Attached files
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| 8-K - FORM 8-K - ROTECH HEALTHCARE INC | d8k.htm |
Exhibit 99.1
Exhibit 99.1
ROTECH
HEALTHCARE INC.
We Care About Patient Care
Confidential
Rotech Healthcare Inc.
September 2010
ROTECH
HEALTHCARE INC.
We Care About Patient Care
1. Company overview
Confidential
1
ROTECH
HEALTHCARE INC.
We Care About Patient Care
Company overview
One of the largest providers of home respiratory services
- 450 locations, largely non-urban
- Over 300,000 patients in 48 states
- Seven billing / collections offices
$493mm LTM net revenue
20 large managed care contracts
Awarded 6 of 9 competitive bidding regions
Largest provider of home oxygen services to the Veterans Administration
Headquartered in Orlando, Florida
2010 YTD Revenue
Other 3%
DME 11%
Respiratory 86%
Confidential
2
ROTECH
HEALTHCARE INC.
We Care About Patient Care
National provider, non urban focus
Round One CBAs
Round Two CBAs
Rotech locations outside Round One and Two CBAs
Rotech locations inside Round One and Two CBAs
~ 75% of Rotech’s branches are outside of Round 1 and Round 2 Competitive Bidding Areas
Confidential
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ROTECH
HEALTHCARE INC.
We Care About Patient Care
Service offerings
YTD 2010 Revenue
Oxygen (Medicare and Private) 49%
Sleep Apnea 24%
Durable Medical Equipment 12%
Nebulizer Medications 10%
Other(1) 5%
Total 100%
Note: Based on revenues as of 6/30/10.
(1) Includes other respiratory, revenues from advertising, etc.
Confidential
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ROTECH
HEALTHCARE INC.
We Care About Patient Care
Payor mix becoming more diversified
Rotech
2009
Private 4%
Commercial 38%
Medicare 42%
VA 9%
Medicaid 7%
2007
Private 3%
Commercial 31%
Medicare 51%
VA 8%
Medicaid 7%
National providers
Apria 2009
Medicare 22%
Medicaid 6%
Commercial 72%
Lincare 2009
Private 7%
Medicare 47%
Medicaid 13%
Commercial 33%
Source: Public filings.
Confidential
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ROTECH
HEALTHCARE INC.
We Care About Patient Care
Consistent operating trends
Net oxygen patients
135,213
131,360
124,476
119,400
2007
2008 2009
YTD
Stable employee base turnover
(% turnover – voluntary only)
34%
27%
19%
18%
2007
2008
2009
YTD
Sleep apnea net revenues
($ in millions)
$83
$90
$112
$61
2007
2008
2009
1H 2010
Strong control over capital expenditures
($ in millions)
$52
$48
$36
$22
2007
2008
2009
1H
2010
% Revenue:
9.4% 8.4% 7.5% 8.9%
Note: Capital expenditure shown is maintenance capex.
Confidential
6
ROTECH
HEALTHCARE INC.
We Care About Patient Care
Successfully executing plan and deleveraging
Consistent EBITDA growth
($ in millions)
Adjusted EBITDA (1)
7.5%
$77 $82 $89
18.6 %
$43 $51 (2)
2007 2008 2009 1H 2009 1H 2010
Focus on deleveraging
Net debt / Adjusted EBITDA
5.6x
5.3x
5.1x
4.7x
2007 2008 2009 Q2 2010
(1) See appendix for a reconciliation of Adjusted EBITDA from net earnings (loss).
(2) Includes $5mm benefit for accounts receivable adjustment in Q1 2010 and excludes $3mm one-time gain related to commercial arbitration settlement.
Confidential
7
ROTECH
HEALTHCARE INC.
We Care About Patient Care
Highlights
Strong demographic trends
Necessary, cost-effective service in a highly fragmented industry
Well positioned for competitive bidding
Scale and cost efficiency provide significant upside
Regulatory environment stabilized
Proven and experienced management team
Confidential
8
ROTECH
HEALTHCARE INC.
