Healthcare Business News

Investors respond positively to revamping of LTAC reimbursement

By Beth Kutscher
Posted: December 14, 2013 - 12:01 am ET

Sometimes a Medicare cut is good news—as long as it was supposed to be worse. Investors responded favorably to a move in Congress to revamp the way Medicare pays for long-term acute care.

The changes, approved as part of a budget bill the House passed Dec. 12, would help stave off cuts to physician reimbursement for another three months. The Senate is expected to vote this week on the legislation.

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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 pay for the temporary “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. Company representatives 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. The Medicare Payment Advisory Commission signaled last week it would recommend the full LTAC rate only if patients had been in an intensive-care unit for at least eight days, reducing spending by $2 billion in 2015 alone.

Providers such as 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, said A.J. Rice, an analyst at UBS.

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%.

Follow Beth Kutscher on Twitter: @MHbkutscher

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