slumped sharply Friday after the hospice provider reported an unexpected quarterly loss that reflected a big reserve against possible Medicare reimbursement caps.

Scottsdale, Ariz.-based VistaCare lost $1.8 million, or 11 cents a share, in the three months ended June 30, compared with earnings of $3.8 million, or 23 cents a share, last year. Revenue was $48.1 million in the latest quarter compared with $46.1 million last year.

Income in the most recent quarter was reduced in the 2004 quarter by a $6.2 million Medicare reserve, a 29% increase in sales and marketing spending, and a higher tax rate. Analysts had been forecasting earnings of 19 cents a share on sales of $54.8 million in the most recent quarter.

Citing additional reserves and other issues, the company forecast full-year earnings of 15 cents to 30 cents a share. Analysts had been expecting earnings of 91 cents a share, according to Thomson First Call. The stock responded accordingly, recently trading down $4.72, or 25%, to $14.