Why Home Health Providers Hit a Brick Wall

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of home health providers Amedisys (NASDAQ: AMED  ) , Gentiva Health Services (NASDAQ: GTIV  ) , and LHC Group (NASDAQ: LHCG  )  swooned as much as 28%, 20%, and 15%, respectively, following a public proposal by the Centers for Medicare and Medicaid Services, or CMS, late yesterday that in-home health care reimbursements be cut by 1.5% in 2014.

So what: The bad news for the sector is that the 1.5% haircut is only the half of it. The proposal also calls for up to a 3.5% annual haircut in reimbursements from 2014 to 2017 for the national standardized 60-day episode rate. With Amedisys garnering more than 80% of its revenue from Medicare reimbursements and Gentiva Health more than 90%, you can clearly see why the sector has hit a brick wall. To add salt to the wound, RW Baird downgraded all three companies to "underperform" from "neutral."

Now what: The home health care sector represents quite the conundrum for investors. On one hand, the CMS is intent on cutting government reimbursement to for-profit companies that thrive off Medicare, which is all a part of the coming implementation of the Patient Protection and Affordable Care Act, commonly known as Obamacare. Simply put, the government can't keep paying out more money each year and appears to finally be drawing a line in the sand. Then again, an aging population of baby boomers is going to be a boon for the industry over the next two or three decades. For now, I'd suggest keeping to the sidelines and allowing the guidance for all three companies to do the talking in their upcoming quarterly reports.

Craving more input? Start by adding Amedisys, Gentiva Health Services, and LHC Group to your free and personalized watchlist so you can keep up on the latest news with the company.

Still in the dark about how Obamacare might affect you and your portfolio? Don't worry -- you're not alone. To help prepare investors for the massive changes coming to the American health care system, The Motley Fool created a special free report that makes this complex topic easily understandable. Download "Everything You Need to Know About Obamacare" and discover how the law may impact your taxes, health insurance, and investments. Click here for your free copy today.


Read/Post Comments (1) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 28, 2013, at 5:52 PM, altmd71 wrote:

    I can tell you from personal experience these companies have been padding bills and raping the system for quite a while. What used to be non-profit local companies was transformed into investor owned publicly traded for-profit companies. One reason why Medicare is going broke.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2515817, ~/Articles/ArticleHandler.aspx, 10/21/2014 3:53:17 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement