Medicare cuts hammer the hospital sector

Reductions to nursing facilities also take a bite out of REITs
By Russ Britt, MarketWatch

LOS ANGELES (MarketWatch) — Planned cuts in Medicare payments to skilled-nursing facilities hit the entire hospital sector in Monday trading, including real-estate investment trusts, and one nursing stock lost more than half its value.

The Centers for Medicare and Medicaid Services said Friday that it planned to reduce payments to skilled-nursing facilities by 11.1% for fiscal 2012, cutting $3.87 billion out of the spending plan.

CMS said in a note Friday that the rates “correct for an unintended spike in payment levels and better align Medicare payments with costs.”

The move took the market by surprise.

“While the 11% reduction was an option as part of the initial proposal, we are still surprised CMS is implementing this magnitude of cut, and without a phase-in,” Credit Suisse analyst Ralph Giacobbe said in a note to clients.

Hardest hit was Sun Healthcare Group Inc. SUNH
-52.14% , beaten down 52%
to $3.35. Also taking a sharp blow was Skilled Healthcare Group Inc. SKH
-42.50% , tumbling 43% to $5.06.

Among the bigger-cap losers was Kindred Healthcare Inc. KND
-29.25% , already on a
downward spiral over concerns about Medicaid reductions in recent trading sessions. Kindred lost more than a quarter of its value on Monday, dropping 29% to $13.33.

Other big losers were Ensign Group Inc. ENSG
-22.22% , which plunged
22% to $22.09 and National Healthcare Corp. NHC
-12.44% ,
down 12% to $41.64. Another hard-hit stock was Five Star Quality Care Inc. FVE
-10.10% , off 10% to $4.45.

The carnage touched all parts of the hospital sector, with REITs like Omega Healthcare Investors OHI
-9.32% falling more than 9% to
$17.81. Health Care REIT Inc. HCN
-8.47% skidded more than 8%
to $48.31, while HCP Inc. HCP
-5.69% lost 6% to trade at $34.64.

General-care hospitals also felt the pain, after a rough week in which prospective Medicaid cuts took a bite out of their shares.

HCA Holdings Inc. HCA
-6.52% continued its downward path four months after going
public, dropping another 6.5% to $24.94. Community Health Systems Inc. CYH
-5.73%
gave back more than 5% to $24.36, and Universal Health Services Inc. UHS
-7.21%
slid by 7% to $46.06. LifePoint Hospitals lost 4% to $35.57.

Russ Britt is the Los Angeles bureau chief for MarketWatch.