Medicare Change Brings Apria Cuts

COSTA MESA — Apria Healthcare Group Inc. said Wednesday that it will reduce its staff 5% to 8% by the end of the year to offset expected federal cuts in Medicare payments for certain home health-care services.

Apria expects to save $25 million a year through layoffs, attrition, the closing of a few nonproductive facilities and the elimination of two business lines that weren’t part of its core business. The Costa Mesa home health-care company said it also plans to use fewer temporary workers and independent contractors.

About 220 employees were let go this month and 240 to 520 additional positions are being eliminated through attrition, spokeswoman Sheree L. Aronson said. The company had about 9,200 employees before the cuts were instituted.

Apria, which has struggled since it was created from the merger of Orange County competitors Abbey Healthcare Group Inc. and Homedco Group Inc. two years ago, is expected to be sold, Wall Street analysts said.

Former executive Timothy M. Aitken and Hyperion Partners, a major New York investor, made an unexpected bid last month of $1.45 million in cash and stock for the company.

Apria said Wednesday that it has received proposals from “a number of interested parties” about a merger or investment and that it expects to continue negotiating with the bidders. Aronson wouldn’t be more specific.

Analyst Peter H. Emch said he had expected Apria’s board to announce a merger by the end of November. “Now, it seems, there’s no definite timetable,” said Emch, who is with BT Alex. Brown in Baltimore.

He called the continuing delays “somewhat discouraging” but found news of definite proposals “heartening.”

Under the federal Balanced Budget Act of 1997, Apria and other respiratory services companies face a 25% cut in Medicare reimbursements starting in January and 30% a year from 1999 through 2002.

For Apria, which gets about 20% of its revenue from Medicare, next year’s cuts would mean a drop of about $60 million in revenue, or about 5% of its $1.2 billion in total revenue.

“The drop in revenue would be significant to the company’s earnings if we didn’t take some offsetting action,” Aronson said.

The layoffs, which include about 40 employees at Apria’s Costa Mesa corporate offices, come mainly from skilled home nursing care and medical supply sales operations, which are not part of the company’s core business.

The company will concentrate on its home infusion, respiratory therapy and rental of medical equipment, as well as related nursing care and medical supplies sales.

Apria also plans to close “seven or eight” small facilities in outlying areas that haven’t performed to the company’s expectations, Aronson said.

Apria shares fell 6 cents to close Wednesday at $15.81 in New York Stock Exchange trading.