Chemed Corporation (CHE), Amedisys Inc (AMED)- For-Profit Hospices: Is Their Reliance on Medicare Funding a Liability?

At least as of this point, allegations of Medicare fraud and other legal entanglements have not prevented Chemed from remaining profitable. Its year to year earnings growth for the first quarter of 2013 was 9%.

Gentiva Health Services, Inc. (NASDAQ:GTIV) and Amedisys Inc (NASDAQ:AMED), however, have not managed to earn such glowing reports. For the first quarter of 2013, Amedisys Inc (NASDAQ:AMED) reported a diluted EPS of $(2.86). These results might explain why Amedisys Inc (NASDAQ:AMED), anxious to turn itself around, has retained a merger and acquisitions firm, The Braff Group, to help it divest some of its properties.

And Gentiva Health Services, Inc. (NASDAQ:GTIV) fared even worse, reporting a diluted EPS for the same period of ($6.08). And its Return on Equity, a measure of managerial effectiveness, was a real mind boggler, (154.10)%. So, it is hardly surprising that Zacks Equity Research recently downgraded this stock to under perform.

A Foolish conclusion

Utilizing Medicare as their major source of income might translate into for-profit hospices enjoying a secured cash flow. However, it also leaves them open to costly lawsuits alleging misuse of governmental funds, a vulnerability that could translate into losses.

And this vulnerability seemingly might increase as the Patient Protection and Affordable Health Care Act (Obamacare) takes effect during 2014. This complicated legislation, hundreds of pages in length, includes $200 million to fight Medicare fraud, such as over-billing, which is estimated to cost tax payers $6 billion annually.

Then, there is another even more fundamental quandary worth considering, one that cannot be approached in strictly dollars and cents terms. Are these facilities really offering high quality end of life care to patients or are financial interests taking precedence over everything else?

There are obviously no easy answers to these highly-charged emotional questions. Among other things, everybody would have their own understanding of what “high quality care” means. But these are issues you might want to consider before you do any investing.

Harriet Tramer Tramer has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Harriet is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article For-Profit Hospices: Is Their Reliance on Medicare Funding a Liability? originally appeared on Fool.com is written by Harriet Tramer.

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