SEC inquiry sacks home health stocks

Shares of home health providers sank Wednesday as an investigation into the industry’s Medicare reimbursement practices expanded.

After the markets closed on Tuesday, LHC Group Inc. and Gentiva Health Services Inc. said they are being investigated by the Securities and Exchange Commission. LHC said the agency told it to preserve all documents related to its Medicare reimbursement practices. According to LHC, the agency will ask it to submit those documents for review.

That brings the number of home health care companies that the SEC is scrutinizing to four, as it started investigations into Amedisys Inc. and Almost Family Inc. on July 1. This spring the Senate Finance Committee started looking into reports that the four companies manipulated the number of visits they made to patients to get more money from Medicare. They allegedly made extra visits to patients to bump them up to a higher reimbursement level: when they visit patients 10 times, the companies are reimbursed an additional $2,200 per patient.

In a note to clients, analyst Kevin Ellich of RBC Capital Markets downgraded LHC Group shares to “Sector Perform” from “Outperform,” saying physicians, therapists, clients and companies may cut back on business with LHC because of the investigation. Ellich lowered his 2010 and 2011 profit estimates for LHC and trimmed his price target to $25 per share from $30.

“History has shown us that other providers billed government sources more conservatively when scrutinized for “upcoding” or billing too aggressively and we believe this dynamic could follow suit in the home health industry,” he said.

LHC stock dipped 77 cents, or 3.3 percent, to $22.25 in afternoon trading.

Robert W. Baird and Co. analyst Whit Mayo downgraded Amedisys shares to “Neutral” from “Outperform,” saying the company’s business went into a slump in June.

“We believe the slew of recent regulatory criticisms may be weighing much more heavily on the business than we expected,” Mayo said. He noted that Gentiva has not disclosed a slowdown in business and LHC has backed its profit and revenue outlook for the year. He maintained an “Outperform” rating on both companies.

Amedisys shares lost 79 cents, or 3 percent, to $25.78.

Almost Family stock slid $1.42, or 5.4 percent, to $24.94, and shares of Gentiva fell 47 cents, or 2.1 percent, to $21.83.