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Medicare Proposes Reimbursement Cuts to Nursing Homes

May 5, 2008

By Kim Dixon

WASHINGTON, May 1 (Reuters) - The government's Medicare program on Thursday proposed payment cuts to reimburse nursing homes that treat more than 1 million of the nation's elderly.

The Centers for Medicare and Medicaid Services (CMS) announced a proposed 0.3 percent cut to reimbursements, which if enacted will hurt Kindred Healthcare Inc (KND.N: Quote, Profile, Research), Skilled Healthcare Group Inc (SKH.N: Quote, Profile, Research) and Sun Healthcare Group Inc (SUNH.O: Quote, Profile, Research).

The looming decision has beat down shares of publicly traded nursing homes since February, when a proposal to trim $4.7 billion in payments over five years first surfaced.

Analysts said they were still dissecting the roughly 100- page proposal, but several said it was in-line with market expectations. Some earlier said the initial proposal in the president's budget could be softened, due to lobbying from industry and lawmakers. That did not appear to happen.

""Clearly CMS is flexing their muscle,"" Ipsita Smolinski, a Washington analyst at JP Morgan said.

The rule is still subject to public comment period for further lobbying.

Earlier in the day, a trade group for nursing homes put out an estimate the cuts could have a total economic impact of $4.2 billion in one year, impacting jobs and state tax revenue.

""This is a net negative for the profession as it's proposed right now,"" said Susan Feeney, a spokeswoman for the American Health Care Association (AHCA).

The analysis was conducted by the consultants the Lewin Group.

Nursing home companies rely on government health care funding to pay for most of their services. Between 1 million to 1.5 million Americans live in nursing homes, a number expected to swell as the baby boomer population ages. (Reporting by Kim Dixon; Editing by Andre Grenon)