Chad Therapeutics Breathes Easier These Days : Health: A change in Medicare reimbursement rules turns the tide for the Chatsworth maker of home oxygen devices. It had posted losses for years.

Six years of famine have turned to six years of feast for Chad Therapeutics Inc., a Chatsworth maker of oxygen devices.

Since 1989, the company’s earnings reports have nearly all read the same--growth and more growth. Profits have swelled eight times to $14.5 million from $1.7 million since 1991. The 1994 profit of $2.6 million was more than double that of two years back. And in this year’s third quarter, earnings were $1 million on sales of $5.3 million, up almost 50% from sales in last year’s third quarter.

Wall Street has taken notice: Shares in the company have rocketed from less than a dollar per share in the early 1990s to $14.75 per share Friday. Chief executive and founder Charles Adams, 68, is thrilled. “We’re going great guns,” are almost the first words from his mouth when asked about the company.

It hasn’t always been this way. Chad went public in 1983, only to subject shareholders to a long, arduous wait. For years, the company posted losses. Shares could be had for nickels.

Money was so tight that the company’s offices were squeezed into three small rooms, and Adams’ desk doubled as a conference table when the board of directors met.

The change in Chad’s fortunes came with a seemingly undramatic change in the way federal Medicare programs reimburse patients for home oxygen therapy: A new flat-rate structure that went into effect in 1989 suddenly boosted demand for Chad’s products, Adams said.

That’s because they conserve oxygen and require fewer refills, said Adams. Before the Medicare changes there was little incentive for home-medical supply firms to conserve the gas because they were generously reimbursed for refills. “Oxygen dealers went from being our worst enemies to our best friends,” said Earl Yager, Chad’s chief financial officer.

Chad’s main products are a tiny oxygen tank, about the size of a milk bottle, and a device the size of a large pocket calculator, which regulates the flow of oxygen.

The products are used by people with emphysema and other diseases that obstruct the lungs. Increasingly, these patients are told to remain connected to oxygen tubes 24 hours a day.

Some 600,000 lung patients in the country now live this way, said Dr. Walter O’Donohoue, chairman of Nebraska’s Creighton University School of Medicine and an unpaid adviser to Chad.

Where possible, doctors tell these patients to avoid becoming bedridden. Enter so-called portable, or ambulatory, oxygen systems. Usually patients lease these from local dealers, who also provide refills and servicing.

In the past, potable oxygen systems have consisted of large, cumbersome tanks carted on wheels. But because Chad’s system delivers a puff of oxygen only when the patient inhales, rather than continuously, oxygen is used up far more slowly, and smaller tanks can be used.

Chad’s tanks weigh just a few pounds and fit in a shoulder pack. They can tide over patients for hours. “Lugging a tank on wheels . . . is like dragging a ball and chain,” said Steve Melsheimer, a Pennsylvania home oxygen dealer. Chad’s system “encourages patients to go out.”

But Chad’s are not the only such products on the market. Nellcor Puritan Bennett of Pleasanton, Calif., makes a system based on liquid oxygen that also fits in a shoulder pack and is widely used.

Tom Jones, a Puritan Bennett vice president, argues that Chad’s products are more costly for patients who are highly active. It’s easier for them to keep large supplies of liquid oxygen on hand than to continually request extra Chad canisters from a dealer, he said.

Neither is the future without possible complications. Reimbursement for home oxygen therapy is expected to be cut by 20% or more when Congress sorts out the next federal budget.

Adams said that further cuts can only improve Chad’s sales by increasing pressure to save costs. But some dealers disagree. Melsheimer, the Pennsylvania dealer, said that even though he believes Chad’s systems are far superior to carts, he might not be able to afford them if reimbursement cuts go through.

One thing that’s certain is that the customer base will grow. Chronic lung conditions are the “silent disease” that affects more people each year because of smoking, pollution and the aging of the population, said Adams.

And surviving years of early losses has given Chad “a big head start” in supplying products for them, added Yager.