Daily ShareChat: Fisher & Paykel Healthcare

By Jenny Ruth

Sunday 1st August 2010

The introduction of competitive bidding, including for the obstructive sleep apnea (OSA) products Fisher & Paykel Healthcare Corporation manufactures, in nine or 10 major US cities is unlikely to have a major impact on OSA producers, says Morningstar analyst Nachi Moghe.

The move by The Centre for Medicare and Medicaid (CMS) has resulted in significant reductions in reimbursement rates for OSA treatment, Moghe says.

Fisher & Paykel "says reimbursements were down 30% on average. This looks pretty significant at face value, especially when you compare it with (annual) price declines of around 5% seen so far," he says.

However, the vast majority of the cut in reimbursements relates to margins charged by home care dealers for providing sales and support services. "In other words, it is the home care dealers, and not producers, who are likely to bear the brunt."

CMS accounts for about 25% of Fisher & Paykel's US OSA sales with private insurers making up the rest and private insurers already have competitive bidding in place, Moghe says.

He estimates CMS prices will drop 10% as competitive bidding is progressively introduced across all US states over a number of years and prices through private insurers will drop 3%. Given Fisher & Paykel's business split, this will work out at 5% overall, consistent with historic levels.

The company says it will counter this through launching new products.

Recommendation: Buy (upgraded from accumulate).

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