Moody's may cut Select Medical

Moody's Investors Service said it placed the ratings of Select Medical under review for possible downgrade following the announcement on May 11 that the Centers for Medicare & Medicaid Services has proposed reimbursement changes for long-term acute care hospitals that operate as hospitals within a hospital.

On review for a possible downgrade are the Ba3 senior implied rating, the B1 senior unsecured issuer rating, the $175 million 9.5% senior subordinated notes due 2009, rated B2, and the $175 million 7.5% senior subordinated notes due 2013, rated B2.

On May 11, CMS announced proposed fiscal year 2005 payment increases and policy changes for acute care hospitals. The proposed rule change would modify several policies under which reimbursement is determined for long-term acute care hospitals operating as a "hospital within a hospital." Specifically, the long-term acute care hospital and acute care "host hospital" could not be under common ownership and no more than 25% of the long-term acute care hospital's admissions could be from the host hospital.

The proposed rule change would also include changes to the long-term acute care hospital's Diagnostic Related Group, which determines reimbursement for the long-term acute care hospital.

Select Medical announced on May 11 that if the proposed rule changes were adopted by CMS, the rule changes would have a material adverse affect on Select Medical's results of operations for periods after the rule became effective.

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