HealthSouth Sees Risk in Returning to 75% Rule

HealthSouth Corp. said President Barack Obama’s deficit-reduction plan, which would reinstate the Medicare compliance threshold for inpatient rehabilitation hospitals to 75%, could lead the company to close a small number of hospitals.

Executives at Birmingham, Ala.-based HealthSouth said during a conference call that the plan to reinstate the so-called 75% rule is “misguided.”

The rule would require that 75% of patients in inpatient rehabilitation facilities have at least one of 13 specified medical conditions, according to a HealthSouth federal filing (PDF). The current compliance threshold is 60%.

The list of specified conditions includes stroke, spinal cord injury, and knee and hip joint replacements.

HealthSouth said in the Sept. 19 filing that the reinstatement of the 75% rule could lead to a loss of roughly $26 million in its annual adjusted operating income, assuming some reductions in labor and supplies.

“It is possible the reduction in volume resulting from the reinstatement of the 75% rule might force us to close a very small, limited number of hospitals,” HealthSouth President and CEO Jay Grinney said during the call.

HealthSouth shares fell after Obama announced the deficit reduction plan. The plan includes roughly $224 billion in Medicare cost savings over the next decade and would bring back the 75% rule.

HealthSouth said in the filing that 38 of the company’s 94 consolidated hospitals would have been compliant with the 75% rule during the most recent compliance testing period.

“Given the partisan nature of the deficit debate and the pushback to date on President Obama’s proposed cuts and tax increases, we believe the odds are that the plan will not gain traction,” Colleen Lang, a Lazard Capital Markets analyst, said in a note.