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Investing.com -- Shares of some hospital stocks fell premarket on Monday after BofA analysts warned the latest version of the Senate’s Reconciliation Bill appears “more negative for hospitals” than previously expected.
According to BofA, the bill reinstates cuts to provider taxes and retains reductions to Medicaid state-directed payment programs (DPPs), both of which could materially impact hospital revenue.
Tenet Healthcare (NYSE:THC) shares dropped 2.3%, HCA Healthcare (NYSE:HCA) fell 0.9%, and Acadia Healthcare (NASDAQ:ACHC) slipped 0.4% in early trading following the release.
The Senate passed the updated bill on June 28, but BofA noted that “more last-minute changes and amendments” remain possible before it moves to the House.
Still, analysts cautioned that “even if the final version lessens the cuts to provider taxes, we note that cuts to Medicaid state-directed payment programs (DPPs) seem to be the area to stay in the final version.”
The bill now delays provider tax cuts by one year, starting in 2028 instead of 2027, but still phases rates down to 3.5% by 2032.
BofA estimated Tenet is “most exposed, followed by HCA and ARDT,” due to their higher provider tax rates. Universal Health Services (NYSE:UHS) is “least exposed.”
However, they state that “the biggest risk” to hospitals may come from the DPP changes, which would reduce Medicaid payments to Medicare levels in expansion states and to 110% of Medicare in non-expansion states starting in 2027.
BofA wrote, “those would be material to hospital companies, if finalized.”
Given these risks, BofA prefers post-acute care providers over acute hospitals. “Encompass (EHC) is our top pick,” the analysts wrote.