced
rising values over the last six months.
This year may be a good time to explore
your options. I view 2003 / 2004 as similar
to 1997 /1998, when the industry last
faced large cuts. Like then, the demand
from buyers is strong and I believe it will
remain so into mid-2005, after the reimbursement
cuts take effect. You should
take this time to review your long term
strategy and make sure you arenít missing
a window of opportunity.
Richard Glass is the President of SRA,
specializing in the growth and sale of HME/
Respiratory companies. 800-813-4984.
Reprinted with permission of HME News from the May 2004
issue. ©2004 United Publications, Inc., Yarmouth, ME.