We live & prosper and wither & die by “phase-in periods for a budget neutrality adjustment”
Long term care hospitals, you may remember, (the bread and butter of Kindred and Select Medical Holdings) receive from CMS dramatically higher per diems with far fewer restrictions than do typical nursing facilities (hence Long Term Care Hospitals are a highly profitable reimbursement niche)………
Wall Street Journal April 25, 2012
By Nathalie Tadena
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)—Shares of Kindred Healthcare Inc. (KND) and Select Medical Holdings Corp. (SEM) jumped in after-hours trading as the Centers for Medicare & Medicaid Services proposed phasing in over a three-year period a cut to reimbursement-payment rates for in-patient stays at long-term care hospitals.
In its draft, CMS proposed a 1.3% reduction in the first year of a proposed three-year phase-in period for a budget neutrality adjustment, which is calculated to offset higher Medicare payments, giving the companies more time to adapt to the shift in payment policy. The budget neutrality adjustment reduces the update from 2.1% to 0.8%. CMS has proposed in the past a budget neutrality cut as high as 3.75% over a one-year period starting next year.
The agency will issue a final decision by Aug. 1.
In a note last month, Avondale Partners LLC had expected a negative adjustment of 2.75% to 3.75%. On Tuesday, analyst Kevin Campbell said the three-year phase-in allows the companies more time to adjust business practices to offset any other obstacles from the rate cut.
Kindred shares surged 20% to $10 after hours, while Select Medical jumped 9.6% to $8.60. Kindred has lost two-thirds of its value over the past year, and Select Medical is down 3.9%.
Representatives for Kindred and Select Medical weren’t immediately available to comment.
Both companies provide long-term health-care services at nursing homes and hospitals.
“We’re pleased about the proposed rule and appreciate CMS hearing us on several issues, like the budget neutrality issue which, if it had been implemented in one year, would have caused great instability for LTC hospitals,” said Bill Walters, chief executive of Acute Long Term Hospital Association, a trade association whose members include Kindred and Select Medical. “By phasing the budget neutrality in over three years, LTC hospitals will have time to adapt to this fairly significant change in payment policy.”
Wells Fargo and Susquehanna analysts lowered their stock-investment ratings on the companies late last month ahead of Tuesday’s proposal, expecting a tough rule that could weigh on the stocks all year.
Medicare said last summer it would cut payment rates to skilled nursing facilities by 11.1% for the current fiscal year, slightly below its April draft proposal, enacting Wall Street’s worst-case scenario and putting shares of the health-care providers under pressure.
The initial proposal is generally the worst for the industry.
In February, Kindred said it would suspend its practice of providing quarterly earnings guidance in light of significant volatility tied to recent changes in Medicare reimbursements.
CMS projects general acute-care hospital payment rates will increase by 2.3% in fiscal 2013, while long-term care hospital payments will increase by approximately $100 million, or 1.9%.