Analyst eyes risks of Medicare SGR shift

NEW YORK (AP) — A Stifel Nicolaus analyst said Monday that the threat of health care spending cuts could hurt a variety of stocks in the health care sector, including companies that own hospitals, rehabilitation and nursing facilities, and companies that own health care real estate.

Because of a “sustainable growth rate” (SGR) provision in the Balanced Budget Act of 1997 that was supposed to tie growth in Medicare reimbursement rates to growth in gross domestic product, Medicare payments to doctors are scheduled for cuts every year. Congress waives the cuts on an annual basis but has never repealed the rule itself. In 2013, payments to doctors were scheduled to be cut 27 percent, and in 2014, the number is projected at 24.4 percent.

Earlier this year, the Congressional Budget Office lowered its estimate for how much it would cost to repeal the formula that is responsible for the proposed cuts: it believes the change would cost $138 billion over the next 10 years.

A House committee has passed legislation that would eliminate the formula and make the annual “doc fix” unnecessary. House and Senate committees will have to find a way to pay for those costs, and analyst Robert Mains said he thinks Medicare providers will be a target for cuts.

“This, we feel, creates headline risk for post-acute care providers (long-term care hospitals, rehabilitation hospitals, skilled nursing facilities, home health agencies) and the real estate investment trusts that own their real estate,” he wrote.