We Care About Patient Care
Favorable industry drivers
$6B industry growing 5%–6% annually, excluding reimbursement cuts
Medicare population continues to grow and age
- US population age 55+ expected to grow ~2x the average growth rate
- ~30% of population by 2030
Respiratory incidence increasing
- 15 million Americans with COPD
- 750k hospital admissions annually
- Average cost per patient ~$18K
- Only major disease with rising incidence
Medicare beneficiary growth
(Beneficiaries in millions)
2.3% CAGR
20 34 40 46 61 78
1970 1990 2000 2010 2020 2030
Source: Kaiser Family Foundation, 2010.
COPD incidence growth
(Patients in millions)
13.7 14.2 14.5 14.6 14.6 14.8
2003 2004 2005 2006 2007 2008
Source: CDC, 2010.
Source: U.S. Census Bureau.
Confidential
9
ROTECH
HEALTHCARE INC.
We Care About Patient Care
Home care is a cost-effective service
Oxygen patients require services for extended period of time
- Average 24 months
- Growing longer with earlier detection and increasing patient life span
Cost-effective alternative to institutional care
- Government and MCOs need to contain increasing costs
- Better response to treatment and lower incidence of infection
Patients prefer in-home care
$7/day In-home oxygen cost for Medicare patient per day
$3,600+/day
In-patient hospitalization cost to receive oxygen per day
Source: American Association for Homecare.
Confidential
10
ROTECH
HEALTHCARE INC.
We Care About Patient Care
Market position
Local market focus
Highly fragmented market
Rapid industry consolidation allows efficient operators to gain share
2009 respiratory market
Rotech 8%
Other 43%
Lincare 26%
American Home Patient 4%
Apria 19%
Confidential
11
ROTECH
HEALTHCARE INC.
We Care About Patient Care
Competitive Bidding overview
Reimbursement rates between CMS and designated providers
- Mandated by Congress in 2003 and amended under the Medicare Improvements for Patients and Providers Act (MIPPA) on July 15, 2008
- Initial proposal covers Competitive Bidding Areas (CBAs or MSAs) over two bidding periods (2011 and 2013)
- Awards providers with 3 year contract
- Non-winning providers become precluded from providing services to new patients
Round 1
- 9 CBAs starting Jan 1, 2011
- Estimated ~30% rate cut
- 70% of existing providers not offered Competitive Bidding contracts
Round 2
- 91 CBAs starting Jan 1, 2013
- Bids due at a date to be announced in 2011
- Rotech currently has branches in 63 of these CBAs
Source: CMS.
Confidential
12
ROTECH
HEALTHCARE INC.
We Care About Patient Care
How Competitive Bidding works
200
Net New Medicare O2 Patients per Month
Before Competitive Bidding
100
Providers
National Providers
Local Providers
Regional Providers
After Competitive Bidding
30
Providers
National Providers
Local Providers
Regional Providers
New Providers
30% of the providers offered contracts do not currently offer products in the CBA
Average Number of Net New Medicare O2 Patients per Provider per month
Before Competitive Bidding 2
70% of existing providers not offered contracts
Greater than 300% increase
After Competitive Bidding 7
Confidential
13
ROTECH
HEALTHCARE INC.
We Care About Patient Care
Rotech’s Round 1 results
Awarded 6 of 9 CBA contracts for oxygen supplies
– Approximately 7% Medicare market share across CBAs
– Estimated 70% of existing providers not offered a CBA contract
– Estimated 30% of winning providers have no local presence in market
3 CBAs not awarded to Rotech
– Medicare oxygen revenue within these 3 CBAs is less than 5% of the total revenue for the associated branches
– Rotech will “grandfather” patients and stay in these CBAs
Limited financial impact
– Q1 2011 impact of $900k, excluding referral growth from 17 new contracts
– 7-12 months to breakeven if Medicare market share increases to 11%-21%
Rotech revenue
Medicare Round 1 3%
Non-Medicare revenue 61%
Other Medicare revenue 36%
Note: YTD 6/30/10.
Opportunity to gain market share and more than offset reductions in reimbursement rates
Confidential
14
ROTECH
HEALTHCARE INC.
