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 (NYSE:SEM).

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 (NYSE:HCA) and broader based health care providers like Kindred Healthcare (NASDAQ:KIND) in search of fast growers with better margins like Select, you assume more risk. Investors probably didn't consider such a radical change in reimbursement was in the works.

In their defense, I suffered much the same fate as an investor years ago with Beverly Enterprises (NYSE:BEV). The lesson learned then seemed to be that changes even in state regulation can sidetrack an operator's growth. The bigger lesson today is that regulatory risk is very real, and goes hand in hand with health care investing.

Tom Gardner considers risks of all sorts when digging up his Motley Fool Hidden Gems . A trial is free. Or if you would like to talk to other investors about bureaucracy, the popular Political Asylum and Current Events Motley Fool discussion boards are just for you.

Fool contributor W.D. Crotty owns stock in Beverly Enterprises.