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Hospital shares rose Monday after the U.S. government announced rate increases for inpatient care rather than the cuts that regulators had initially proposed.

The news clearly relieved investors and the industry, while analysts cautioned that hospitals continue to face pressures from growing numbers of uninsured patients and risks of future rate cuts.

Acute-care hospitals, on average, will receive a 1.6% increase in payment rates rather than the initially proposed 0.5% decrease, effective Oct. 1, the U.S. Centers of Medicare & Medicaid Services, or CMS, announced late Friday.

Actual rate increases for fiscal 2010 will vary based on region and nature of the facility. Under the earlier proposal, some hospitals were bracing for reimbursements to be lowered by 4% to 5%.

The better than expected reimbursement outlook reflects CMS' decision to postpone a rate reduction to adjust for higher payments stemming from hospital coding changes. The agency also dropped plans to cut certain payments to teaching hospitals.

Shares of Community Health Systems Inc. (CYH), the largest publicly traded hospital chain, recently rose $2.88, or 10.2%, to $31.20, while Health Management Associates Inc. (HMA) climbed 60 cents, or 10%, to $6.63. Tenet Healthcare Corp. (THC) stock was up 25 cents, or 6.3%, at $4.20; Universal Health Services Inc. (UHS) rose $2.48, or $4.5%, to $58.15 and LifePoint Hospitals Inc. (LPNT) rose 76 cents, or 2.8%, to $28.42.

"Enjoy it while it lasts because this is not the last word on hospital reimbursements, but it is the best word we have gotten in a while," said CRT Capital Group analyst Sheryl Skolnick.

CMS is delaying the "coding creep" adjustments until it has more data, and could implement them later if it believes the move is warranted, she noted. It will take the government a long time to pull that information together, she said.

In the meantime, said Skolnick, Congress could decide on a measure that reduces hospital reimbursements below this level, "but at least you're starting from a higher base."

Wells Fargo analyst Gary Lieberman said that while the rates are better than expected, "we continue to believe that growing uninsured volumes and a decreased probability of health-care reform could pressure on hospital stocks" in the second half of this year.

Many industry insiders and observers expect hospitals to benefit from a health-care overhaul that would extend coverage to most of the more than 45 million uninsured Americans.

The Standard & Poor's 500 health-care facilities subindex, which is down 27.6% year over year, is up more than 264% year to date, reflecting improving fundamentals at some companies and the potential benefits to hospitals from an expansion to insurance coverage to more patients.

-By Dinah Wisenberg Brin, Dow Jones Newswires; 215-656-8285; dinah.brin@dowjones.com