We Care About Patient Care
Financial impact of Competitive Bidding
Illustrative case study
Nine branches
5,055 oxygen patients
– Medicare market share of 15%
Assumes 40% rate cut for Medicare O2 patients
– ~6% aggregate reduction in total base revenues
Opportunity to improve market share with 70% reduction in number of providers
Branch level EBITDA margin expected to improve from 27% to 46% over three years post-CBA
% increase in volume
Quarterly increase in new patients
Timing to breakeven (months)
50% 114 10–12
100% 152 7–9
150% 190 7–9
200% 228 7–9
300% 304 4–6
Note: Pre-CBA new patient volume is estimated to ~76 patients per quarter.
Timing to Breakeven EBITDA
($ in 000’s)
$2,000 $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 –
EBITDA = $1,436
$1,309 $1,354 $1,423 $1,515
1 2 3 4
# of Quarters
50% Volume Increase Incremental for 150% Incremental for 300%
Incremental for 100% Incremental for 200% EBITDA Pre-CBA
Source: Company information.
Increases in volume are expected to more than offset the impact of Medicare rate reductions
Confidential
15
ROTECH
HEALTHCARE INC.
We Care About Patient Care
Rotech’s exposure to Competitive Bidding is limited
~50% of Rotech’s branches are outside of CMS’ defined Metropolitan Statistical Areas (MSAs) which are utilized to establish Competitive Bidding Areas (CBAs)
Round 1 Competitive Bidding (9 CBAs)
Round 2 Competitive Bidding (91 CBAs)
Rotech located in 63 of 91 CBAs
28 CBAs without branches provides upside
Remaining MSAs Nationwide
Rotech locations in remaining 231 MSAs
Rural markets – outside MSA
TOTAL ROTECH BRANCHES
Rotech branches Rotech revenue
25
97
108
223
453
Medicare Round 1 3%
Medicare Round 2 12%
Remaining Medicare MSAs 10%
Medicare rural markets 14%
Non-Medicare revenue 61%
Total Medicare revenue 39%
Note: YTD 6/30/10.
Approximately 25% of Rotech’s overall revenue could be exposed to Competitive Bidding
Confidential
16
ROTECH
HEALTHCARE INC.
We Care About Patient Care
Regulatory environment stabilized
2011 competitive bidding: limited to nine CBAs
– Won 6 of 9 regions
– $900k impact Q1 (without offset from 17 contracts awarded)
2010 impact: $6mm
– Nebulizer medications
2009 impact: $68mm
– 36-month oxygen cap: $25mm
– 9.5% MIPPA reduction: $17mm
– Reduction in nebulizer medication: $26mm
No significant changes expected until Competitive Bidding implemented
Source: Rotech 2009 10K.
Confidential
17
ROTECH
HEALTHCARE INC.
We Care About Patient Care
Strategic paths to EBITDA growth
Natural industry growth
Aging population base
Increasing awareness of COPD
Lower cost environment
Attractive commission and bonus programs
ROTECH
HEALTHCARE INC.
We Care About Patient Care
Equipment purchases from competitors exiting the industry
Selective purchase of equipment on rent in patient’s homes from competitors exiting industry
– 2009: $10.5mm equipment purchases, ~$11.3mm annual revenue
– 2010: $2.3mm equipment purchases to date; ~$3.1mm annual revenue
Leverage existing fixed cost infrastructure
Layer additional patient volume into existing infrastructure
Maintain stringent control over expenses and capital expenditures
Confidential
18
ROTECH
HEALTHCARE INC.
We Care About Patient Care
Proven and experienced management team
Name Title Years of sector experience Previous background
Phil Carter President and CEO 12 CEO of Apria Healthcare
President and CEO of Mac Frugal’s Bargain Close-Outs Inc.
Mike Dobbs Chief Operating Officer 12 EVP, Logistics at Apria Healthcare
SVP, Distribution at Mac Frugal’s Bargain Close-Outs Inc.
