Invacare 2011 Annual Report Download - page 26

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 do not decrease to keep pace
with decreases 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, CMS
introduced national competitive bidding for nine metropolitan areas in the U.S., which went into effect in January
2011. The reimbursement rates for nine product categories were reduced by an average of 32 percent in these
nine metropolitan areas. CMS is currently scheduled to expand the NCB program to an additional
91 metropolitan areas in July 2013.
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 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 reimbursement
reductions 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
dependent, in part, upon public budgetary constraints. Various countries have tightened reimbursement rates and
other countries may follow. If adequate levels of reimbursement from third-party payors outside of the
United States are not obtained, international sales of the company’s products may decline, which could adversely
affect the company’s net sales.
The impact of all the changes discussed above is uncertain and could have a material adverse effect on the
company’s business, financial condition and results of operations.
The adoption of healthcare reform and other legislative developments in the United States may adversely
affect the company’s business, results of operations and/or financial condition.
In March 2010, significant reforms to the healthcare system were adopted as law in the United States under
the Patient Protection and Affordable Care Act. The law includes provisions that, among other things, reduce
and/or limit Medicare reimbursement, require all individuals to have health insurance (with limited exceptions)
and impose new and/or increased taxes. Specifically, the law imposes a 2.3% sales-based excise tax on U.S. sales
by manufacturers of most medical devices beginning in 2013. The excise tax will be deductible by the
manufacturer on its federal income tax return. The excise tax will not apply to medical devices that the Secretary
of Treasury determines are generally purchased by the general public at retail for individual use. In January 2012,
the Department of the Treasury issued guidance on the definition of a taxable medical device related to the excise
tax. While the company believes a portion of its products will be exempt from the excise tax under the retail
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