Why Home Health Providers Hit a Brick Wall

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What: Shares of home health providers Amedisys (NASDAQ: AMED  ) , Gentiva Health Services (UNKNOWN: GTIV.DL  ) , 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.

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  • 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.

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9/30/2016 4:00 PM
AMED $47.44 Up +0.13 +0.27%
Amedisys CAPS Rating: **
GTIV.DL $0.00 Down +0.00 +0.00%
Gentiva Health Ser… CAPS Rating: **
LHCG $36.88 Down -0.41 -1.10%
LHC Group CAPS Rating: ****