Bloomberg News

Hospitals Tumble on Medicare Order for Heart Procedure Audit

December 09, 2011

(Adds cardiologist comment in seventh paragraph.)

Dec. 2 (Bloomberg) -- Hospital and medical device stocks tumbled after a report said that Medicare won’t pay for hospital stays in 11 states for heart and orthopedic procedures until the treatment is reviewed and deemed necessary.

The Center for Medicare and Medicaid Services will require pre-payment audits on hospital stays for cardiac care, joint replacements and spinal fusion procedures, according to the American College of Cardiology in a letter to members. Shares in both industries fell with Tenet Healthcare Corp., the Dallas- based hospital operator, plunging 11 percent to $4.18, the most among Standard & Poor’s 500 stocks. Medtronic Inc., the largest U.S. maker of heart devices, dropped 6 percent to $34.61.

The program means hospitals won’t receive payment for stays that involve cardiac care or orthopedic treatment until auditors have examined the patient records and confirmed that the care was appropriate, Jerold Saef, the reimbursement chair for the Florida chapter of the American College of Cardiology, wrote in a Nov. 21 letter to members. The review process is expected to take 30 days to 60 days, beginning January 1, Saef said.

“This initiative seems onerous for hospitals and will likely reduce procedure volume because hospitals will begin making sure that every patient meets the coverage criteria,” Larry Biegelsen, an analyst at Wells Fargo Securities, said today in an investment note on the audit rules.

The states involved include New York, California, Texas, Florida, Michigan and Ohio.

Brian Cook, a spokesman for the Medicare program, didn’t return phone calls or emails seeking comment.

Declining Share Prices

HCA Holdings Inc., the largest U.S. hospital operator, fell 7.2 percent to $22.45 at the close of trading. Community Health Systems Inc., the second-largest U.S. hospital chain, dropped 5.4 percent to $18.77.

Boston Scientific Corp., the second-biggest heart-device maker by revenue, declined 6.8 percent to $5.50 and St. Jude Medical Inc. plunged 7 percent to $35.83.

The program will cover 15 different medical treatments, including patients getting a pacemaker or defibrillator to regulate the heart rate, a procedure to clear arteries or stents to hold them open, spinal fusion surgery or major joint replacement. While Saef based his letter on information provided by First Coast Service Options, which provides all Medicare services to Florida, Puerto Rico and the Virgin Islands, the association confirmed similar programs in 10 other states, he said.

Documentation Needed

“The premise under which this program is being initiated is that physicians are not adequately documenting the justification for their procedures and that as many as half the procedures performed may be unnecessary,” Saef wrote. “We are told this is an instruction from the Center for Medicare and Medicaid Services, and that it is being implemented nationally,” he said.

If the audit finds that the medical records don’t justify the treatment received, the entire hospital stay will be denied, Saef said.

While doctors will be reimbursed for their services, they may receive a “Take-Back Letter” requiring them to return the payment if an audit doesn’t deem the treatment necessary, according to the letter.

--Editors: Angela Zimm, Bruce Rule

To contact the reporter on this story: Pat Wechsler in New York at

To contact the editor responsible for this story: Reg Gale at

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