HealthSouth sees Medicare cases strong

By Kim Dixon

NEW YORK (Reuters) - HealthSouth Corp. (HLS.N: Quote, Profile, Research, Stock Buzz) said on Tuesday its deal-making pace is faster than planned and that the growth of cases meeting stringent new Medicare requirements will not disappoint investors when it posts results later this week.

"Changes in government regulation have created the kind of unrest in the market that favors HealthSouth," said Chief Executive Jay Grinney, who replaced ousted CEO Richard Scrushy in 2004.

Of recent acquisition activity, he said "the pace is actually faster than we expected."

HealthSouth, the biggest operator of U.S. rehabilitation facilities, is turning itself around after nearing bankruptcy, stemming from a $2.7 billion accounting fraud and the ouster of Scrushy. The company posted a near-half-billion-dollar loss in 2005, after reconstructing years of financial statements.

When it posts third-quarter results on Thursday, Grinney said "nobody is going to be disappointed" with growth in the number of cases compliant with a new Medicare rule for reimbursement.

Medicare, the health insurance program for 43 million elderly and disabled, recently began to require patients at rehabilitation facilities to meet one of about a dozen medical categories for reimbursement. Medicare will eventually require 75 percent of cases to fit into one of the disease categories.

This so-called 75 percent rule has been dampening admission trends at HealthSouth in recent quarters.

Grinney said the rule, though hurting results in the short term, gives the company an opportunity to acquire smaller players even more impacted by the rule than HealthSouth.  Continued...