Shares of U.S. home health services providers fell on Friday after a federal agency proposed a significant cut to Medicare reimbursements payments, adding to the woes of an industry already hurt by federal budget cuts.
In a document posted on its website on Thursday, the U.S. Centers for Medicare & Medicaid Services proposed that reimbursement payments be reduced by 3.5 percent every year from 2014 to 2017. (link.reuters.com/mej39t)
Shares of Amedisys Inc (AMED.O) were down 19 percent in early trading on Friday. Shares of Gentiva Health Services Inc GTIV.O were down about 17 percent and those of LHC Group Inc (LHCG.O) fell 12 percent. Almost Family Inc's (AFAM.O) shares were down 8 percent.
"Last night's proposed 2014 Medicare update ... looks to be the absolute worst possible outcome for the sector," Baird Equity Research analyst Whit Mayo said in a note.
The proposed cuts come on top of a 2 percent reduction to reimbursement rates related to mandatory cuts to U.S. government spending - known as the sequestration - that went into effect earlier this year.
Mayo downgraded the home health sector to "underperform," and said all four companies were likely to lag behind market estimates for their second quarter.
"We're expecting weak volumes, coupled with the sequester, to drive second-quarter misses," Mayo said.
The companies had forecast weak 2013 profit earlier this year, citing the potential changes in reimbursement rates and the budget cuts.
(Reporting by Esha Dey in Bangalore; Editing by Anthony Kurian)