Invacare 2012 Annual Report Download - page 53

Providers and medical professionals, who are already over-burdened with substantial documentation
obligations to satisfy reimbursement requirements, have struggled to complete the additional documentation
needed to obtain an Invacare wheelchair or seating system for their users. In addition, the company reviews each
signed verification of medical necessity (VMN) form for new and replacement wheelchairs and/or seating
systems to ensure that it is appropriately completed. In instances where the VMN form has been found by the
company to be improperly completed, or where the explanation of medical necessity is not deemed sufficient to
justify the product order, the company rejects the VMN and returns it to the clinician; and the order remains on
hold until the company receives the appropriately completed VMN. The company is required to submit to the
FDA copies of each approved VMN the company receives during the first 90 days after the effective date of the
consent decree. In a letter dated February 6, 2013, the FDA notified the company that, in the FDA’s review of
approved VMN forms submitted thus far, it found that the company failed to reject certain VMN forms which the
FDA considered inadequately completed and that similar failures in the future could result in the assessment of
liquidated damages under the terms of the consent decree. The company has had discussions with the FDA and
has taken actions to address FDA’s concerns by enhancing the company’s rigorous VMN review process. In
addition, the company continues to provide training and feedback to providers and clinicians to educate them on
the expectations for properly completing the VMN forms. At the time of filing this Annual Report on Form 10-K,
the number of orders which the company has fulfilled with the appropriate VMN documentation requirements is
substantially lower than comparable order volume during the same period last year.
In 2013, the company expects continued pressure on its organic net sales, cash flow and operating
profitability. The key drivers of these pressures include the ongoing quality systems remediation costs, the
related diversion of resources, and the limited production at its Taylor Street wheelchair manufacturing facility in
Elyria, Ohio, due to the consent decree. In addition, the company has been unable to invest in the development or
introduction of new products while it focuses its engineering resources on its quality systems remediation.
Further, the consent decree enjoins the company from design activities related to wheelchairs and power beds at
its corporate facility until it receives approval from the FDA on the second expert certification audit. As the
company educates customers on the new documentation requirements, particularly the more detailed verification
of medical necessity forms for new wheelchairs and/or seating systems, the company is experiencing slowness in
incoming orders of new wheelchairs from the Taylor Street facility. The company is focused on completing its
expert certification audits as quickly and efficiently as possible.
The company also is facing external challenges within its North America/HME segment. In addition to
customers coping with prepayment reviews and post-payment audits of power mobility devices from Medicare
and Medicaid, the Centers for Medicare and Medicaid Services (CMS) recently announced the bid rates for the
second round of National Competitive Bidding (NCB), which are substantially lower than current average prices.
The company continues to expect pressure on net sales as providers that were successful bidders in the 91
metropolitan statistical areas finalize the contracting process with CMS. Looking forward, the company is
positioned to assist HME providers in managing the price reductions associated with NCB, and it will remain
judicious in its extension of credit to customers in these areas. The company has worked closely with providers
over the last two years in preparation for NCB, offering programs to assist them in improving their operational
efficiency, as well as products that serve to expand market opportunities.
As described elsewhere in this Annual Report on Form 10-K, for the fiscal quarter and the fiscal year ended
December 31, 2012, the company had a net loss from continuing operations of $0.34 per share and $0.26 per
share, respectively. These results are indicative of the pressures on the company’s net sales that were present
throughout 2012, even before the FDA consent decree became effective. While, at the time of this filing, the
consent decree had been effective for only approximately two months and thus, the effect on customer orders and
net sales was not yet clear, the company expects to experience further declines in net sales as a result of the
limitations imposed by the consent decree. The company expects to continue to experience decreased net sales in
the North America/HME segment until it has successfully completed the previously described third-party expert
certification audit and FDA inspection and has received written notification from the FDA that the company may
resume full operations. For the North America/HME segment, total Mobility and Seating sales were
I-47