Bloomberg News

WellPoint, HCA Drop on Fears of Debt Deal’s Medicare Impact

August 01, 2011

(Updates with comments from medical, hospital associations in the sixth through eight paragraphs.)

Aug. 1 (Bloomberg) -- WellPoint Inc., the largest insurer by enrollment, HCA Holdings Inc., the biggest hospital chain, and Kindred Healthcare Inc., the top nursing home operator, dropped in trading after President Barack Obama announced a debt-reduction deal that may lead to Medicare cuts.

Under the plan, Medicare may face across-the-board reductions when a bipartisan congressional committee meets to trim $1.5 trillion from the deficit by Thanksgiving. If deadlocked, the committee must divide the cuts evenly among defense and domestic programs. The reduction in Medicare, the U.S. health plan for the elderly and disabled, would be aimed at provider payments, not benefits.

The index of hospital companies including HCA, based in Nashville, Tennessee, fell 6.1 percent at 4:01 p.m. New York time, compared with a decline of less than 1 percent in the Standard & Poor’s 500 index. The index of the 15 largest managed-care companies dropped 3.4 percent, while the index of the biggest drugmakers was down 1.2 percent.

“It is a combination of the Medicare proposals in the debt-ceiling deal and profit taking given earnings,” Ana Gupte, an analyst at Sanford C. Bernstein & Co. in New York, said in a telephone interview.

Reductions in Medicare automatically triggered under the plan would be limited to 2 percent of the program’s total cost.

‘Arbitrary Cuts’

“We cannot support the Budget Control Act of 2011 because it sets in motion billions of dollars in arbitrary Medicare funding cuts,” said Chip Kahn, president and chief executive officer of the Federation of American Hospitals in Washington, representing for-profit chains. “The act rhetorically protects seniors, but this protection is illusory.”

Peter Carmel, the president of the American Medical Association, said he anticipates the Medicare physician payment will be among the issues the new commission will address.

“Everyone agrees that a 30 percent cut in payments to those who care for Medicare patients would hurt seniors’ access to the health care they need and deserve,” Carmel said in a statement.

Nursing homes began dropping Friday after Medicare released plans to cut $3.87 billion in payments to facilities, saying they had been overpaid in the past. Kindred plummeted 29 percent in New York Stock Exchange composite trading, the largest single-day drop for the Louisville, Kentucky-based nursing home company in almost three years.

Clear Reaction

“The market is clearly reacting to news that Medicare will be cut in the second round, but we believe the 2 percent limit, the language of which is quite strong, is significantly less than the market appears to be discounting intraday, said Sheryl Skolnick, an analyst with CRT Capital Group in Stamford, Connecticut. “The Medicare cuts could have been much worse, in particular for hospitals who have already given up $155 billion over 10 years.”

Providers and companies will have ample opportunity to lobby the commission given its set-up, Skolnick said.

WellPoint declined $2.11, or 3.1 percent, to $65.44 while HCA fell $1.74, or 6.5 percent, to $24.94.

Insurers and hospitals led the losses as investors decided to take profits in stocks that had performed well since the beginning of the year, Gupte said.

The health insurance stocks have gained 27 percent this year versus 2.4 percent for the S&P and hospital stocks have increased about 21 percent. Pharmaceutical manufacturers are up about 4.8 percent for the year.

--Editors: Reg Gale, Andrew Pollack

To contact the reporters on this story: Pat Wechsler in New York pwechsler@bloomberg.net; Drew Armstrong in Washington at darmstrong17@bloomberg.net

To contact the editor responsible for this story: Reg Gale at Rgale5@bloomberg.net


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