Hospitals Surge, Insurers Slide as Health Law is Upheld
06/28/2012| 02:27pm US/Eastern
-- Health-care stocks diverge after Supreme Court ruling
-- Hospitals, Medicaid insurers, makers of medical tests among gainers
-- Insurers, providers of home healthcare and medical-device makers among decliners
(Updates throughout, with additional details on the reaction from more health-care sectors.)
By Jon Kamp
Thursday's historic Supreme Court ruling upholding the U.S. health-care overhaul law sent stocks throughout the health-care sector in different directions by maintaining the promise of more people seeking services, but also new costs and other big changes.
By upholding the politically contentious law, the high court keeps alive this complex mix of opportunities and pressure points, at least through November's elections. The law aims to extend coverage to tens of millions of Americans through state-based exchanges and a broader Medicaid program while imposing various cuts and taxes on health companies.
Hospital operators broadly posted big gains because the upheld law is expected to eventually extend coverage to millions of Americans who might otherwise seek care and stick hospitals with unpaid bills.
Big managed-care firms--which are slated to get new customers from the law but also face earnings-compressing coverage requirements--traded lower.
Elsewhere, the stocks of medical-device makers and providers of home health-care services also fell, while shares of Medicaid-focused insurers and medical-testing companies rose.
Overall, the NYSE Healthcare Index recently traded down about 1%, matching broader-market declines amid widely divergent moves throughout the health-care sector.
Hospitals helped lead the charge higher, with HCA Holdings Inc. (>> HCA Holdings Inc), the biggest investor-owned hospital company, jumping 10% in recent trading. Community Health Systems Inc. (>> Community Health Systems) rose about 7% and Tenet Healthcare Corp. (>> Tenet Healthcare Corporation) rose 7%.
Hospitals are the "net winners" here, having won a best-case-scenario outcome, according to Goldman Sachs. Uncertainty still looms ahead from both the elections and continued debate over managing the nation's fiscal challenges, because hospitals rely heavily on reimbursement from government health programs, but the industry got the ruling it was seeking.
Among big health insurers, UnitedHealth Group Inc. (>> UnitedHealth Group Inc.) fell about 1%, Aetna Inc. (>> Aetna Inc.) sank 3% and WellPoint Inc. (>> WellPoint, Inc.) declined 6%. Thursday's ruling keeps in place a law poised to add customers but also pressure earnings through new requirements coming in 2014, such as taking on people regardless of their health history and not charging more for pre-existing conditions. Insurers already are set to pay about $1.1 billion in rebates this summer because of a provision requiring certain levels of spending on patient care.
Predictions ahead of the ruling were all over the map, although expectations the law would be totally upheld declined significantly after oral arguments before the court in March.
"Modest declines in the shares of commercial insurers suggest at least some investors expected the law to be struck down," Wells Fargo analyst Peter Costa said.
According to Goldman Sachs analysis, earnings for big insurers would have been highest over the next four years if the law was struck down. Thursday's ruling was more of a middle-ground outcome for insurers amid investor hopes for more.
Meantime, shares of Medicaid-focused insurers jumped on expectations that the health plan for the poor will still expand to add millions more people, despite a ruling that could make state participation more optional. The high court said the federal government can't put sanctions on states' existing Medicaid funding if the states decline to go along with the expansion, but can withhold new funds if the states don't comply with the requirements.
Some conservative states might be less likely to join in, but because the federal government foots the whole bill in initial years and at least 90% thereafter, governors "may be willing to participate in the expansion despite philosophical political objections," Susquehanna analyst Chris Rigg said.
Among Medicaid insurers, WellCare Health Plans Inc. (>> WellCare Health Plans, Inc.) surged 8%, Amerigroup Corp. (>> AMERIGROUP Corporation) rose about 6% and Molina Healthcare Inc. (>> Molina Healthcare, Inc.) rose about 7%.
Two big medical-testing companies also rose on hopes for more patient volume. Quest Diagnostics Inc. (>> Quest Diagnostics Inc) recently gained 2.3%, while Laboratory Corp. of America Holdings (>> Laboratory Corp. of America Holdings) increased about 3%.
Meanwhile, shares were down in the medical-device sector, where the law means companies are set to start paying an excise tax on domestic sales next year. Medtronic Inc. (>> Medtronic, Inc.), which has estimated a $120 million to $150 million annual impact, slid 1%. Spinal-device maker NuVasive Inc. (>> NuVasive, Inc.) declined about 2%.
Though the law means more people will have access to coverage, the device industry hasn't been counting on much of a business boost. Big medical-device markets for heart and orthopedic devices are geared toward older people, including those on Medicare, who may already have coverage.
The stocks of home-health providers also slid, led by an 11% decline at Amedisys Inc. (>> Amedisys Inc). With the health law upheld, the sector "cannot expect to get relief from the nearly crushing pressure on volumes from the face-to-face and therapy assessment portions of that law," CRT Capital analyst Sheryl Skolnick said.
Besides Amedisys, Almost Family Inc. (>> Almost Family, Inc.) fell about 6%, and LHC Group (>> LHC Group, Inc.) dropped 3.8%.
Write to Jon Kamp at firstname.lastname@example.org
Stocks mentioned in the article : HCA Holdings Inc
, Aetna Inc.
, Molina Healthcare, Inc.
, NuVasive, Inc.
, Tenet Healthcare Corporation
, UnitedHealth Group Inc.
, WellCare Health Plans, Inc.
, Medtronic, Inc.
, Almost Family, Inc.
, AMERIGROUP Corporation
, Amedisys Inc
, Community Health Systems
, Quest Diagnostics Inc
, Laboratory Corp. of America Holdings
, LHC Group, Inc.
, WellPoint, Inc.