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Latest Reform Spares Nursing Homes For Now

Nursing home operators, including three Orange County players, dodged a bullet in the newest version of proposed healthcare reform.

Nursing homes don’t look like they will take any major hits when it comes to getting paid but will face more regulations, according to analysts who follow the industry.

President Obama and congressional leaders seem more interested in reforming insurance companies that provide employer-sponsored or individual coverage, analysts say.

That means Irvine-based Sun Healthcare Group Inc., Mission Viejo-based Ensign Group Inc. and Skilled Healthcare Group Inc. of Lake Forest can breathe easier about getting Medicare or Medicaid payments—at least for now.

There could be some changes in Medicare this fall, when it faces a government overhaul. This stands to put more pressure on nursing home rates, said Robert Mains, a Morgan Keegan & Co. analyst who follows Sun and Skilled.

Analyst Eric Gommel of Baltimore-based Stifel, Nicolaus & Co. said earlier versions of healthcare reform, which fell off the radar in January, had “pieces related to nursing homes and reimbursement, both positive and negative.”

Gommel follows all three of OC’s nursing home companies.

The former Senate healthcare reform proposal bill had provisions that would have cut some Medicare payments to pay for the overall reform effort, according to Mains.

Medicare, a federally funded health insurance program for elderly and disabled Americans, generally is used when a patient needs a shorter, more rehabilitative nursing home stay. Medicaid, a joint state and federal program, pays for longer-term nursing home care.

The current healthcare proposal addresses nursing homes mainly from a regulatory standpoint.

Regulatory provisions include one that seeks to assess nursing home quality and provide consumers with information about facilities. There’s also the Patient Safety and Abuse Prevention Act, which would require nursing home operators to provide stringent background checks to potential caregivers.

The uncertainty over how healthcare will eventually be reformed had differing effects on local nursing home companies.

Shares of Ensign are up about 19% since the beginning of December on a recent market value of $357 million. The uptick has been in part due to the company’s acquisitions of distressed nursing homes and a good earnings report.

“Ensign has actually performed pretty well as a stock since late last year,” Gommel said.

During the same time period, Sun’s shares are up about 6% with a recent market value of $410 million.

Skilled’s shares have fallen 7% since December with a recent market value of about $240 million.

“Sun and Skilled (have) been a little more flat, maybe even down a little bit,” Gommel said.

The analyst attributed the drop to problems with “reimbursement and concerns over reimbursement.”

Mains said that Sun and Skilled have both issued lower earnings guidance for 2010, primarily because of what he called “flat” Medicaid reimbursement and an average 1.1% cut in Medicare rates that went into effect in October.

Sun said it expects to post a full-year profit of $40.5 million to $43.2 million, which is slightly below Wall Street’s expectation of $41.9 million on the lower end.

Skilled has projected that its 2010 profit will come in at $33.2 million to $35.1 million, below analysts’ expectation of $34.4 million on the lower end but above the higher end.

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