Hospital stocks headed for rocky ride on Obamacare repeal

Investors in hospital stocks are banking on a key idea: the GOP’s final overhaul of Obamacare won’t be as bad as it looks right now.

The version of the American Health Care Act that was headed for a House floor vote Thursday would slash billions from health spending and raise insurance costs for many, according to an analysis by a non-partisan government body. That would be bad news for hospitals, which must take care of sick patients whether or not they can pay.

“There’s still an expectation that what passes the Senate will look a lot better than what we have now for hospitals,” Michael Newshel, an analyst at Evercore ISI, said in a telephone interview. “Things are still going to be pretty volatile until that happens.”

Hospital chains’ shares have shuddered through the early process of repealing and replacing Obamacare as investors try to determine the GOP bill’s impact on the bottom line, and it’s likely to continue. The bill, which has already faced stiff opposition from some Republican conservatives and moderates, still has a long way to go before reaching the desk of President Donald Trump, who has voiced support.

The troubling outlook for hospitals is a far cry from when Obamacare was signed into law exactly seven years ago. Health- care s t ocks boomed under its first five years amid increased medical spending and a run of consolidation among drugand device-makers. The S&P 500 Health Care Index more than doubled from the date the legislation was signed in 2010 to its peak in July, 2015.

Hospitals began t heir steep rise after the Affordable Care Act, sometimes called Obamacare, survived one of several challenges of its constitutionality in June, 2012. From that point, a Bloomberg index of seven hospital stocks, including HCA Holdings Inc., Tenet Healthcare Corp. and Community Health Systems Inc., began an upward swing and peaked after tripling in July, 2015.

As uninsured rates declined and the benefits began to reach hospitals’ balance sheets, “these stocks were off to the races,” said Sheryl Skolnick with Mizuho Securities.

The Obamacare rally sputtered after five years when it appeared that coverage gains had reached their limit. Still, the surprise victory of Trump, who campaigned on a promise to repeal and replace the ACA, sent the Bloomberg hospital index down 14 per cent. Since the day after the U. S. election, the sector has been roiled by questions of how the administration would replace the Affordable Care Act, which brought the U.S. uninsured rate down to a record low of 8.6 per cent.

Smaller community hospitals and safety net hospitals would be hit hardest under the bill, said Andy Slavitt, who headed the Centers for Medicare and Medicaid Services under former president Barack Obama. Lower payments from fewer Medicaid patients would cause uncompensated care costs — the care hospitals provide without payment — to balloon.

“It’s a disaster for hospitals,” Slavitt said.