Steve Alsene Chief Financial Officer 7 Head of Corporate Audit Services of Harcourt Education
Rebecca Myers Chief Legal Officer 10 SVP & General Counsel at Options Healthcare
SVP & General Counsel at ValueRX
Don Guenette Chief Supply Chain Officer 18 SVP, Corporate Purchasing at Apria Healthcare
Mary Clark Chief Contracts Officer 17 SVP, Managed Care at Apria Healthcare
Confidential
19
ROTECH
HEALTHCARE INC.
We Care About Patient Care
2. Financial review
Confidential
20
ROTECH
HEALTHCARE INC.
We Care About Patient Care
Financial accomplishments
Successfully transitioned through Medicare reimbursement challenges
– Restructured field operations, clinical programs and pharmacy operations
– Recorded ~$52mm of savings; primarily comprised of staffing reductions
Reinvested in operational infrastructure
– Expanded sales and operations training programs
– Upgraded proprietary billing platform
– Streamlined billing processes and medical documentation, electronic claims submission and order intake
Initiated cash interest payment on PIK loan in September 2009
Continued wins and growth in managed care and VA contracts
Confidential
21
ROTECH
HEALTHCARE INC.
We Care About Patient Care
Rotech successfully reorganized company to offset recent challenges
EBITDA bridge
($ in millions)
77 15 (18) 8 82 18 (25) (17) (26) 52 5 89
2007 adjusted EBITDA
Gross profit $ growth
Nebulizer medication reductions
2008 restructuring initiatives
2008 adjusted EBITDA
Gross profit $ growth
Medicare 36-month rental cap
MIPPA 9.5% medication reductions
Nebulizer medication reductions
2009 restructuring initiatives
Equipment purchases from competitors
2009 adjusted EBITDA
Confidential
22
ROTECH
HEALTHCARE INC.
We Care About Patient Care
Quarterly results remain strong
($ in millions)
Q1 2009A Q2 2009A Q3 2009A Q4 2009A Q1’2010A Q2’2010A
Revenue $119 $116 $123 $123 $123 $124
Adj. EBITDA* $21 $22 $23 $23 $25 (1) $26 (2)
% margin 17.9% 18.7% 18.9% 18.9% 20.2% 21.2%
% growth 25.6% 20.6% 9.4%(2.2%) 17.4% 22.0%
Balance sheet statistics
Cash and cash equivalents $70 $70 $83 $59 $59 $54
Total debt 507 511 513 513 513 513
Net debt 438 441 430 454 454 459
Credit statistics
Debt / LTM EBITDA 6.0x 5.8x 5.7x 5.7x 5.5x 5.2x
Net debt / LTM EBITDA 5.2x 5.0x 4.8x 5.1x 4.9x 4.7x
(1) Includes $5mm benefit for accounts receivable adjustment in Q1 2010.
(2) Excludes $3mm one-time gain related to commercial arbitration settlement related to previously unpaid claims, interest, fees and legal costs.
* See appendix for a reconciliation of Adjusted EBITDA from net earnings (loss).
Confidential
23
ROTECH
HEALTHCARE INC.
We Care About Patient Care
Appendix
Confidential
24
ROTECH
HEALTHCARE INC.
We Care About Patient Care
Adjusted EBITDA reconciliation
($ in millions)
2007A 2008A 2009A Q1’10A Q2’10A
Adjusted EBITDA
Net (loss) earnings ($46) ($247) ($21) ($7) $3
Federal and state income tax expense (benefit) (5) (0) – 0 (0)
Interest expense 49 50 46 11 11
Depreciation and amortization 63 67 63 15 15
Adjustments to EBITDA:
Goodwill and long-lived asset impairments – 207 – – –
Loss on extinguishment of debt 12 – – – –
Accounts receivable adjustments – – – 5 –
Restructuring expense – 4 – 0 0
Settlement costs 4 – – – –
Non-cash equity-based compensation expense 0 1 1 0 0
Other adjustments – – 0 – (3)
Adjusted EBITDA $77 $82 $89 $25 (1) $26 (2)
(1) Includes $5mm benefit for accounts receivable adjustment in Q1 2010.
(2) Excludes $3mm one-time gain related to commercial arbitration settlement related to previously unpaid claims, interest, fees and legal costs.
Note: Additional detail is available in Rotech’s 8-K filed on May 10, 2010.
Confidential
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