What's the holdup at Inogen?

GOLETA, Calif. - Inogen's investigation into its accounting practices could be representative of the potential “landmines” manufacturers face when selling direct to consumers, industry watchers say.

Billing Medicare for products and services provided to beneficiaries is a whole different ballgame than billing HME providers for products sold, they say.

“Here's a manufacturer who thinks they can bill Medicare,” said Rick Glass, president of Steven Richards & Associates. “How many providers do we know that have been billing Medicare for years and have significant problems? That's the logical reason for their issues.”

Inogen announced on March 12 that it was delaying reporting its fourth quarter and year-end earnings because management discovered “certain potential accounting matters” during the first quarter of 2015, prompting an Audit Committee, with help from independent advisers, to launch an investigation.

While Inogen has yet to detail those accounting matters, watchers say they could have to do with how the company has been recording its revenues. Providers typically book revenues at what they billed Medicare and then make adjustments when they get paid. If their adjustments are off, their revenues could be overstated.

“In a business like Inogen's, where there is significant growth, it has the potential of distorting revenue,” said Don Davis, president of Duckridge Advisors.

The bigger question, watchers say, is why Inogen didn't resolve these “accounting matters” before March 12.

“Generally speaking, they would have the auditors in on Jan. 31 to close the books to get everything ready for the fourth quarter and year-end release,” Davis said. “This means there's probably something between management and accounting that they can't work out.”

Watchers agree that as long as it's not an issue of fraud and as long as any restatement of earnings doesn't wipe out all of Inogen's profits for the quarter or year, the company will get through the investigation intact.

“They're saying they're confident about their guidance for 2015, so they'll take the hit and move on,” Davis said.

Watchers also doubt anything significant will come out of the law firms that have subsequently sued Inogen in the wake of the news of the investigation.

“That's common,” said Bob Leonard, a managing director at The Braff Group. “They're ambulance chasers.”

As more companies shift their business models to try and eek out profits in an increasingly complex and demanding healthcare market, these types of difficulties may become more common, watchers say.

“A lot of healthcare companies are striking out in sort of unique ways,” said Jonathan Sadock, the CEO of a managing partner at Paragon Ventures. “There are potential landmines in that.”