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LHC Headed for Sick Ward

Due to potential Medicare cuts, home health care chains could start landing in the sick ward as early as next year.

Chains including LHC (LHCG - Get Report), Amedisys (AMED - Get Report) and Gentiva (GTIV - Get Report) have found themselves operating under a cloud of uncertainty due to sweeping reimbursement changes proposed by the Centers for Medicare and Medicaid Services. And those changes, if implemented as planned in January, could prove far worse than some people imagine and ultimately shake up the entire industry.

"There is no guarantee that any of these companies can mitigate the changes successfully," warns Sheryl Skolnick, senior vice president of CRT Capital Group. And "if the companies don't mitigate successfully, the cuts to the most profitable segment of their home health business becomes the crucial element of any investment decision and analysis going forward."

So far, many experts have focused on CMS' broad proposal while waiting for more specific details. On the surface, the proposal looks relatively manageable, promising a slight increase in home health care payments overall.

But CMS plans to slash payments for those cases that currently rank as the industry's most profitable. Right now, Skolnick calculates, companies collect about $2,500 for making nine home health care calls -- a figure that jumps to $4,500 following the 10th visit.

Under the proposed changes, Skolnick estimates, that juicy bonus payment could shrink by nearly 65%.

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