Hospital stocks fall after Obama proposes cuts
CHICAGO (Reuters) - Shares of hospital operators fell on Monday after U.S. President Barack Obama proposed more cuts to Medicare programs to pay for healthcare reforms, prompting the hospital industry to warn that the reforms could negatively affect patient care.
Shares of Universal Health Services closed down 1.7 percent at $51.50, Health Management Associates shares ended down 1.36 percent at $5.07, and LifePoint Hospitals Inc ended down 1.7 percent at $26.92.
"The bulk of the cuts are to the hospital industry and are more severe than what we were expecting," Leerink Swann analyst Jason Gurda wrote in a research note.
Hospital shares initially fell sharply but recovered some territory before the end of regular trading.
In a speech on Monday before the American Medical Association, Obama proposed eliminating another $313 billion in spending from programs such as Medicare and Medicaid to help pay for healthcare reforms that would include a public insurance plan.
Obama's proposal calls for saving $110 billion by reducing annual Medicare payment adjustments to hospitals and $106 billion by reducing subsidies to hospitals that care for large numbers of uninsured patients.
Tenet Healthcare Corp shares closed up 3.6 percent at $3.17 after sliding 8 percent earlier in the day. Shares of Community Health Systems Inc closed up 0.35 percent at $25.88 after reaching $23.95 during the session.
"Hospitals are already facing as much as $41 billion in cuts due to the Medicare payment system changes recently proposed by the Administration," American Hospital Association President Rich Umbdenstock said in a statement.
"Additional cuts of this magnitude could severely jeopardize hospitals' ability to care for their patients and communities," he said.
The AHA said that cutting Medicare and Medicaid Disproportionate Share Hospital (DSH) payments that finance hospital programs for the poor and uninsured overlooks their role in providing services ranging from trauma to emergency psychiatric care.
"These programs also help to mitigate the financial shortfalls hospitals experience from government program underpayments and trading undocumented immigrants," Umbdenstock said.
The proposed cuts, which would be phased in over 10 years, come on top of the $634 billion "down payment" on health reform proposed by Obama in February. About half of that would come from Medicare and Medicaid.
Rick Weissenstein, a healthcare analyst with Washington Research Group, said in a telephone interview many hospitals were struggling with weak operating margins as more Americans find themselves out of work and unable to pay bills.
Oppenheimer analyst Michael Wiederhorn said healthcare provider stocks already reflect the notion that large funding cuts are needed to pay for an aggressive healthcare agenda.
"Hospitals are likely to be called on to finance a larger burden of reform due to the substantial benefits that they would gain from reform," he said.
(Reporting by Susan Kelly, editing by Dave Zimmerman)
