Shares of Amedisys (AMED.O), Gentiva Health GTIV.O and LHC Group (LHCG.O) tumbled for a second straight day on Tuesday on fears that the home healthcare providers may face criminal investigations after a U.S. Senate committee accused them of "gaming" the Medicare system.
Amedisys shares fell 22 percent to $10.34, their lowest in over seven years, while Gentiva Health crashed by a similar percentage to a life-low of $2.86.
LHC Group shares lost 10 percent of their value to hit a 5-year low of $14.06.
In a report published on Monday, the U.S. Senate Finance Committee found that executives at the home healthcare providers appeared to have pressured their therapists to raise the number of patient visits to maximize reimbursements.
"Based on our reading of the report, we are now concerned that the (Department of Justice) investigations could shift from a civil focus to a criminal focus," CRT Capital Group analysts said in a note.
"In our view, there appears to be evidence of intent in several instances to bump therapy episodes to profit maximizing levels without regard to medical necessity and 'intent' marks the difference between a civil and a possible criminal investigation," the analysts said.
The brokerage downgraded Amedisys' stock to "sell" with a price target of $8.00, including an estimate of at least $300 million in settlement costs.
"We now expect volumes to take another likely permanent hit, 2012 Medicare rates to be worse than previously anticipated, and no relief of strict face-to-face and therapy assessment rules," CRT Capital analysts said.
Shares of rival home healthcare provider Almost Family (AFAM.O), on which the committee found no evidence of pressure to raise visits, were up 2 percent at $15.32.
(Reporting by Kavyanjali Kaushik in Bangalore; Editing by Anthony Kurian, Roshni Menon)