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Proposal to revamp LTAC payment system buoys stock prices


By Beth Kutscher
Posted: December 13, 2013 - 4:00 pm ET
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A House budget proposal that would revamp the payment system for long-term acute-care operators has buoyed stock prices, even though the move represents a deep cut to Medicare spending on the sector.

The changes would help pay for an overhaul of Medicare's sustainable growth-rate formula for physician pay. The bipartisan bill passed in the House Thursday, and the Senate is expected to hold a vote early next week.

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Under the proposal, LTACs would be reimbursed at the full prospective-payment system rate if patients have spent at least three days in an intensive-care unit or at least 96 hours on a ventilator. All other stays would be reimbursed at a “site neutral” rate.

The new policy would go into effect Oct. 1, 2015, and the site-neutral payment rate would be phased in over three years. It is expected to yield $3 billion in savings over 10 years to help pay for the “doc fix.”

Shares of LTAC companies Kindred Healthcare, Select Medical and LHC Group were trading ahead of the market on the day after the vote, up 1%-2% Friday morning. Company representatives and the trade group American Health Care Association did not respond to requests for comment.

Analysts attributed the stock bump to greater clarity around what payments would look like—and to the initial relief that the overhaul was not the worst-case scenario. Providers like Kindred and Select Medical—which generally see higher-acuity patients—would be least affected by the proposal, and had pushed for a policy that would leave payments for sicker patients intact, according to A.J. Rice, an analyst at UBS.

LTACs also would get relief from the “25% rule,” which limits payment if more than 25% of admissions are referred by a host hospital. LTACs are often located within the facilities or on the campuses of general acute hospitals.

Yet Frank Morgan, an analyst at RBC Capital Markets, wrote in a research note that the cut would amount to 5% of Medicare LTAC spending. Moreover, the three-day ICU requirement could have the effect of reducing the LTAC patient population by up to 30%.

Rice said the policy would ultimately have a negative impact on earnings starting in the fourth quarter of fiscal 2014.

Follow Beth Kutscher on Twitter: @MHbkutscher


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