UPDATE 1-Hospital stocks fall after downgrade

Mon Nov 26, 2012 4:09pm EST

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(Adds analyst comments)

Nov 26 (Reuters) - Hospital stocks slumped on Monday after a Wall Street analyst downgraded shares of three publicly traded chains on concern that any compromise in Congress to reduce the U.S. budget deficit could include additional cuts to the Medicare health insurance program.

Baird analyst Whit Mayo downgraded shares of Community Health Systems Inc, Health Management Associates Inc and Vanguard Health Systems Inc to neutral from outperform.

The analyst also lowered his price targets for shares of HCA Holdings Inc, Tenet Healthcare Corp and Universal Health Services Inc, as well as HMA and Community Health.

"We're of the opinion additional provider rate cuts will be included in any 2013 coordinated deficit deal," Mayo wrote in a note to clients.

U.S. lawmakers are expected to resume negotiations this week on a compromise that would avoid roughly $600 billion in automatic tax increases and spending cuts, referred to as the "fiscal cliff," that are due to hit in January.

Democrats have indicated they might accept a reform of the Medicare program for the elderly and disabled that would make higher-income seniors pay more for their care.

Mayo said delays to setting up state health insurance exchanges would also be a negative for hospitals, which are expected to benefit from the extension of coverage to some 30 million additional Americans under health reform.

Shares of Community Health closed down 2.9 percent at $29.12, HMA fell 4.3 percent to $7.88, and Vanguard fell 1.9 percent to $10.39.

HCA shares closed down 1.6 percent at $30.96, Tenet was down 0.7 percent at $28.08 and Universal Health 0.8 to $43.64.

Hospital shares have rallied 29 percent this year, compared with a gain of 12 percent for the S&P 500 Index. (Reporting By Susan Kelly in Chicago; editing by Carol Bishopric)

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