Medicare Cuts Scare Investors, Skilled Nursing Landlords Feel the Pinch

Investors are worried that deep cuts in Medicare spending will take a toll on skilled nursing operators and stifle skilled nursing facilities’ rent payments, a MarketWatch article published this week states. However, some analysts say that investor response, which can be seen in sharply fallen stocks, is a strong overreaction.

“Even in an era of increased austerity, nursing home operators should remain profitable and most landlords should continue to receive uninterrupted rent payments,” the article says, citing analyst input.

But who has the story right? Investors don’t buy it, says the article, titled “Landlords Feel Brunt of Medicare Cuts,” indicating the skilled nursing stock prices have taken a downward fall since late july when the 11.1% Medicare reimbursement cuts were announced by the Centers for Medicare and Medicaid Services (CMS).

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Sabra Health Care REIT and Omega Healthcare each saw strong declines in the double digits as “investors reasoned that some nursing homes won’t have enough cash to pay rent,” the article says. It then cites input from several industry analysts who counter by saying the sector is still good for investment, and the reaction is far overdone.

“Like anything else, when there is concern and uncertainty, the first reaction is to sell first,” Robert Gadsden, a portfolio manager of the Alpine Realty Income & Growth Fund told MarketWatch.

The skilled nursing industry has already experienced a decline in occupancy and rent growth over five years, the article states, but the declines could be short lived.

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“Many believe the Obama administration won’t be too aggressive in cutting Medicare to avoid a political backlash,” it says.

Read the article on MarketWatch.

Written by Elizabeth Ecker

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