Hospital Stocks Rally as Medicare Tempers Budget Cut Blow

HCA Holdings Inc. (HCA) led hospital stocks higher after the U.S. government proposed new Medicare payment rates that would soften the blow of federal budget cuts.

HCA, the largest for-profit hospital company in the U.S., gained 5.5 percent to $40.37 at the close in New York in its biggest increase since Nov. 7.

The U.S. Centers for Medicare and Medicaid Services said April 26 that it plans a net raise in payments to acute-care hospitals of 0.8 percent beginning Oct. 1. Investors were expecting no change to as much as a 1 percent decrease, according to Brian Tanquilut, an analyst at Jefferies & Co.

“This increase is significantly better than most investors’ expectations,” Tanquilut said today in a note to investors. “We believe that downside risk for hospital stocks has been eliminated and that the only remaining factor that investors will focus on is the Jan. 1, 2014, implementation of the Affordable Care Act’s key components.”

Community Health Systems Inc. (CYH), the second-largest U.S. hospital chain, rose 3.6 percent to $45.09, its biggest jump since Feb. 13. Tenet Healthcare Corp. (THC), the No. 3 hospital operator, gained 6.5 percent to $43.84.

The agency, known as CMS, proposed raising payments 0.8 percent for services that elderly and disabled patients receive after being admitted to acute-care hospitals. Long-term care hospitals that treat patients after they’re discharged from acute-care centers would see a 1.1 percent increase.

Budget Cuts

Medicare, the U.S. government’s health-care program for the elderly and disabled, pays more than $100 billion a year to hospitals. The proposed payment changes would raise payouts for hospital care by about $53 million next year, including programs that aim to discourage hospitals from readmitting patients soon after they are discharged and to punish hospitals that too frequently spread infections to patients.

CMS also lessened the effect of a mandatory budget cut related to the Affordable Care Act. The agency proposed a 0.8 percent cut for “coding recovery,” which according to Tanquilut, was less than half the reduction in some investors’ projections.

“We are pleased that in today’s rule CMS has used its discretion to dampen the impact of certain congressionally- mandated policies,” Rick Pollack, executive vice president of the American Hospital Association, said in a statement. “CMS’s proposal has provided hospitals with additional time to manage enormous changes to patient care delivery.”

A final rule on the fiscal 2014 payments is scheduled to be issued by Aug. 1. The changes affect about 3,400 acute care hospitals about 440 long-term care hospitals for discharges on or after Oct. 1, 2013.

To contact the reporter on this story: Stephanie Armour in Washington at sarmour@bloomberg.net

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net

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