Amedisys, peers jump after CMS pushes out home health group model changes
Shares of Amedisys (AMED) are on the rise after the Centers for Medicare & Medicaid Services announced it is not finalizing the Home Health Groupings Model and “will take additional time to further engage with stakeholders to move towards a system that shifts the focus from volume of services to a more patient-centered model.”
Following the announcement, Mizuho upgraded Amedisys and HealthSouth (HLS) to Buy.
PAYMENT RATES, HHGM UPDATE
Last night, the Centers for Medicare & Medicaid Services issued a final rule that updates the 2018 Medicare payment rates and the wage index for home health agencies serving Medicare beneficiaries.
The rule also finalizes proposals for the Home Health Value-Based Purchasing Model and the Home Health Quality Reporting Program.
It added, “CMS is not finalizing the Home Health Groupings Model and will take additional time to further engage with stakeholders to move towards a system that shifts the focus from volume of services to a more patient-centered model.
CMS will take the comments submitted on the proposed rule into further consideration regarding patients’ needs that strikes the right balance in putting patients first.” CMS projects that Medicare payments to HHAs in 2018 will be reduced by 0.4%, or $80M, based on the finalized policies.
BUY AMEDISYS, HEALTHSOUTH
Commenting on CMS’ decision to take the public comments about Home Health Groupings Model under further consideration, Mizuho analyst Sheryl Skolnick upgraded Amedisys and HealthSouth to Buy from Neutral.
The analyst told investors that she is “even more convinced” that Home Health Groupings Model is not likely to be reintroduced for some time, clearing the way for 2018 and probably 2019 to be normal years.
#Skolnick expects Amedisys shares to have strong positive follow through and has increased confidence in 40% EBITDA growth year-over-year. Meanwhile, the analyst noted that she also has increased confidence in HealthSouth’s execution and free cash flow generation.
HOME HEALTH STOCKS RALLY
Also commenting on the update, Jefferies analyst Brian Tanquilut told investors in a research note of his own that the CMS’ decision to indefinitely postpone the implementation of the Home Health Groupings Model is a positive for the home nursing industry.
Further, the analyst argued that given the steep selloff in Almost Family, Amedisys and LHC Group since the release of the proposed rule, all three stocks should recover lost valuation. He believes the postponement of the Home Health Groupings Model “significantly reduces the risk of irrational rate cuts.” Tanquilut, who believes sector fundamentals are among the best across the HC Services landscape, has Buy ratings on all three stocks.
In morning trading, shares of Amedisys have jumped almost 17% to $54.29, while HealthSouth’s stock has gained 8% to $48.83. Shares of Almost Family have also jumped more than 26% to $51.05, and LHC Group’s stock has advanced about 9% to $70.96.
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