--President Obama's re-election solidifies health-care overhaul
law
--Hospital stocks gain because law will cover more people,
cutting down on pressure from unpaid bills
--Managed-care firms slide amid questions about how law will
impact earnings
(Updates to add comments from WellPoint CFO, analyst, details on
device industry.)
By Jon Kamp
Hospital stocks surged Wednesday 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, 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 1.9%, compared with a 2.5% 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 7.6% to $33.28 in recent
trading. Among other companies, Health Management Associates Inc.
(HMA) jumped 6.4% to $8.21, and Community Health Systems Inc. (CYH)
gained 6% to $30.41.
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 Corp.
(THC), shares of which jump 8%.
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, led by a 9.9% slide to $68.63 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 5.6% to $57.77.
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 1.5% to $52.52.
Managed-care firms are also facing pressure as investors shift
focus to questions about how the health law will be implemented,
and how it will affect company earnings, rather than whether it
will remain in place. Big parts of the law are coming in 2014, such
as new exchanges where individuals will be able to buy
coverage.
"The good news is having the certainty of knowing this is the
act, this is when it goes into affect," said Wayne DeVeydt,
WellPoint's Chief Financial Officer, in an interview. But the
election "also created a new unknown for investors in our sector:
OK what does '14 look like?"
Deutsche Bank analyst Scott Fidel said valuations for
managed-care companies will likely remain below historical levels
for the next 12 months over uncertainty about the health's law
earnings impact in 2014.
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 2.3%, while Centene gained 7.9%.
WellCare Health Plans Inc. (WCG), also heavily focused on the
Medicaid market, rose 3.5%.
Meantime, shares of medical-device companies such as Medtronic
Inc. (MDT), Boston Scientific Corp. (BSX) and Zimmer Holdings Inc.
(ZMH) all traded 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.
The Advanced Medical Technology Association, an industry
lobbying group, said it hopes to have a device-tax repeal included
in any resolution before year-end aimed at avoiding the so-called
fiscal cliff, which is a mix of higher taxes and deep cuts in
federal spending coming Jan. 1 unless both political parties agree
to change current law.
AdvaMed on Nov. 15 will have 50 industry executives come to
Washington to meet with members of the House and Senate to argue
against the tax. If repeal is not passed this session, AdvaMed says
it will look for lawmakers to include the issue in a possible tax
reform bill in 2013.
Some 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 of
years should increase the companies' customer base, though if many
of them are in Medicaid they will be lower-margin customers because
of rebates.
--Peter Loftus and Joseph Walker contributed to this
article.
Write to Jon Kamp at jon.kamp@dowjones.com
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