Nursing home stocks are getting a boost on expectations of growing profits from a newly expanded payment system for the federal Medicare health program.
But an industry trade group isn’t too happy with what’s going on with Medicaid, a state and federal health program for the poor and disabled.
Earlier this month, Washington, D.C.-based American Health Care Association released data from a report showing that Medicaid programs across the country underfunded nursing home care by $5.6 billion last year.
Medicaid pays on average $7.17 an hour per patient, a rate below the federal minimum wage of $7.25 an hour, the report said.
The situation “must change if we ever hope to serve the needs of a Baby Boom generation that will only stress our care delivery system further,” said Mark Parkinson, chief executive of the association.
Nursing home providers often are forced to rely on funding from other sources, such as Medicare, to fill in what the association calls “funding gaps resulting from inadequate Medicaid payments.”
The study showed that California came in fifth in the report’s aggregate nursing home underfunding rankings, with a $287 million deficit.
Relief isn’t likely here—Gov. Jerry Brown has targeted Medi-Cal in his budget proposals, saying that he plans to introduce more managed care and cut down on fraud.
Orange County’s three publicly traded nursing homes—Irvine-based Sun Healthcare Group Inc., Skilled Healthcare Group Inc. of Foothill Ranch and Mission Viejo’s Ensign Group Inc.—each get roughly a third of their revenue from Medicaid.
Nursing home officials and analysts have been fairly sanguine about Medicaid.
Sun anticipates “a flat Medicaid environment,” Chief Executive William Mathies said.
“I don’t think we’ll see any sort of change to Medicaid for another year or so, in terms of the aggregate,” he said.
Sun is protected from any potential “wild” Medicaid rate swings because it operates in 25 states, Mathies said.
Health Stocks Comeback
Investors looking for dividends should cast an eye on large healthcare stocks, according to a recent article in Barron’s.
Abbott Laboratories, parent company of Santa Ana-based Abbott Medical Optics Inc., and Johnson & Johnson, owner of Irvine’s Advanced Sterilization Products, were included among companies examined in “Return of the HealthCare Leviathans.”
Among other things, Barron’s noted that 22 of the 50 names in the Standard & Poor’s Healthcare Index pay dividends with an average yield of 3.3%, compared to the average 2% paid by companies in the broader S&P 500 index.
Abbott, at 3.6%, had the highest yield on the list, while J&J had a yield of 3.4%.
But Barron’s warned that high-yield dividends could be a red flag, “and they do investors little good if stock prices fall.”
Overall, Barron’s noted that large healthcare stocks “have rarely been this cheap” because they are trading at roughly 11 times projected 2011 earnings.
Barron’s also said many investors remain skeptical of future prospects for healthcare companies if President Obama’s healthcare reform remains law.
Unfriendly currency exchange rates also could ravage American companies with big foreign market exposure.
Smile Brands Debt Rating
Standard & Poor’s Ratings Service assigned a “B” corporate credit rating to Smile Brands Group Inc., an Irvine-based provider of business support services for dentists.
S&P said its outlook for Smile was “stable.”
The rating agency said it assigned Smile’s $240 million secured term loan, which is due in 2017, and its $35 million revolving credit line due in 2015, a “B” rating.
In a release, S&P said that its “low speculative-grade rating” on Smile reflects “the company’s weak business profile and high financial leverage.”
The rating company noted that Smile Brands narrowly focuses on providing dental practice management to 325 affiliated dental groups in 17 states, with significant concentrations in California and Texas.
“Accordingly, changes in economic, regulatory, or legal conditions in these states could meaningfully affect operations,” it said.
Bits and Pieces
Edwards Lifesciences Corp., an Irvine heart valve maker, said it appointed Aimee Weisner as corporate vice president and general counsel. Bruce Garren, who had been Edwards’ general counsel since 2000, is now corporate vice president, public affairs and special counsel. Weisner previously was executive vice president, administration and secretary at Advanced Medical Optics, which now is Abbott Medical Optics … Robert Braithwaite, chief administrative officer of Hoag Hospital Irvine, recently was promoted to chief operating officer for Hoag Memorial Hospital Presbyterian in Newport Beach. The position is new …
