Invacare 2008 Annual Report Download - page 23

Item 1A. Risk Factors.
The company’s business, operations and financial condition are subject to various risks and uncertainties.
You should carefully consider the risks and uncertainties described below, together with all of the other
information in this annual report on Form 10-K and in the company’s other filings with the SEC, before making
any investment decision with respect to the company’s securities. The risks and uncertainties described below
may not be the only ones the company faces. Additional risks and uncertainties not presently known by the
company or that the company currently deems immaterial may also affect the company’s business. If any of these
known or unknown risks or uncertainties actually occur, develop or worsen, the company’s business, financial
condition, results of operations and future growth prospects could change substantially.
Changes in government and other third-party payor reimbursement levels and practices have negatively
impacted and could continue to negatively impact the company’s revenues and profitability.
The company’s products are sold through a network of medical equipment and home health care providers,
extended care facilities, hospital and HMO-based stores, and other providers. Many of these providers (the
company’s customers) are reimbursed for the products and services provided to their customers and patients by
third-party payors, such as government programs, including Medicare and Medicaid, private insurance plans and
managed care programs. Most of these programs set maximum reimbursement levels for some of the products
sold by the company in the United States and abroad. If third-party payors deny coverage, make the
reimbursement process or documentation requirements more uncertain or further reduce their current levels of
reimbursement (i.e., beyond the reductions described below), or if the company’s costs of production increase
faster than increases in reimbursement levels, the company may be unable to sell the affected product(s) through
its distribution channels on a profitable basis.
Reduced government reimbursement levels and changes in reimbursement policies have in the past added,
and could continue to add, significant pressure to the company’s revenues and profitability. For example, the
Centers for Medicare and Medicaid Services (CMS) announced U.S. reimbursement cuts of 9.5% for those
product categories which had been included in phase one of the now delayed National Competitive Bidding
(NCB) program. These U.S. cuts were effective January 1, 2009. In addition to the 9.5% reduction on oxygen
reimbursement from Medicare mentioned above, the Deficit Reduction Act’s limit on 36 months of rental
payments for home oxygen went into effect January 1, 2009. CMS has clarified that payments do restart after 60
months of a patient’s usage of oxygen. However, Invacare’s new respiratory products (for example, the low cost
HomeFill®oxygen delivery system) can help offset the reimbursement cuts that the home care provider is
receiving from Medicare.
Similar trends and concerns are occurring in state Medicaid programs. These recent changes to
reimbursement policies, and any additional unfavorable reimbursement policies or budgetary cuts that may be
adopted in the future, could adversely affect the demand for the company’s products by customers who depend
on reimbursement from the government-funded programs. The percentage of the company’s overall sales that are
dependent on Medicare or other insurance programs may increase as the portion of the U.S. population over
age 65 continues to grow, making the company more vulnerable to reimbursement level reductions by these
organizations. Reduced government reimbursement levels also could result in reduced private payor
reimbursement levels because some third-party payors may index their reimbursement schedules to Medicare fee
schedules. Reductions in reimbursement levels also may affect the profitability of the company’s customers and
ultimately force some customers without strong financial resources to go out of business. The reductions that
went into effect recently may prove to be so dramatic that some of the company’s customers may not be able to
adapt quickly enough to survive. The company is the industry’s largest creditor and an increase in bankruptcies
in the company’s customer base could have an adverse effect on the company’s financial results.
Outside the United States, reimbursement systems vary significantly by country. Many foreign markets have
government-managed health care systems that govern reimbursement for new home health care products. The
ability of hospitals and other providers supported by such systems to purchase the company’s products is
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