Healthcare industry analysts often
need some external verification of company-provided information and interpretations.
This was apparent recently in the case of HealthSouth.
In the August 28th 2002 Wall Street Journal, Ann Carrns and Nicole
Harris reported on HealthSouth following the previous day's 43.9 percent drop in HealthSouth's share price.
The drop followed an announcement
that company projected an earnings shortfall of $175 million annually due to a change in
Medicare policy regarding billing for physical therapy. The Medicare policy, made clear to providers in May, requires billing at a lower group rate for therapy when two or more
individuals receive services at the same time, even if the patients perform different activities.
But is the real impact of the Medicare rate change
as large as the company would have analysts believe? The WSJ reports that CMS administrator,
Tom Scully, who oversees the Medicare program said he was "surprised that HealthSouth said the change was having such a big impact."
AndoverEcon is developing models and databases that will help analysts better understand what
is really going on. By relating Medicare rate changes to the population served we will be able to
provide independent estimates of the effect of Medicare rate changes in such instances.
There are many issues for analysts to address in the case of HealthSouth, including the effect
of a planned spinoff of surgery centers to form a new company and the stepping aside of founder and
CEO Richard Scrushy who is to remain as Chairman. But sorting out the economic fundamentals
for a company can give analysts a solid start in the analysis process.
Contact us for more information about future research products and consulting services.
Thomas Grannemann, Ph.D.
President, Andover Economic Evaluation
September 2002
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