Health Stocks Hit By Worries Of Debt Deal Impact On Medicare
August 01 2011 - 4:15PM
Dow Jones News
Health-care stocks took a broad hit Monday on concerns the U.S.
debt-limit compromise will lead to reduced spending by Medicare,
squeezing a source of revenue that fuels hospitals, health
insurers, medical-device companies and other firms.
Under the terms of the debt deal announced Sunday, reductions in
Medicare payments to health-care providers would automatically take
effect if Congress fails to adopt deficit-reduction measures
hammered out by a committee later this year, or if that committee
can't find enough savings. Medicare benefits, however, are supposed
to be left intact.
The potential for less Medicare spending followed news from
Friday that Medicare is planning to sharply cut reimbursement rates
for nursing-home operators. Those cuts have investors "waking up to
the fact" that health-care spending "will be in the crosshairs" in
the next few months as the debt deal provisions progress, ISI Group
analyst Joe Ruggieri wrote in a research note.
Hospital stocks felt the impact, with industry heavyweight HCA
Holdings Inc. (HCA) recently trading down 7.2% to $24.77. Elsewhere
in the sector, Universal Health Services Inc. (UHS) sank 8.2% to
$45.69 while LifePoint Hospitals Inc. (LPNT) slipped 5% to
$35.23.
The industry--already on the hook for $155 billion in Medicare
and Medicaid savings over 10 years under the U.S. health overhaul
law--warned against further cuts.
"Funding reductions for hospital services translate into
decreased access for our nation's seniors," said Rich Umbdenstock,
president and chief executive of the American Hospital Association,
adding the Medicare program should be exempt from automatic
cuts.
"Cuts to Medicare funding for hospital care could overload
emergency rooms, shut down trauma units and reduce patient access
to the latest treatments," Umbdenstock said.
The cuts aren't guaranteed, since the committee of lawmakers is
charged with finding a $1.5 trillion deficit-reduction package in a
second round of cutting under the overall plan. Additionally,
lawmakers have to pass the debt deal.
CRT Capital analyst Sheryl Skolnick noted the cuts would be
limited to 2% of the Medicare program's cost and "could have been
much worse." She felt investors overreacted to the news.
But health-care investors weren't in a buying mood Monday.
Stocks throughout the managed-care sector shrugged off a strong
second-quarter report and guidance raise from Humana Inc. (HUM),
sinking on worries about fallout from Medicare cuts. Health
insurers provide coverage through plans tethered to the government
program for seniors.
Humana shares were down 2.3% to $72.87 in recent trading while
UnitedHealth Group Inc. (UNH) sank 3.8% to $47.73. Cigna Corp. (CI)
shares fell 4.2% to $47.66.
Medical-device stocks were also lower Monday, with declines for
many big companies outpacing the slumping broader market. Device
makers negotiate with hospitals to sell pricey items like
defibrillators and replacement knees, and their product prices are
already under pressure from aggressive hospital bargaining.
Medtronic Corp. (MDT), the biggest stand-alone device maker,
declined 3.3% to $34.86. Heart-device competitor St. Jude Medical
Inc. (STJ) fell 3% to $45.11.
Shares of hospital bed maker Hill-Rom Holdings Inc. (HRC)
dropped 8.3% to $34.21 in recent trading. Its decline was more
linked to Medicare's announced reimbursement cut late Friday,
although Piper Jaffray said the market's reaction was unwarranted
due to Hill-Rom's minimal exposure.
The government agency that runs Medicare said it planned to cut
reimbursement rates to nursing-home operators by 11.1% in the next
fiscal year, sending shares of companies like Sun Healthcare Group
Inc. (SUNH), Skilled Healthcare Group Inc. (SKH) and Kindred
Healthcare Inc. (KND) into a steep dive Monday. Sun Healthcare
shares lost more than half their value.
Drug makers also were included in Monday's sell-off, although to
a much lesser degree due to limited direct exposure to shrunken
hospital payments. Merck & Co. (MRK), Pfizer Inc. (PFE) and
Sanofi-Aventis SA (SNY) posted modest declines.
-By Jon Kamp and Peter Loftus, Dow Jones Newswires;
617-654-6728; jon.kamp@dowjones.com
(Melissa Korn contributed to this article.)
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