Tak­ing clue from the mar­ket

Stocks for hos­pi­tals up, some in­sur­ers down

Modern Healthcare - - FRONT PAGE - Beth Kutscher

The fu­ture is brighter for hos­pi­tals— if the mar­ket re­ac­tion to the U.S. Supreme Court rul­ing on health­care re­form is any in­di­ca­tion—as in­vestors placed their bets on higher vol­umes of pa­tients and fewer who are un­able to pay.

Pub­licly traded sys­tems such as HCA, Nashville; Com­mu­nity Health Sys­tems, Franklin, Tenn.; and Tenet Health­care Corp, Dallas, saw their shares shoot up an av­er­age of 8% to 9% as in­vestors digested the court’s de­ci­sion, which left key el­e­ments of the law in­tact, in­clud­ing the in­di­vid­ual man­date.

“The big­gest fear if the law was over­turned was that you wouldn’t get the ben­e­fit of a re­duc­tion in un­com­pen­sated care,” but cost and re­im­burse­ment pres­sure would re­main, said Michael Water­house, an an­a­lyst at Morn­ingstar.

Frank Mor­gan, an an­a­lyst with RBC Cap­i­tal Mar­kets, sim­i­larly noted that ben­e­fits in­clud­ing an in­cre­men­tal in­crease in pa­tient vol­ume and less bad-debt ex­pense will “more than off­set” fi­nan­cial draw­backs, such as re­duc­tions to Medi­care’s an­nual mar­ket­bas­ket up­dates.

While providers were gen­er­ally happy with the rul­ing, un­cer­tainty re­mains for hos­pi­tals, which could still feel the impact of the de­ci­sion’s most sur­pris­ing ele­ment—a rul­ing that Congress can­not pe­nal­ize states that do not ex­pand their Med­i­caid pro­grams. “It re­ally cre­ates a sce­nario where we might not reach full uni­ver­sal cov­er­age through­out the U.S.,” said Richard Close, an an­a­lyst at Avondale Part­ners.

Yet as the clos­ing bell sounded June 29, hos­pi­tal stocks were still ral­ly­ing, with HCA trad­ing up more than 12.5%, Com­mu­nity Health Sys­tems, al­most 10%, and Tenet, al­most 7% over the day be­fore the rul­ing.

Even with the in­di­vid­ual man­date se­cured, the mar­ket was still pric­ing in some risk to com­mer­cial in­sur­ers, which will soon have to ex­pand cov­er­age to even the sick­est pa­tients.

Well­Point, In­di­anapo­lis, closed the week drop­ping more than 8%, and Aetna, Hart­ford, Conn., dipped 5.5%.

Yet some in­sur­ers, par­tic­u­larly Medi­care­fo­cused man­aged-care or­ga­ni­za­tions, saw a spike that matched hos­pi­tal sys­tems. They in­cluded Ameri­group Corp., Vir­ginia Beach, Va., and Molina Health­care, Long Beach, Calif., which marked gains of 5% and 9%, re­spec­tively, over both days.

Other sec­tors of the health­care in­dus­try— in­clud­ing post-acute care, phar­ma­ceu­ti­cal and med­i­cal-de­vice com­pa­nies—barely reg­is­tered a change.

Health­care stocks as a whole dropped about 1% in the im­me­di­ate af­ter­math of the de­ci­sion June 28, along­side the broader mar­ket. They had largely re­cov­ered by the end of the day, clos­ing in line with the Dow Jones in­dus­trial av­er­age and Stan­dard & Poor’s 500 in­dex, which also trimmed their loss to about 20 points.

Clay­ton McWhorter, for­mer pres­i­dent and chief op­er­at­ing of­fi­cer of HCA who now runs ven­ture cap­i­tal firm Clay­ton As­so­ciates, noted that health­care re­form is also cre­at­ing in­ter­est in dif­fer­ent pay­ment mod­els as well as health in­for­ma­tion tech­nol­ogy and al­ter­na­tive ways of de­liv­er­ing care. “All this is cre­at­ing an op­por­tu­nity for en­trepreneurs and VCs.”

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