Home Health Stocks Plunge After CMS Proposes Changes To Medicare Payments

Shares of home health services providers are sliding after the Centers for Medicare & Medicaid Services, or CMS, issued a proposed rule that would update the 2018 Medicare payment rates and restructure its reimbursement system in 2019. Mizuho analyst Sheryl Skolnick downgraded Amedisys (AMED) to Neutral following the news.

NEW PAYMENT SYSTEM: According to its website, CMS has issued a proposed rule that would update the 2018 Medicare payment rates and the wage index for home health agencies serving Medicare beneficiaries. Additionally, the rule proposes changes to the home health prospective payment system case-mix adjustment methodology, including a change in the unit of payment from 60-day episodes of care to 30-day periods of care, to be implemented January 1, 2019. The proposed case-mix methodology refinements, called the home health groupings model, of HHGM, rely more heavily on clinical characteristics and other patient information to place 30-day periods of care into meaningful payment categories. The HHGM also eliminates therapy service use thresholds that are currently used to case-mix adjust payments under the HH PPS. The proposed decrease reflects the effects of a 1% home health payment update percentage.

MOVING TO THE SIDELINES: In a research note this morning, Mizuho's Skolnick downgraded Amedisys to Neutral from Buy, and called the CMS proposed rule a "body blow" that represents a significant headwind for the industry. The proposed new system not only would cut industry payments by $950M in 2019, but would also make Low-Utilization Payment Adjustment, or LUPA, reimbursement worse, she told investors. Nonetheless, Skolnick acknowledged that mitigation could be possible as this is only a proposed rule and the industry could get a delay or reduction in the cut. The analyst lowered her price target for Amedisys to $50 from $65, cut her price target for HealthSouth (HLS) to $45 from $47 and trimmed her price target on Kindred Healthcare (KND) to $8 from $9.

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