HealthSouth (HLS) shares have fallen 21% in the past two days on concerns that President Obama’s deficit-cutting plan will target a cornerstone of the health care company’s business.
Obama has proposed reinstating a rule that required 75% of the people in a rehab hospital getting government reimbursements to have a particular set of diagnoses, up from the current requirement of 60%. The president is looking to save $7 billion through proposals aimed at cutting reimbursements to rehab hospitals. If the proposals are enacted, they could take a serious dent out of HealthSouth’s revenue. As Susquehanna Financial Group analyst A.J. Rice writes:
“We are skeptical as to whether these two IRF specific proposals will be part of any final deficit reduction program passed by the Congressional Super Committee. Clearly, the rehab industry is likely to sharply criticize these proposals. Still, as we have noted before, clarity with respect to the actions of the Congressional Super Committee is unlikely to be obtained until we are much closer to the committee�s deadline of November 23. HLS represents about 19% of licensed IRF beds in the country. If the president�s two proposals related to IRFs were implemented and the estimated savings targets were correct, HLS might reasonably be expected to face a $115 million-$120 million revenue headwind in 2013, assuming that it absorbed 19% of the projected payment cuts.”
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