Does AHP have a strategy?

BRENTWOOD, Tenn. - American HomePatient's net loss of $2.6 million for the year ended Dec. 31, 2006, has industry watchers wondering why the national provider, which they describe as "treading water," hasn't detailed a turnaround plan. AHP blamed Medicare reimbursement changes, especially those for inhalation drugs, for its losses. The provider posted a net income of $7.7 million for 2005. "There's a concern in my mind and on Wall Street, I'm sure, that they haven't articulated that their strategy will change at all," said industry consultant Schuyler Hoss, president of Northwest Healthcare Management in Vancouver, Wash. "They've made no public plans to diversify their revenue sources, no plans to drop the non-profitable segments of their business." In the financial earnings it released March 13, AHP posted revenues of $328.1 million for the year ended Dec. 31, 2006, compared to $328.4 million for 2005, a decrease of 0.1%. AHP's strategy for dealing with reimbursement changes is like night and day compared to Apria's and Lincare's, industry watchers said. While the former has been silent, the latter have given investors and Wall Street a "heads up" and talked openly about their game plans for the future, they say. "Apria and Lincare have gotten into and out of a lot of businesses--they're constantly changing--and it's all been predictable to Wall Street," Hoss said. "Because of that communication, there's been more of a calm." AHP may be keeping a low profile because it still has hopes of being bought, industry watchers said. "If you're trying to sell, the last thing you want to do is run the stock price up by promoting yourself and telling everyone what you're doing, because the premium won't be as attractive," said Balaji Gandhi, an analyst with the New York-based Oppenheimer & Co. "I've seen it happen before--a company goes radio silent then, boom, a deal gets announced." Highland Capital, which owns about 80% of AHP's debt and 10% of its stock, moved to buy the provider last year but never went through with it. Industry watchers believe the investment firm may have been spooked by the devastating affect that last year's reimbursement cuts to compounded budesonide had on one of AHP's competitors, Rotech. AHP predicts that the Medicare landscape will be no more forgiving this year. In its financial statement, the provider estimates that net revenue and net income for 2007 will be $3.8 million less than for 2006 due to reimbursement cuts for home oxygen therapy implemented Jan. 1, 2007. On a bright note, the provider reported operating expenses were down $2.7 million for 2006 compared to 2005.