The recent decision by Mariner Health Group to fluff up a financial cushion in anticipation of changes in Medicare payment policy echoed along Wall Street last week, dampening long-term-care stocks.
Mariner, based in New London, Conn., announced Oct. 10 that it intends to record a one-time charge of $10 million in the third quarter for the buildup of reserves. The company also said it expects a 20% shortfall in earnings per share from analysts' expectations f or the third quarter and subsequent quarters.
As a result, Mariner's stock dropped on the NASDAQ trading system from $13.31 per share on Oct. 9 to close at $7.38 per share on Oct. 10. Inching back up, the stock closed at $8.38 per s hare on Oct. 15.
Other industry leaders were modestly affected by Mariner's announcement. Integrated Health Services, based in Owings Mills, Md., closed at $26.88 per share on the New York Stock Exchange on Oct. 9 and at $25.63 per share on Oct. 10.
Sun Healthcare in Albuquerque, N.M., closed on the NYSE at $12.50 per share on Oct. 9 and at $12 per share on Oct. 10. Meanwhile, Atlanta-based TheraTx closed at $10.38 per share in NASDAQ trading on Oct. 9 and f ell to $9.75 per share on Oct. 10.
Arthur W. Stratton, M.D., Mariner's chairman and chief executive officer, said the company's action was needed "to bolster reserves and lessen Mariner's exposure to further retrospective and futur e reimbursement changes."
Stratton contended that the fiscal intermediaries that process the company's Medicare billings for HCFA have begun to more aggressively challenge the payment of Medicare costs that had traditionally been approved. "The intermediaries are beginning to implement global Medicare reform retrospectively through administrative means, rather than prospectively through the legislative process," he said.
A Mariner spokeswoman said intermed iaries are reopening files and looking at costs for everything from therapy hours to nursing hours to ancillary services. She said insurers such as Mutual of Omaha, Blue Cross and Blue Shield, and Aetna have served as fiscal interm ediaries for the company.
Although Mariner characterized the issue as an industrywide problem, IHS released a statement countering the company's assertions. IHS said it "is not having a material or significant problem with Medicare reimbursement, has not experienced any drastic new trends in the last six to 12 months, and does not need to adjust or reduce its anticipated Medicare reimbursement."
IHS further suggested that Mariner's situation was unique, addi ng that "an individual company may be experiencing a problem because of its particular Medicare fiscal intermediary."
Meanwhile, the National Subacute Care Association sent a letter to HCFA complaining that several fiscal intermed iaries abruptly changed their interpretations of the payment rules for therapy services provided in skilled-nursing facilities. Last week the agency issued a clarification of the rules.
Jean Swenson, an analyst with Alex. Brown & So ns in Boston, said the issue boils down to the relationship between a company and its fiscal intermediary. Swenson said she has surveyed a number of fiscal intermediaries and has not found "a shred of consistency" among their dec isions in different areas of the country. "The problem is that the fiscal intermediaries interpret the HCFA guidelines differently," she said.
Swenson said companies that have not found themselves in Mariner's position may have be en subject to different policy interpretations, may be more broadly based or may have set aside more adequate reserves.
Some industry analysts viewed Mariner's decision to financially prepare for policy changes as one the company s hould have acted on earlier. Mariner itself lobbied strongly last year for changes in the reimbursement system.
"The points they brought up have affected the whole industry for the last year," said John Runningen, a senior healthc are analyst with Robinson-Humphrey in Atlanta. "They were a little behind their peers. They are the last shoe to drop."
Mark Banta, an analyst with Salomon Brothers in New York, said the step was likely a necessary one for Mariner . "They're taking more appropriate reserves given the more restrictive Medicare reimbursement environment we foresee over the next year," he said.