By Jon Kamp
Hospital stocks surged while big health insurers slumped
following President Barack Obama's re-election, which solidified
the future of a complex health-care overhaul law that promises a
mix of coverage-expanding benefits and new pressure points for
health companies.
The health sector still faces plenty of questions as the law is
implemented in coming years, and the political tussle over federal
spending challenges companies with strong tethers to Medicare
spending. Still, similar to June's Supreme Court ruling, which
largely upheld the health law, the election clears away a big
source of uncertainty by removing the chance for repeal under a
Republican administration.
The health-care sector in general performed better than the
slumping broader market Wednesday, helped by surging hospital and
Medicaid-insurer stocks that partially offset slides elsewhere. The
NYSE Healthcare index--which covers a range of insurers, device and
pharmaceutical companies, providers and others--recently traded
down 1.3%, compared with a 1.9% decline in the Standard &
Poor's 500 index.
Hospital stocks in particular have received a bounce from Mr.
Obama's re-election. Companies such as HCA Holdings Inc. (HCA) are
expected to benefit as around 30 million Americans gain insurance
coverage starting in 2014, which should lessen the burden hospitals
bear from patients who can't pay their bills.
HCA--the biggest for-profit hospital firm, which Goldman Sachs
upgraded to buy from neutral--surged 6% to $32.78 in early trading
Wednesday. Among other companies, Health Management Associates Inc.
(HMA), jumped 9% to $8.40, and Community Health Systems Inc. (CYH)
gained 5.6% to $30.30.
While hospitals also are facing lower Medicare payments, "the
impact of reimbursement for previously 'uncompensated care'
represents a major change and significant boost for these companies
starting in 2014," Goldman analysts said.
Also helping the hospital sector Wednesday was
better-than-expected earnings results from Tenet Healthcare Co.
(THC), shares of which jump 6.2%.
Managed-care companies are also expected to benefit by gaining
millions of new customers, but this is offset by a squeeze on
profit margins as key parts of the law click into place, such as a
requirement to cover people with pre-existing conditions. All the
major companies slumped in early trading, led by a 6.4% slide to
$71.25 at Humana Inc. (HUM).
Goldman downgraded that firm to sell from neutral because of
Humana's heavy stake in Medicare Advantage plans, which are private
insurers' version of the government plan for the elderly, and face
reimbursement pressure under the law.
"With health reform now more likely to move ahead following the
election outcome, we see greater downside risk to Medicare
Advantage, which we estimate comprises over 70% of the HUM's
earnings," Goldman said.
WellPoint Inc. (WLP), which has a large position in individual
and small-group health insurance markets that are expected to see
the biggest impact from the health law, fell 4.2% to $58.71.
WellPoint also reported better-than-expected third-quarter earnings
on Wednesday, though it kept its full-year earnings guidance in
check, implying a conservative outlook for the current quarter.
Cigna Corp. (CI), a company seen as having modest exposure to
major changes under the law because of its focus on commercial
plans for large, self-insured companies, slid 1.8% to $52.34.
Among smaller health insurers, those heavily focused on
Medicaid--such as Molina Healthcare Inc. (MOH) and Centene Corp.
(CNC)--climbed on the election results because the health-care law
aims to expand the government plan for the poor to cover millions
of more lives. Molina rose 3.8%, while Centene gained 5.5%.
Meantime, shares of medical-device companies such as Medtronic
Inc. (MDT), Boston Scientific Corp. (BSX) and Zimmer Holdings Inc.
(ZMH) all traded modestly lower. Those companies have been battling
to try to do away with a 2.3% excise tax on revenue scheduled to
start Jan. 1 under the health-care law. They will have to flex
their lobbying muscle now--and they do have some bipartisan support
to do away with the tax--to try to push something through
Congress.
Several large-cap pharmaceutical stocks are off less than the
decline in the broader market, including GlaxoSmithKline PLC (GSK),
Pfizer Inc. (PFE) and Eli Lilly & Co. (LLY). In general,
though, drug stocks were not expected to be as affected by the
election's impact on the health-care overhaul.
Drug makers supported the overhaul and agreed to pay higher
rebates, taxes and fees in exchange for certain provisions, or lack
thereof, that are seen as generally friendly to the industry. The
expansion of coverage that will kick in over the next couple years
should increase the companies' customer base, though if many of
them are in Medicaid they will be lower-margin customers because of
rebates.
Write to Jon Kamp at jon.kamp@dowjones.com
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