Hospital Stocks Rise on Medicare Payment Plan

Wednesday, 25 Apr 2012 05:26 PM

 

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Shares of Kindred Healthcare Inc. and Select Medical Holdings Corp. rose sharply Wednesday after Medicare said it would increase payments by 1.9 percent to operators of U.S. long-term hospitals in fiscal 2013.

Kindred surged 19 percent to $9.86 for its biggest single-day gain in almost 15 months, while Select Medical climbed 12 percent to $8.82, the largest increase since September 2009.

The Centers for Medicare & Medicaid Services proposed Tuesday to spread over three years a planned 3.75 percent cut in payments for medical services at long-term care hospitals. The decision gives the companies the 1.9 percent increase in fiscal 2013. Money for short-term, or acute care, hospitals will rise 0.9 percent under the proposal, primarily to cover inflation and greater costs to serve Medicare, the U.S. government’s health-care program for the elderly and disabled.

The proposal is “modestly better than our expectations,” Sheryl Skolnick, an analyst at CRT Capital Group in Stamford, Connecticut, said in a note to clients.

Acute-care facilities are the most numerous type of hospitals in the country and include facilities owned by HCA Holdings Inc., the largest publicly traded hospital chain, and nonprofits such as Cleveland Clinic. Medicare, one of the largest sources of revenue for U.S. hospitals, pays about $100 billion a year to those facilities.

HCA, Tenet

Hospitals owned by Nashville, Tennessee-based HCA and Dallas-based Tenet Healthcare Corp. would see an average payment increase of 1.1 percent, according to Lazard Capital Markets analysts led by Tom Gallucci, who called the proposed increase “a bit below expectations.” Community Health Systems Inc. in Franklin, Tennessee, would get an average increase of 0.7 percent at its hospitals, Lazard said in a note to clients.

LifePoint Hospitals Inc. in Brentwood, Tennessee, which specializes in rural hospitals, would see an average increase of 0.3 percent at its facilities, Lazard estimated.

The increase for acute-care hospitals takes into account policy changes that will reduce payments to some rural facilities, and will cost taxpayers $175 million, according to the Centers for Medicare & Medicaid Services. The increase for long-term care hospitals will cost about $100 million.

The changes, which aren’t final until a public review is completed, would take effect in the year beginning Oct. 1. A final rule on the 2013 payments is scheduled to be issued by Aug. 1, the government said.

The increases don’t include automatic, across-the-board cuts in Medicare payments that are scheduled to take effect in January because Congress failed to agree to legislation last year that would reduce the deficit.

Those 2 percent cuts, combined with the proposed increase from Medicare, would mean a net 1 percent reduction in hospital payments in 2013, said Jason Gurda, an analyst at Leerink Swann & Co. in Boston, in a note to clients.

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