Sector Snap: Home health care sinks on rate notice

Shares of several home health care service providers sank Friday after the federal government proposed rate cuts that one analyst termed a worst-case scenario for the industry.

The Centers for Medicare and Medicaid Services proposed funding changes that amount to a cut of 3.5 percent per year over the next four years. Adjustments bring that cut down to an average of 1.5 percent for next year, but Wall Street was expecting the adjusted total to be flat, CRT Capital Group analyst Sheryl R. Skolnick said.

"This is an across the board resetting for rates," she said.

CMS will provide a 60-day period for comments on the proposed rates before making them final, but Skolnick said she doubts they will change. She noted that that rate cut has already been factored into savings expected from the health care overhaul. If those cuts are eased, then that law becomes more expensive, which could spark a political furor.

Skolnick said the changes are devastating for a company like Amedisys Inc., which has lost some major contracts and is facing declining earnings. Last month, the Baton Rouge, La., company reported a steep drop in first-quarter earnings and lowered its forecast for the year.

"This is just the worst kind of icing you could imagine on that cake," she said. "It is dire."

Here's how shares of some home health care providers were trading Friday:

Shares of Amedisys fell $1.57, or 11.9 percent, to $11.72 in late morning trading.

Gentiva Health Services Inc., down $1.43, or 12.4 percent, to $10.

Almost Family Inc. dropped $1.69, or 8.5 percent, to $18.33.

LHC Group Inc. lost $2.78, or 12.3 percent, to $19.75.