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Biotech / Medical : Novacare (NOV) breaking out... -- Ignore unavailable to you. Want to Upgrade?

To: E. Graphs who wrote (201)	1/29/1998 4:55:00 AM
From: Todd D. Wiener	Read Replies (1) \| Respond to of 420

NovaCare Posts Profit Increase, Unveils New Medicare Changes By RON WINSLOW Staff Reporter of THE WALL STREET JOURNAL NovaCare Inc. said net income in its fiscal second quarter more than doubled, thanks in part to a one-time gain, and it unveiled a strategy aimed at blunting the effects of changes in Medicare reimbursement that analysts had worried would curb earnings growth. Shares of the provider of rehabilitation and employee services surged more than 9.5% on the news, recovering ground they had lost during the last two weeks amid investor worries about the new Medicare policies. NovaCare's stock closed at $13, up $1.125 in composite trading on the New York Stock Exchange. The company, based in King of Prussia, Pa., said earnings for the quarter ended Dec. 31, including extraordinary items, soared to $20.6 million, or 33 cents a diluted share, from $9.2 million, or 15 cents a diluted share a year ago. Revenue increased 70% to $398.8 million from $235 million. Medicare is changing payments to nursing homes to reimbursement based on days of service, from one based on actual costs, a change expected to reduce payments and eliminate incentives for nursing homes to provide high-cost services. NovaCare doesn't own nursing homes or receive payments directly from Medicare, but it depends on rehabilitation contracts with nursing homes for about $600 million in annual revenue, said Timothy E. Foster, chief executive officer. He said that to retain and increase its business with nursing homes, the company plans to reduce its nursing-home rehabilitative services costs by converting to programs that rely heavily on group therapy instead of one-on-one treatment sessions and by using more therapy aides and assistants instead of licensed professional therapists. Mr. Foster said the change means that the way services are provided to nursing-home residents will more closely resemble the model used in its outpatient rehabilitation business, which caters to people who suffer sports injuries or who are hurt on the job or in accidents. "We're very confident we can achieve the same clinical outcomes" with the less-intensive treatments, he said. To make the transition, the company took a $23.5 million pretax restructuring charge in its second quarter. The charge was more than offset by a $38.1 million one-time gain from an initial public offering for a subsidiary. The company said that before the effects of the special items, earnings were $11.8 million, or 19 cents a diluted share, a penny better than First Call's mean analyst estimate. Under new accounting standards that went into effect late last year, companies must report per-share earnings in two redefined ways, diluted and basic. Diluted per-share earnings are net income divided by common shares outstanding plus potential common shares from securities such as options and convertible securities. NovaCare's basic per-share operating earnings, or net divided by shares outstanding, were also 19 cents. After the one-time gain and the restructuring charge, basic per share earnings were 34 cents, up from 15 cents in the year earlier quarter. Robert Gold, an analyst at S&P Equity Group, said analysts had feared the new Medicare per diem rates would lead to lower revenue for NovaCare, but the company said it is gaining new business from smaller nursing homes who under the new reimbursement can't afford to provide rehab services in-house. Federal law requires that such services be offered to nursing home residents.