Fresnius Shares Fall on Plan to Cut Medicare Rates

By Nicky Redl

Dialysis care provider Fresenius Medical Care AG & Co. (FME.XE, FMS) is leading the DAX decliners, after the U.S. federal government proposed sharp reductions to Medicare payment rates, starting in 2014.

The proposal foresees a 9.4% reduction in Medicare payments for dialysis treatment. While a lowering of rates was expected, analysts say the cuts are much wider than anticipated. J.P. Morgan Cazenove called the proposal "worse than worst fears," adding that according to the brokerage's initial estimates, the earnings-per-share consensus forecast for 2014 could be reduced by around 20%. J.P. Morgan said the cuts would mean a $23 a treatment reduction, while the brokerage had expected a cut of around $3 a treatment.

Significantly lower payments would hit the company hard, as North America is by far Fresenius Medical Care's biggest dialysis market. In 2012, Fresenius Medical Care's net revenue was 13.8 billion euros ($18 billion), of which EUR9.04 billion were attributable to North America, including Canada and Mexico.

When reporting first-quarter earnings in April, the company said "any significant decreases in Medicare reimbursement rates could have material adverse effects on our provider business and, because the demand for products is affected by Medicare reimbursement, on our products business."

Fresenius Medical Care recently was trading down 9.9%, while parent company Fresenius SE (FRE.XE FSNUY) fell 3.9%. In addition, another dialysis care provider, DaVita Healthcare Partners Inc. (DVA), saw its shares slide 5.3% to $114.75.

The proposed rates are open to public comment until August 30, with a final ruling expected later this year. A Fresenius Medical Care spokesman said they will examine the proposal and discuss costs and prices. Observers expect that the Centers for Medicare and Medicaid Services, or CMS, will consider the feedback from dialysis providers prior to a final decision.

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