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A so-called clerical error could spare home health care providers like


( AHG) and


( LNCR) from deep Medicare cuts.

Some people claim the House of Representatives never actually passed the official Deficit Reduction Act that was apparently signed into law last month by President Bush. By the narrowest of margins, these people insist, the House passed a slightly different bill calling for more generous Medicare coverage. They add that due to this clerical error, only the Senate's version of the bill wound up on the president's desk.

As a result, a diverse group of critics has called for the law to be thrown out. Some Democrats in Congress contend the missteps point to an abuse of power by the administration, while Jim Zeigler -- a past member of Bush's own legal team -- has sued to have the law declared unconstitutional for other reasons.

"This is Constitutional Law 101," Zeigler told

on Tuesday. "The same bill must pass the House and the Senate and then be signed by the president. Case over."

The dispute could undermine a measure that stood to sharply reduce reimbursement for companies like Apria and Lincare.

Critics say the House and Senate passed bills that differ in one critical way. Specifically, they say, the House voted for Medicare to cover durable medical equipment for 36 months. In contrast, they say, the Senate voted for Medicare to cover only oxygen equipment for 36 months -- and other supplies for just 13 months.

Previously, they add, Medicare covered durable medical equipment indefinitely.

CRT Capital analyst Sheryl Skolnick says that players throughout the health care industry have reason to dislike the law. Skolnick points to medical equipment suppliers, including



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, and respiratory therapy players like Apria and Lincare in particular.

Skolnick then goes on to name some less-obvious victims as well. She says that home nursing providers, such as


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, face Medicare cuts of their own. But, if anything, she portrays free-standing imaging companies among the hardest hit of all.

Under the new law, Skolnick estimates, those imaging companies face a 6% cut in Medicare payments this year and a far deeper cut -- of between 21% and 25% -- the next.

"So if I were an imaging company, I would be following this (disputed law) closely," Skolnick says. "It is not immaterial."

Indeed, she suggests, it could overwhelm at least one imaging company in the end. She portrays Dallas-based



as especially vulnerable.

"In our worst-case scenario -- i.e. managed care also drops its reimbursement by 21% to 25% in line with Medicare -- the company could run out of cash by 2007 and face $195 million of debt due in 2008," she concludes.

Skolnick believes that

Alliance Imaging

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will fare better. Notably, she says, the company generates 87% of its revenue from hospital-based contracts that should not be affected by the deep cuts next year.

Still, Skolnick notes, even Alliance faces challenges.

"While the switch ... may not have a significant impact on AIQ, the lack of hospital-based volumes almost certainly will," she writes. So "if the (Deficit Reduction Act) doesn't 'getcha,' the basic industry fundamentals might."

But Skolnick now holds out a little more hope for the group.

During a recent health care conference, featuring speakers from Capitol Hill, Skolnick heard the "stunning" news that some people believe the Deficit Reduction Act may not be legal at all. She now sees some chance that the law will be overturned.

"The odds are strong still that nothing gets done between now and 1/1/07 (when the deepest cuts take effect), but there is still a tiny chance that a repeal squeaks through," Skolnick wrote on Monday. "And investors in the imaging space need to discount that tiny-but-still-positive probability that a repeal of the provision could happen. The outcome of this situation could have significant implications" for the group.

To be sure, some powerful forces on both sides of the political aisle have been fighting for that change. Like the conservative Zeigler, Democratic congressman Henry Waxman continues to question the new law.

Waxman, a liberal from California, has rounded up legal scholars who support his position.

"On some matters, the Constitution speaks in majestic generalities," Columbia law professor Michael Dorf notes in a letter posted on Waxman's Web site. "The question of how a bill becomes a law is not one of them."

Supporters of the bill have downplayed the unusual manner in which it seemed to become law. Essentially, the House wound up voting on the wrong bill due to a clerical mistake. But afterwards, Democrats now claim, congressional leaders altered that bill so that it would reflect the language passed by the Senate and be implemented as law.

Such an arrangement, they add, represents "a major abuse of power" by those involved.

"As we do every year, we ... got the strong impression that the Democrats really resent the way the Republicans run the conference process," Skolnick notes. "Some Democrats might therefore be sympathetic to the nascent industry lobbying effort" to change the law going forward.

But conservatives, like Zeigler, seem bent on killing the controversial law themselves. For one thing, he doubts that the current law would actually pass again. He points out that the Senate needed Vice President Cheney's tie-breaking vote to push the law through in the first place. Meanwhile, he notes, the House passed its more generous bill by a single vote itself.

"This is a conservative issue," Zeigler insists. "And this constitutional conservative challenge is more likely to succeed."