November 25, 2013 / 12:35 PM / 4 years ago

Fresenius Medical Care shares up as US opts to phase in payment cuts

FRANKFURT, Nov 25 (Reuters) - Shares in the world’s biggest kidney dialysis provider Fresenius Medical Care rose more than 9 percent on Monday after a U.S. healthcare agency said it would phase in reimbursement cuts rather than introduce them in one hit next year.

Medicare, the U.S. government healthcare programme for elderly and disabled people, will spread a 9.4 percent cut, initially proposed to take effect next year, over the next three to four years.

Medicare reimburses Fresenius and other dialysis providers for the cost of treating kidney patients covered by the Medicare programme.

In each year, the cuts will be no worse than routine annual mark-ups to adjust for inflation, meaning that Medicare payments will remain flat at worst, at least for the next two years.

“The cuts are not called off but will be delayed,” a Fresenius Medical Care spokesman said, adding that the company would still have to cope with the regular adjustments for inflation being offset by the phased-in cuts.

The industry had lobbied for more moderate cuts than the ones proposed in July by the Centers for Medicare & Medicaid Services, arguing that lowering payments by 9.4 percent would force smaller operators out of business, hitting patient care mainly in rural areas.

FMC, indirectly controlled by a German charitable trust, makes dialysis machines and operates more than a third of the dialysis treatment centers in the United States. Medicare contracts account for about 30 percent of its revenues.

The company launched a cost-cutting programme at the beginning of the year in response to U.S. austerity measures, but it has not provided details.

Analysts said the market had braced for a far worse outcome and Fresenius’s shares jumped as much as 9.6 percent to their highest in almost five months. They were 7.9 percent higher by 1114 GMT.

Germany-traded shares in DaVita Healthcare Partners Inc , the second-largest dialysis company in the United States, were up 8.4 percent.

“The phase-in provides room to manoeuvre for (Fresenius) in adjusting structures to flattish Medicare rates in the next years,” Commerzbank analyst Volker Braun said.

“We see the positive share price reaction mainly as a sign of relief, given the positive effect on short-term earnings estimates,” analyst at DZ Bank said in a note.

Commerzbank’s Braun said that the U.S. healthcare agency seemed to have taken the economic situation of smaller dialysis organisations into account.

The reason behind the reimbursement cuts for dialysis providers is mainly a drop in the use of the expensive hormone erythropoietin, or EPO, to treat anemia, a common side effect associated with dialysis.

Use of EPO has fallen as a result of medical studies showing the dangers of overuse and after a new reimbursement regime was introduced in the U.S. that encouraged prudent use of EPO and more use of cheaper drugs that can partially substitute EPO.

Dialysis, where machines do the kidney’s vital job of cleaning blood of waste and excess fluids, accounts for about $10 billion of Medicare’s $555 billion annual budget and is essential to patients’ survival.

Some investors had argued earlier this year cutbacks were more likely to focus on less critical areas of healthcare, like joint replacements. (Additional reporting by Andreas Kroener. Editing by Jane Merriman)

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