Barclays on Health Care Facilities: Feinstein's Weekly Insights & Observations

Barclays on Health Care Facilities: Feinstein's Weekly Insights & Observations

Analyst, Adam Feinstein, said, "Health care facilities underperformed the S&P 500 and the NASDAQ last week. The group was up 7.2% for the week, versus a 7.4% increase in the S&P 500 and a 7.6% increase in the NASDAQ."

"Barclays Capital Health Care Facilities Review of Rent Renewals Between Kindred and Ventas - Last week, both Kindred Healthcare (NYSE: KND) and Ventas (NYSE: VTR) filed 8-K's which announced that KND has initiated the rent renewal process for 13 skilled nursing facilities (SNFs) and 3 Long-Term Acute Care facilities (LTACs) with Ventas (VTR). In a nutshell, we view these disclosures as confirmation that negotiations for the majority of these facilities is not yet complete and that KND has some options regarding its decision to renew these facilities. Specifically, we recognize that KND can "revoke" the renewal of some of these facilities. However, we note that these facilities are currently generating a significant portion of KND's EBITDAR. As such, we believe that both KND and VTR have different options in this negotiating process. As such, we expect to monitor the situation over the next several months. Nonetheless, we view this announcement as a positive indication that some of these lease renewals will be out of the way."

"Barclays Capital Health Care Facilities Review of New Medicare Pre-Payment RAC Audit - We believe that the concerns about the impact of a new Medicare RAC program are overdone and will ultimately have very little impact on volume growth. Overall, we suggest that the market misinterpreted the data on Friday with two separate releases -one from CMS and another FSCO. Specifically, we note that CMS is calling for a change in the RAC program that would audit hospitals before paying claims, rather than after paying claims, and this will have virtually no impact on results. Separately, FSCO called for a more drastic change that would audit 100% of claims for 15 high dollar DRGs (that would impact ortho and cardio) in the state of Florida. In our view, many people merged the two releases together and were concerned that CMS was calling for a 100% prepayment audit on those 15 DRG's."

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