Welcome to Competitive Bidding
This morning PolyMedica (NASDAQ:PLMD) held a conference call to address the newly issued guidelines on competitive bidding. The rules on competitive bidding were released by the Centers for Medicare & Medicaid Services on April 2, 2007, details of the rules can be found at http://www.cms.hhs.gov/. While Diabetic Investor has not yet had the opportunity to read in detail all the rules one thing is clear, these rules clearly favor PolyMedica mainly because they have the size, scale and experience necessary to deal with the many government requirements.
Like most government programs and competitive bidding is no different, the rules are complex and cumbersome for smaller entities. While there may be some who believe they can offer an ultra-low bid in an effort to increase their volume, it is unlikely smaller companies could do so and maintain profitability. With nearly 800,000 diabetic patients PolyMedica has several strategic advantages. PolyMedica already uses their size to extract favorable pricing from their vendors and will likely use this power while formulating their bids. Additionally PolyMedica’s alliance with AgaMatrix will provide even greater flexibility. (AgaMatrix makes PolyMedica’s private label blood glucose meter and test strip.) AgaMatrix not only produces a high quality product, the company is one of the lowest cost manufacturers in the industry.
Long ago Diabetic Investor said competitive bidding was coming and PolyMedica would be well equipped to deal with this new environment. Now that competitive bidding is here we see no reason to change our thought process. While it will take some time to sort out the clear winners and losers under this new environment, Diabetic Investor is confident that PolyMedica will not only maintain their leadership position but expand upon it. The more things change, the more they stay the same.