AMEPA NEWSLETTER

Rotech Healthcare, one of the largest national Durable Medical Equipment companies, announced yesterday that they were offered 17 contracts in the first round DMEPOS re-bid, despite the fact that they have over half a billion dollars in long term debt and have reported cumulative losses of $267 million over the last 2 fiscal years.

A Rotech company Press Release on July 12, 2010 stated:

Rotech Healthcare Inc. (OTCBB: ROHI) today announced that it has accepted 17 contracts awarded by the Centers for Medicare & Medicaid Services (“CMS”) in the Round 1 Rebid of the national Medicare Competitive Bidding Program. The Round 1 Rebid included nine metropolitan statistical areas (“MSAs”). Only contracted suppliers can service Medicare patients for the competitively-bid product categories in these locations, with a few exceptions. The new contracts awarded in Round 1 have a three-year term and are scheduled to take effect on January 1, 2011. Rotech has accepted the following contracts:

— 6 MSAs for oxygen supplies and equipment;

— 6 MSAs for enteral nutrients, equipment and supplies;

— 3 MSAs for CPAP, RADs and related supplies and accessories; and

— 2 MSAs for standard power wheelchairs, scooters and related accessories.

CMS continues to award contracts through September and, therefore, additional contracts may be awarded.

 “We are pleased with our success in the Round 1 Rebid of the national competitive bidding program and we look forward to further growth and expansion of our existing presence in these initial cities,” commented Philip L. Carter, Rotech’s President and Chief Executive Officer. “The new payment rates for our six oxygen contracts averaged approximately 30% off the current applicable Medicare payment rates,” Mr. Carter continued. “Not assuming any market share gains, the application of the new competitive bid rates to our existing patient base in these nine MSAs reduces our revenue by approximately $900,000 in the first quarter of 2011,” he explained, adding that “We believe, however, that our market share gains in the cities where we were awarded contracts will more than offset the reductions in reimbursement rates over time.

Rotech discusses possible bankruptcy filing  

 The following is from Rotech’s 10-Q Form on May 10, 2010 to the SEC, in regards to their Upcoming Debt Maturities:

At March 31, 2010, we had approximately $514.6 million of long-term debt outstanding. Our Senior Facility ($225.8 million) matures in September 2011 and our senior subordinated notes ($287.0 million) mature in April 2012 …There can be no assurance, however, that we will be able to refinance any of our debt, including our Senior Facility and our senior subordinated notes, on commercially reasonable terms or at all, in which case we may be required to consider all of our alternatives in restructuring our business and our capital structure, including filing for bankruptcy protection, which likely would result in our creditors receiving an amount that is less than the full amount of the debt owed them and the elimination of all value of our outstanding common stock.

Reaction

Jack Marquez, Vice-President of AMEPA, was appalled by the news. “This again shows that Medicare is only looking at the lowest bids and not a company’s ability to stay in business while attempting to provide products and services to the elderly. CMS stated that all suppliers who are offered contracts went through a thorough vetting process, and met financial standards, but how low can those standards be when they offer 17 contracts to a company with reported cumulative losses of $267 million and $514 million dollars in debt, all of which is due and payable by April 2012, 15 months into a 3 year contract.”