A proposal to slash reimbursements to kidney dialysis centers in the United States drove down shares of Fresenius Medical Care AG and Davita Healthcare Partners Inc, two of the world's leading providers of dialysis services.
The proposed 9.4 percent cut in Medicare reimbursements to dialysis centers, announced by the Centers for Medicare & Medicaid Services (CMS) on Monday, was described by JP Morgan as "worse than even our most pessimistic scenario had envisioned".
Germany's Fresenius, the world's biggest dialysis services provider, fell 10 percent to 49.05 euros on the Frankfurt Stock Exchange on Tuesday, making it the worst performing FTSEurofirst 300 stock.
Fresenius's U.S.-listed shares fell more than 8 percent to $32.53 in morning trading to rank among the top losers on the New York Stock Exchange. Shares of Denver-based Davita fell more than 5 percent.
The cuts proposed by the CMS, the federal agency that sets reimbursement rates, are in addition to a 2 percent reduction that kicked in earlier this year under automatic cuts to federal spending.
If the lower reimbursement changes were to be implemented, Davita would be forced to move toward aggressive cost-cutting measures, including potential closures, JP Morgan analysts wrote in a note.
The company, in which billionaire investor Warren Buffett holds a 14.2 percent stake, provides administrative services at 1,991 outpatient dialysis centers in the United States, serving about 156,000 patients.
Raymond James analysts estimated Davita's 2014 revenue could be hit by over $350 million and its earnings per share by nearly $2.00.
"Longer-term dialysis investors may pause to consider the potential shift in the historically positive relationship between the dialysis community and legislators/regulators," they wrote.
The CMS said it was considering phasing the cuts in over several years, concerned that a one-time reduction could lead to a significant reduction in kidney disease facilities and affect patients' access to care.
Davita, Fresenius and other dialysis providers have until August 30 to relay their feedback on the cuts to the CMS. The agency will issue a final ruling this year. (r.reuters.com/jaw39t)
Davita was not immediately available for comment.
'PROCEED WITH CAUTION'
Fresenius, which operates 2,100 dialysis facilities in North America, counts the United States as its most important market. It receives about 30 percent of revenue from the CMS.
A Fresenius spokesman said the company was assessing the 186-page document in which the cuts were proposed.
"Our first impression is that costs and prices have not been adequately taken into account," said the spokesman, who declined to be named.
At least one dialysis coalition urged policymakers on Monday to "proceed with caution" in considering the changes, calling the cuts too steep.
"Proposed cuts of this magnitude simply go too far," said Ron Kuerbitz, chairman of Kidney Care Partners, a prominent coalition of patient advocates, manufacturers, dialysis professionals and care providers.
"We are deeply concerned about the implications for dialysis patients and the sustainability of the Medicare end-stage renal disease system."
Medicare's end-stage renal disease benefit covers dialysis care for about 85 percent of the 400,000 Americans living with kidney failure, the coalition said in a statement.
(Editing by Saumyadeb Chakrabarty and Robin Paxton)