Nursing Homes Rest Easy For Now Despite Economy's Ills
23 Avril 2009 - 11:06PM
Dow Jones News
Nursing homes remain a steady business in a wobbly economy,
thanks largely to the fact government reimbursements remain stable
for now.
That sure-footedness is in question, though, with investors
anxiously awaiting the 2010 reimbursement proposal from the Centers
for Medicare and Medicaid Services, slated for around May 1.
Some fear that CMS may suggest significant cuts in Medicare
reimbursements, and that anxiety could hurt the stocks of major
players - including Kindred Healthcare Inc. (KND), Skilled
Healthcare Group Inc. (SKH) and Sun Healthcare Group Inc. (SUNH) -
at least until the rule is finalized later this year. Any suggested
reimbursement increases or cuts in the CMS proposal could change
before the department formally sets rates.
All three companies' shares have been sliced more than 50% from
their 52-week highs last fall, although they've all held steady so
far this year.
Sun Healthcare declined to comment for this story, and Kindred
and Skilled Healthcare did not return calls seeking comment.
With about three-fourths of the $99.2 billion industry's
revenues funded by Medicaid and Medicare, according to research
firm IBISWorld, reimbursement is the sector's "sword of Damocles,"
Morgan Keegan analyst Robert Mains said. Many investors may
remember the wave of nursing home bankruptcies in the late 1990s,
due in part due to significant reductions in Medicare payouts in
the wake of the Balanced Budget Act of 1997.
While that isn't likely to happen again, reimbursement concerns
"always overhang these companies," Mains said. "You don't get to
negotiate with the government."
For now, nursing home funding is secure. Concerns about
Medicaid, which IBISWorld says provides about half the sector's
revenue, have been mostly alleviated, with the stimulus bill
providing about $87 billion to states. Nursing homes represent the
largest outlay for Medicaid programs, according to Stifel
Nicolaus.
Also, nursing home facilities are considered need-based, and
they have been somewhat more recession-resistant than their
assisted-living and independent-living counterparts.
"In good times or in bad times, people are going to nursing
homes," Mains said.
As for Medicare, nursing homes received a 3.4% "market basket,"
or inflationary cost, rate increase for the fiscal year starting
last October, while escaping cuts elsewhere.
But some analysts say nursing homes may not be so lucky this
time.
Patients And Payments
While Medicaid provides nearly half of sector's overall
revenues, publicly traded companies have been increasing their
focus on Medicare patients needing more acute care, because
reimbursements are higher. Sun Healthcare, for instance, operates
about 50 rehab recovery suites, where it provides such intensive
short-term services as hip replacements.
Some analysts are concerned that CMS may propose a resource
utilization group reweighting, which would change reimbursement
rates based on a resident's expected needs. A change, which the
industry has been anticipating for some time, could reduce rates
for the highest-paying patients with the greatest needs in favor of
the lower-paying ones needing less care.
While that change is expected to be industry-neutral overall, it
would have a bigger impact on for-profit companies, who are putting
a greater focus on higher-acuity patients, Wachovia Capital Markets
analyst Gary Lieberman said. This reweighting may or may not be
proposed for 2010, and even then it may not be adopted in the final
ruling.
Industry observers are also closely watching what CMS does with
the third component to Medicare reimbursement, the forecast error
adjustment. Since CMS refined the payment system by adding nine
high acuity/high reimbursement groups in 2006, it has discovered
that more patients than anticipated fell into these areas, leading
to the government spending $770 million more than anticipated in
2009, Lieberman said.
In order to make up for that, CMS will have to reduce
reimbursement by 3.3% to 3.4% for one year, Lieberman said. The
organization proposed this cut last year, but it was pulled from
the finalized rule for what Lieberman believes were political
reasons.
"We expect this again to be in the proposed rule and because of
the ambitious [and costly] health-care reform legislation that will
be proposed, every potential saving will seriously need to be
considered," Lieberman said.
In Sun's latest conference call, Chief Executive Richard Matros
said he could foresee some reduction in market basket
reimbursement, but he didn't think it would be "anything
draconian."
Standard & Poor's analyst Jeffrey Englander also doesn't
expect any drastic cuts in Medicare reimbursement in the immediate
future. While some changes may be made, nursing homes are
well-positioned in the current health-care environment because they
are "a more cost-efficient provider with good clinical outcomes,"
Englander said.
-By Kelly Nolan; Dow Jones Newswires; 201-938-4049;
kelly.nolan@dowjones.com