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S&P warns about impact of Medicare cuts


By Melanie Evans
Posted: August 9, 2011 - 3:00 pm ET
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Standard & Poor's said home-care providers Gentiva Health Services and Advanced Homecare Holdings, long-term acute-care hospital operator LifeCare Holdings and hospital company Prospect Medical Holdings would be most vulnerable should Congress help to reduce the deficit with Medicare cuts.

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In a newly released report, Standard & Poor's ranked healthcare corporations by the percentage of revenue from Medicare. Advanced Homecare, Dallas; Gentiva Health, Atlanta; LifeCare, Plano, Texas; and Prospect Medical Holdings, Los Angeles, along with four dialysis providers and one inpatient rehabilitation company receive more than half their revenue from Medicare, the report said.

Dialysis companies American Renal Holdings, DaVita, Renal Advantage and U.S. Renal Care could escape Medicare cuts “because of the nondiscretionary nature of dialysis” and government spending on end-stage renal disease is minor, the ratings agency said. Inpatient rehabilitation company HealthSouth Corp. is expected to receive a 1.1% increase to its prospective payment rates in 2012.

Medicare accounts for 30% to 50% of revenue for 23 skilled-nursing, hospital and radiation oncology companies, including hospital operators Ardent Health Services, Capella Healthcare, HCA, Health Management Associates, Iasis Healthcare Corp., LifePoint Hospitals and Vanguard Health Systems, the ratings agency said. “Because the hospital sector represents the single largest category of healthcare spending, we believe the federal government's efforts to manage the U.S. deficit could lead to significant reimbursement cuts in this area,” S&P said.

Community Health Systems, Tenet Healthcare Corp. and Universal Health Services were among 14 healthcare companies with 20% to 30% of revenue from Medicare, the report said. Another seven healthcare staffing, medical device, diagnostic imaging and medical product distributor companies receive less than 20% of revenue from Medicare, according to the report.

Substantial cuts beyond those expected could affect companies' financial risk profile, the ratings agency said. S&P earlier this month placed six skilled-nursing companies on a credit watch with negative implications.


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