Several analysts used the phrase “worst-case scenario” as share prices of companies such as Amedisys, Almost Family and Gentiva Health Services took a plunge in the double-digits. Amedisys' shares closed today nearly 16% lower than they did on Thursday, when the proposal was unveiled after market close, and Gentiva's shares lost 17.4% in that time period. Almost Family's shares reached their 52-week low on Friday, and have lost about 6% of their value since Thursday's close.
Across the board, the 1.5% net cut will take $290 million out of the pockets of home health operators. But the cuts will be even worse for free-standing, for-profit agencies, which will see a 1.7% cut.
For-profit, facility-based centers—such as those operated jointly with hospitals—will see a cut of only 1.4%. That's a bit of good news for a company like LHC Group, which operates about half of its agencies as joint ventures with hospitals, according to Kevin Campbell, an analyst at investment bank Avondale Partners.
This reduction would be the latest hit in a rough stretch for home health providers. The CMS has been chiseling away at reimbursement—in part as a way to deter perceived fraud and abuse and also to target previously large profit margins. Sequestration and declining recertification rates also negatively affected earnings for companies last quarter.
Campbell said in a note to clients that the rate cuts are likely to spur continued consolidation in the industry, and could mean closures for smaller agencies that can't find partners.
Frank Morgan, an analyst at investment bank RBC Capital Markets, similarly wrote that the industry will need to “drastically” cut operating costs because it may be several years before companies can expect to return to earnings growth.
He added that the cuts are likely to be most “problematic” for companies with significant debt burdens like Amedisys and Gentiva.
Follow Beth Kutscher on Twitter: @MHbkutscher
