Lincare, Liberty try to scare up acquisition targets

YARMOUTH, Maine - Diabetic Experts of America, a Lincare affiliate, and Liberty Medical have begun sending out gloom-and-doom letters, trying to convince providers of diabetic supplies to sell them their companies.

Both Diabetic Experts and Liberty hint that providers should get out while the getting is good--or before competitive bidding kicks in and slashes reimbursement.

In its letter, Diabetic Experts states: "As you may know, the National Competitive Bidding process will dictate the number of companies allowed to service Medicare beneficiaries. In the first round of bidding, the reimbursement was on average 40% lower than today's Medicare reimbursement rates. The re-start goes into effect on January 1, 2011."

In its letter, Liberty states: "The DME industry in which you and I operate is ever changing and dynamic. In particular, the ongoing Competitive Bidding Program presents tremendous uncertainty for all of us." (Liberty wrote the last sentence in italics.)

Both companies express interest in, as Diabetic Experts put it, "acquiring your diabetic patient base."

"They are painting a picture that as you are waiting for your bid result, get out while you still can because you are going out of business anyway," said AMEPA President Rob Brant.

These scare tactics have had limited success, say industry watchers.

"We've talked to people and they don't want to sell," said one industry M&A expert. "The mentality is, 'Well, if Liberty wants to buy it, there must be something good about it.'"

Some providers, however, do want to sell, especially when Liberty is paying top dollar, about $385 per patient, said a competitor of Liberty and Diabetic Experts.

"I can't touch that," the competitor said. "Two hundred dollars per patient is closer to our sweet spot."

In fact, there have been reports of companies paying $150 to $200 per patient and then turning around and selling them to Liberty for close to $400.

This scramble for diabetes patients--building volume to offset an expected cut in reimbursement--reminded one industry watcher of the boom in M&A activity for respiratory companies that occurred a few years ago. It won't last forever, he said.

"I have no problem telling them that I've been there, done that," he said. "We went though this with oxygen. I've got guys who turned down $12 million three years ago and couldn't get $6 million today. Think carefully to what you are saying."

Liberty and Diabetic Experts officials did not return calls for this story.