Companies regroup for 2012 following Medicare cut news

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Skilled Healthcare CEO Boyd Hendrickson
Skilled Healthcare CEO Boyd Hendrickson
Faced with a shaky economy and a slash in Medicare reimbursement for 2012, skilled nursing facility operators spent August reassessing their financial strategies.

In the wake of the Centers for Medicare & Medicaid Services announcing that it would cut reimbursement by  an average 11.1%, Skilled Healthcare Group Inc. said it would no longer be for sale.

Chairman and CEO Boyd Hendrickson said in a conference call in August that the industry's $3.87 billion in rate cuts would lower revenues for the company by approximately $28 million. He said he also expects $12 and $17 million in less revenue stemming from program therapy changes.

Moody's Investor Service announced that Skilled Healthcare and HCR Healthcare LLC likely would be hit hard by the reimbursement reductions due to a greater dependence on high-acuity Medicare patients. Still, Moody's said it did not expect the cuts to impact credit ratings and that nursing home operators were still expected to have modest growth over the next 12 to 18 months.

Both Sun Healthcare Group and Skilled Healthcare said they would reassess 2011 guidance based on the cuts. The rule was “contrary to nursing homes' value proposition,” said William A. Mathies, Sun's chairman and CEO. “There's not a lot of wiggle room to absorb this type of hit,” he said. “From our perspective, it's totally unacceptable. It's unfair and it's not right.”

Standard & Poor's rating system downgraded all six of the publicly traded senior care companies it follows, saying it estimated a loss of 30% to 60% in earnings due to the rate cuts. Sun, Skilled Healthcare and Kindred Healthcare were among the notable operators that lost significant market value on Aug. 1 and then had a volatile month. One analyst at Wells Fargo, however, upgraded Kindred to “outperform,” saying that its RehabCare acquisition should offset some of the cuts' impact.