In the first quarter of this year — the same quarter it confirmed it had laid off 80 of its 8,000 employees — LHC Group (Nasdaq:LHCG) said Medicare’s 5.2 percent cut in reimbursement rates for home health providers was to blame for its 34 percent drop in first quarter profit. For the three months ending March 31, the company earned $7.7 million, or 42 cents per share, compared with $11.7 million, or 64 cents per share in the first quarter last year. Net service revenue for the first quarter of 2011 increased to $161.8 million compared with $145.2 million for the same period in 2010.

In the most recent quarter, net income fell to $9.8 million, or 53 cents per share, compared with $12.4 million, or 68 cents per share, for the same period in 2010. Earnings per share of 53 cents for the second quarter of 2011 includes approximately 3 cents per share in legal and consulting fees associated with ongoing investigations, the company confirmed. Net service revenue for the second quarter of 2011 increased to $161 million compared with $153.6 million for the same period in 2010.

The ongoing investigations noted in the earnings report are related to the company’s billing practices — specifically whether it provided unneeded services to reach visit thresholds and trigger the bonus payments from Medicare. LHC Group and its home health competitors were scrutinized by a Senate Finance Committee in mid-2010 after a Wall Street Journal investigation questioned their Medicare billing practices, and the Securities and Exchange Commission began investigating those practices shortly thereafter. Later that year, those inquiries led shareholders to ask for an investigation of LHC Group over possible breaches of fiduciary duty and other violations of the law by certain officers and directors.

“We are very pleased with our financial results in the second quarter, especially given the significant reimbursement and regulatory changes we have been working through,” Keith Myers, the company’s CEO, said in announcing second quarter results. Myers went on to say:

The combination of the 5.2% reimbursement cut for 2011 and the ‘face-to-face’ requirement that went into effect in April of this year has understandably resulted in significant pressure on volume growth, revenue and internal resources. In the first quarter, we committed resources towards education in the field and to insure that our staff fully understood the requirements of the new face-to-face rule and had the proper training and tools to handle this significant change on relatively short notice. We also invested financial resources to get down to two revenue systems and significantly reduced the complexity of dealing with these new requirements. As a result, not only have we adapted to the new rule and are in compliance, but we still managed to turn in organic growth in home health admissions of 4.8%.

The Centers for Medicare and Medicaid Services’ new face-to-face encounter requirement, which Myers references, means at the start of a patient’s home health care, the physician who certifies the plan of care must examine the patient face-to-face and document that the exam took place.

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