The company announced after market close Tuesday that the SEC asked it to preserve all documents related to its Medicare reimbursement policies. The SEC also notified the company that it will issue a subsequent request to produce the documents.
Gentiva Health Services was also notified, bringing the number of home health care companies that the SEC is investigating to four; market leader Amedisys Inc. of Baton Rouge and Almost Family were notified by the SEC July 1.
The widening investigation did not seem to come as much of a surprise to the market, as LHC Group’s stock fell only 2.3 percent, closing at $22.49 Wednesday; shares did, however, hit a year-low of $20.50 in early trade Wednesday, having traded as high as $37.36 on April 20. The company’s stock had already tumbled 12 percent after Amedisys and Almost Family were notified. All of the companies' shares fell similarly at that time.
LHC Group said it is cooperating fully with the SEC review of its billing practices.
Prompted by a Wall Street Journal investigative story earlier this year, the Senate Finance Committee began looking into whether home health providers intentionally increase the number of therapy visits to trigger higher reimbursements. When they visit patients 10 times, the companies are reimbursed an additional $2,200 per patient.
On word of the investigation, analyst Kevin Ellich of RBC Capital Markets downgraded LHC Group shares to "Sector Perform" from "Outperform," noting physicians, therapists, clients and companies may cut back on business with LHC Group because of the investigation. He also lowered his 2010 and 2011 profit estimates for LHC and cut his price target from $30 per share to $25.
The SEC investigation is likely to change home health agencies’ billing practices, he says. "History has shown us that other providers billed government sources more conservatively when scrutinized for ‘upcoding’ or billing too aggressively and we believe this dynamic could follow suit in the home health industry."