Sector Snap:Nursing Home Operators rise on mild CMS proposal

Late Thursday, CMS issued its long-awaited proposal to introduce "more accurate" payment rates for Medicare skilled nursing facilities (SNFs) for fiscal 2009.

Friedman Billings Ramsey analyst James Kumpel said the investment community had been spooked by the prospect of potential 3 percent to 5 percent Medicare cuts and the possibility of no market basket update for 2009. Although CMS proposed a net reduction of $770 million, or 3.3 percent, to nursing homes in 2009 Medicare payments, the agency opted to propose a full 3.1 percent market basket increase, which largely offsets the proposed cuts.

Kumpel reiterated his "Outperform" rating and $18.50 target price on Skilled Healthcare, saying its trading extremely cheaply given projected 2009 earnings per share. He upgraded Sun Healthcare to "Outperform," given its low valuation as well, but maintained a "Market Perform" rating on Kindred Healthcare.

Shares of Kindred Healthcare Inc. rose $1.28, or 5.3 percent, to $25.30 in afternoon trading, while shares of Skilled Healthcare Group Inc. gained 30 cents, or 2.4 percent, to $12.57. Sun Healthcare shares rose $1.48, or 10.8 percent, to $15.05.