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Home>Lab services companies' shares are getting slammed by Medicare reimbursement cuts

Lab services companies' shares are getting slammed by Medicare reimbursement cuts

Lab services companies' shares are getting slammed by Medicare reimbursement cuts

09/26/2017

By Emma Court

Proposed 2018 rates are 'near the worst case' and next year probably won't be any better, one analyst said

The Center for Medicare and Medicaid Services has released 2018 draft reimbursement rates for clinical lab tests and there are "few winners," according to Canaccord Genuity analyst Mark Massaro.

The rates, released last week under the Protecting Access to Medicare Act (PAMA) (https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ClinicalLabFeeSched/PAMA-Regulations.html), make greater-than-expected cuts to Medicare reimbursement for lab tests. Reimbursement was decreased for a vast majority -- 75% -- of the various lab test codes, with just 10% of the codes getting an increase, Massaro said.

The proposed "2018 industry cut is near the worst case, with 2019 likely not providing much relief," said Raymond James analyst Nicholas Jansen.

Quest Diagnostics Incorporated (DGX) and Laboratory Corporation of America (LH) numbered among the PAMA losers, according to Massaro, with the two companies' shares falling 8.6% and 3.4% respectively in heavy Monday afternoon trade.

Related: Amazon could push more pharmacies into offering lab tests (http://www.marketwatch.com/story/would-you-like-blood-work-with-that-why-amazon-could-push-more-pharmacies-into-offering-lab-tests-2017-06-23)

Cuts will make it more difficult for Quest to meet 2020 targets and though the company could lobby for changes, "we see Quest's premium multiple impaired during the process," said Raymond James analyst Nicholas Jansen, who downgraded the company to market perform.

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