US Hospital Stocks Face Potential Risk From 2010 Medicare Rates
15 Abril 2009 - 3:48PM
Noticias Dow Jones
Hospital stocks face a potential risk soon when Medicare
publishes its proposed inpatient payment rates for 2010, with some
on Wall Street predicting the government may effectively seek
little or no increase.
The Centers for Medicare & Medicaid Services could propose
the 2010 reimbursement rates as early as next week, providing a
first glimpse at the government's plans for payments that can
comprise a substantial portion of hospital revenue.
Medicare rates are closely watched for an industry that has
struggled in recent years with high levels of uninsured patients
and unpaid patient bills, and generally tepid growth in admissions
of commercially insured patients. The recession isn't helping, and
shares of hospital operators are trading well below their historic
valuations, likely pressured by uncertainty over the 2010 Medicare
rates.
"We expect this year's proposal will likely look worse on the
surface than prior years," Barclays Capital analyst Adam Feinstein
wrote recently, although he expects the final rate published later
this year to be better than the proposal, as is typically the
case.
Pomeroy Research and Soleil Securities Group analyst A.J. Rice
on Wednesday predicted that, when the final rates come out this
summer, hospitals will receive a 1% to 2% net rate increase, which
is smaller than the historic 3% to 3.5% growth. The initial rate
could be flat to slightly positive, he said.
Stocks that may be sensitive to CMS' proposed rates, which will
come in the form of an "inpatient prospective payment system" rule,
include those of Health Management Associates Inc. (HMA), Community
Health Systems Inc. (CYH), LifePoint Hospitals Inc. (LPNT), Tenet
Healthcare Corp. (THC) and Universal Health Services Inc.
(UHS).
While hospital shares are up this week after privately held HCA
Inc. previewed its first-quarter results, they remain well off
their year highs.
CMS bases its hospital rates on an inflation-related "market
basket" update, which may be lower than usual this year because of
lower inflation rates.
In addition, industry observers are waiting to see whether the
agency makes a substantial downward adjustment for hospital "coding
creep." That refers to CMS' expectation that hospital coding of
patient conditions tied to changes in Medicare diagnosis groups
will result in higher aggregate payments without a corresponding
increase in severity of illnesses.
"It is entirely possible that this adjustment could completely
offset the market basket increase, thus resulting in hospitals
receiving no rate increase in FY10," or even a rate reduction,
Feinstein noted, although he expects changes may be phased in over
several years.
He predicted the market basket increase itself is likely to be
below the 3% to 3.5% increase that hospitals have received in
recent years, and that this will be a problem for hospitals only if
their inflationary pressures outstrip the market basket rise.
Medicare overall can account for between 30% and 65% of hospital
revenue, depending on a facility's location, according to CRT
Capital Group analyst Sheryl Skolnick. She considers the key
question about the 2010 proposed inpatient rate to be whether CMS
will seek to reduce payments to hospitals for coding creep at a
faster pace than it already has.
She is also looking for whether the Medicare program does
anything else to cut reimbursement or tie hospital reimbursement to
quality or readmission rates, or to bundle payments to hospitals
for acute and post-acute care.
President Barack Obama, in his 2010 budget blueprint, is seeking
savings in Medicare reimbursement to hospitals over 10 years,
largely through the bundling of acute and post-acute care payments
to hospitals and tying payments to readmissions. Pomeroy's Rice
doesn't expect the bundling or readmission ideas to surface in the
2010 inpatient reimbursement rates.
"Will CMS seek to reduce Medicare spending on the backs of
already weakened hospitals?" asked CRT's Skolnick. "We'll see."
-By Dinah Wisenberg Brin, Dow Jones Newswires; 215-656-8285;
dinah.brin@dowjones.com