Shares of health care provider Kindred Healthcare fell Tuesday after the company slashed its guidance to reflect lower Medicare payments from the federal government.
THE SPARK: Kindred lowered its earnings guidance for 2013 to between $1.10 and $1.30 per share from its previous outlook of $1.20 to $1.40 per share. Company management said the new guidance reflects cuts to Medicare payments for rehabilitation therapy, which could range from $25 to $30 million per year. The cuts were passed by Congress on Jan. 1 as part of legislation designed to avert the so-called fiscal cliff, a combination of tax increases and spending cuts.
THE BIG PICTURE: Medicare provides health insurance coverage to about 48 million American seniors and people with disabilities. Under the American Tax Payer Relief Act of 2012, certain payments for therapy will be cut by 25 percent beginning April 1.
Kindred Healthcare, which is based in Louisville, Ky., operates 118 long-term acute care hospitals, 224 nursing and rehabilitation centers.
THE ANALYSIS: Analysts noted that more cuts could be coming for Kindred and other health care providers. Congress and the White House are expected to continue negotiations in coming months to reduce government spending, particularly in the Medicare program.
"The next round of discussions could result in further Medicare adjustments, and we believe it is highly likely that there will be additional rhetoric to this effect," said Stifel Nicolaus analyst Robert Mains, in a note to investors. Worries about further cuts could hinder Kindred's stock price growth, he said.
Mains has a "Hold" rating on Kindred shares.
SHARE ACTION: Kindred Healthcare Inc. shares fell 72 cents, or 6.4 percent, to $10.55 in afternoon trading.