UPDATE 4-Amedisys cuts outlook as Medicare changes continue to weigh

* Q2 adj EPS $0.67 vs est $0.68

* Q2 rev $374 mln vs est $382.2 mln

* Cuts FY EPS outlook to $2.20-$2.40 from $3.00-$3.30

* Lowers FY rev view to $1.47-$1.50 bln from $1.6-$1.65 bln

* Shares down as much as 19 pct (Adds details from conference call)

By Kavyanjali Kaushik

BANGALORE, Aug 2 (Reuters) - Amedisys Inc posted quarterly results below analysts' estimates hurt by a new Medicare rule, and the home healthcare provider cut its 2011 outlook, sending its shares to their lowest in more than five years in early morning trade.

Amedisys and its peers such as Almost Family Inc and Gentiva Health Services Inc are expanding into the hospice business to cushion the blow of new regulations like Face-to-Face Encounter and the reimbursement cuts, which have hit their home healthcare business.

"Amedisys acquired a hospice business (Beacon Hospice) earlier this year and its results were actually good. All of this weakness is isolated just within the home health sector," Stephens Inc analyst Ellen Spivey said.

Regulatory changes in the home health division hurt volume and pricing, forcing Amedisys to cut its full-year earnings outlook to $2.20-$2.40 a share, on net service revenue of $1.47-$1.5 billion, Chief Executive William Borne said.

"I expect these to be the worst results and the worst guidance revision among all the home health service providers that we are going to see," analyst Spivey said.

Doctors, burdened with added administrative expenses following the 'Face-to-Face Encounter' rule that came into effect from April 1, have started referring patients to other care settings instead of home healthcare providers.

"We believe the Face-to-Face requirement had a negative impact on volumes during the quarter as physicians adjusted the referral behavior in light of the additional burden of the documentation," the company said on a conference call.

The record federal budget deficit has been pushing the U.S. government to find savings of about $200-$400 billion over 10 years from Medicare, talks on which are expected to end soon.

In July, the Centers for Medicare & Medicaid Services (CMS) proposed reducing $640 million in 2012 reimbursements to home health companies -- that provide home-based nursing for the elderly with chronic diseases -- with a 3.35 percent rate cut.

The proposal includes a 5.06 percent adjustment to the billed amount, to account for discrepancies in billing procedures -- known as code creep.

The adjustment compensates for the assumed overstatement of the level of treatment that a patient requires from home health providers.

"With our higher percentage of these types of patients, we believe the impact to Amedisys will likely be more negative," the company said on the call.

ADMISSIONS DIP

The Baton Rouge, Louisiana-based company's second-quarter net income fell 31 percent to $22 million, or 76 cents a share. On an adjusted basis, it earned 67 cents a share, one cent below analysts' expectations.

Net service revenue fell 11.5 percent to $374 million, compared with analysts' expectations of $382.2 million for the quarter, according to Thomson Reuters I/B/E/S.

Admissions dropped 5 percent to 69,584.

"We wrote off 14 home health episodes and approximately 350 hospice stays during the quarter," Amedisys said.

Shares of the company, which has a market valuation of $762.2 million, were trading down at $22.12 on Tuesday morning on Nasdaq. They had touched a low of $20.05 earlier in the session. (Reporting by Kavyanjali Kaushik in Bangalore; Editing by Sriraj Kalluvila)