Healthcare Sector Now The Patient

Nursing homes continue to take it on the chin.

The sector got almost no relief last week from new regulations from the Clinton Administration that were published in the Federal Register, which didn't help the short-term prospects for the industry or its outstanding securities.

While Medicare payments will be increased marginally for nursing homes - less than 1% - analysts said the industry had optimistically planned for more. Some in the industry had been pinning hope to the idea that the Administration may act without Congress to help alleviate the cash woes stemming from low Medicare payments for the care of sicker patients.

Analysts said that nursing homes typically receive about 10% of their revenues from Medicare payments, and industry officials have advocated for some time that the government plan does not pay enough for the very sick patients.

The news was the just the latest in a tough year for health care providers in both the stock and bond markets. One investor said that the long-term prospects of the sector are still bright, but there is definitely some short pain to be endured first.

Beverly Enterprises, the largest nursing-home chain in the country, has seen its stock drop off 24% this year to $5.125. Genesis is down about 65% to $2.5625, a 52-week low. Hospitals in the junk bond sector also are under pressure, such as Columbia/HCA and Tenet.

For Beverly Enterprises, the news came on the heels of its announcement that it would take a pre-tax charge against earnings in the second quarter of $175 million to $225 million anticipating a settlement in a Justice Department Medicare fraud investigation. The amount nearly equaled the chain's earnings for the previous eight years. The charge itself was not all that surprising to the rest of the industry, but one analyst said it was not expected to be as big as it was.