Why Amedisys Is Crashing 14.3% Today

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What happened

After the Centers for Medicare and Medicaid Services (CMS) said it may reduce reimbursement for home healthcare by 0.4% in 2018, shares in Amedisys Inc. (NASDAQ: AMED) are losing 14.3% of their value at 1:45 p.m. EDT Wednesday.

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So what

The CMS has issued a proposed rule updating the Medicare home health prospective payment system rates and wage index for 2018. The proposal would cut payments to home health agencies next year by 0.4%, or about $80 million. For perspective, CMS reduced payments by 0.7% in 2017.

That's potentially bad news for everyone in the industry, including Amedisys, which provides home health, hospice, and personal care to over 385,000 patients per year in 34 states.

While Amedisys makes money from hospice and other care services, home health is the big driver of its revenue and earnings. In the first quarter, home healthcare was responsible for $271 million of its $370 million in total revenue. Medicare is a major payer for home health services provided by the company, making up 73.4% of home health revenue in Q1.

Now what

The ever-changing payment structure for home healthcare makes this industry riskier than others. The reduction in payments for next year is smaller than this year's cut, but beginning in 2019, the CMS plans to completely revamp its payments model in a manner that could reduce payments by 4.3% on a non-budget-neutral basis, or by 2.2% on a partially budget-neutral basis.

The uncertainty associated with changes to payments creates short-term risk, but the demographics associated with aging baby boomers continues to provide support. Hopefully, Amedisys management can provide some additional context for how these changes may impact the company when it reports Q2 results after the closing bell today.

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Todd Campbell has no position in any stocks mentioned. His clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.