Maybe you know the feeling. You own shares of a company that was profitable last year and analysts are projecting 40% earnings growth this year and 20% the next. You couldn't be happier until you check the stock price this morning. It's down 25%. Yikes! Welcome to the world of Select Medical
Select operates U.S. specialty hospitals. Growth in its "hospital within a hospital" segment, which provides long-term acute care, propelled the stock almost 100% higher over the last year. The pin that pricked the balloon was a press release from the Centers for Medicare & Medicaid Service (CMS) -- ah, blessed bureaucracy -- proposing regulatory changes for long-term care hospitals that are operated as a "hospital within a hospital."
Starting October 1, in order to be reimbursed as a long-term care hospital, no more than 25% of any "hospital within a hospital" admissions can come from the host hospital. In Select's case, most of its long-term acute care hospitals would not meet this requirement and, therefore, would be eligible only for lower levels of reimbursement.
Select has until July 12 to comment on the changes and believes the final regulations will be published by September 1. Until then at least, there will be a cloud over Select.
For Select, which operates 79 long-term acute care hospitals in 24 states, a full 65% of its operating revenue comes from specialty hospitals. More importantly, 75% of the "patient days" are billed to Medicare. Occupancy, at 72%, is not encouraging, either.
Clearly, when you pass over general care operators like HCA
In their defense, I suffered much the same fate as an investor years ago with Beverly Enterprises
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Fool contributor W.D. Crotty owns stock in Beverly Enterprises.