US bidding scheme hits F&P Health

Photo / Derek Flynn

Fisher & Paykel Healthcare says a new competitive bidding programme introduced by a US Government funding body will result in some pricing pressure in its American market.

This month the US Centres for Medicare and Medicade Services (CMS), which oversees Government-funded health insurance programmes for senior citizens and low income earners, released the results of its first round of competitive bidding.

Under the scheme, US healthcare product providers, essentially retailers, approach the funding body with prices they are willing to charge for medical products - including those used in the treatment of obstructive sleep apnoea manufactured by F&P Healthcare.

Tony Barclay, chief financial officer of F&P Healthcare, said the firm would come under some pricing pressure from the bidding programme, but did not expect "direct, large impact".

He said products paid for by the CMS made up around 20 to 25 per cent of the company's total sales in the US.

F&P Healthcare's largest market is North America, which accounts for 46 per cent of its sales.

Goldman Sachs JBWere analyst Marcus Curley said the bidding, which covered nine US regions, contained more aggressive price reductions than he had expected. The danger lay, he said, in a flow-through effect - private insurers reacting to the changes and moving their own reimbursement rates in line with those of the CMS.

"It would lower the industry funding by something between 10 and 15 per cent ... in a worst case it could slow the profit growth for [F&P Healthcare] to a minimal level while this filters through over the course of a couple of years," Curley said.

But pricing and margin impacts were already well-captured in forecasts made by Goldman Sachs JBWere, which reiterated its "buy" recommendation for F&P Health stock.

He said President Barack Obama's Healthcare Reform Bill, which was passed into law in March, would help offset any negative impact from the CMS bidding programme.