Healthcare Business News

Hospital stocks rally as election solidifies reform

By Beth Kutscher
Posted: November 10, 2012 - 12:01 am ET

Hospital stocks once again were a bright spot in a gloomy market as the re-election of President Barack Obama signaled more certainty about the fate of healthcare reform.

And “certainty” was the word that came up again and again as publicly traded chains such as HCA, Nashville, and Tenet Healthcare Corp., Dallas, ended Wednesday trading up about 9.5%, even amid a broader market sell-off. Much like in the hours after the U.S. Supreme Court upheld the key elements of the Patient Protection and Affordable Care Act, hospital operators saw their market caps lifted while commercial health plans dropped.

“Any potential threat of a repeal is gone,” said Alex Morozov, Morningstar director of global healthcare equity research. “It's definitely a much clearer picture now than it was six months ago.”

“I think it's a combination of both relief and optimism,” said Tom Wylly, senior partner at investment bank Brentwood Capital Advisors. But, he added, “The pressure that's going to be on all providers is pricing.”

While hospital stocks rallied, concerns about shrinking Medicare and Medicaid reimbursement took a bite out of the market caps of home health, hospice and other post-acute-care providers, which are heavily exposed to government payments. Wylly noted that the market is still sorting out how these services will fit into the post-health reform environment, including their role within accountable care organizations.

More certainty over the Affordable Care Act also held less optimism for insurers such as UnitedHealth Group, WellPoint and Humana, with investors pricing in risk from increased regulation and sicker patients. But once again, investors liked what they saw from Medicaid-focused managed-care companies. “Those MCOs will be increasingly viewed as attractive, lucrative targets,” Morozov said.

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By Thursday, hospital stocks had lost some of their gains as the market continued to slump. The Dow Jones Industrial Index and the Standard & Poor's 500 both lost about 2% in the aftermath of the election, driven by a combination of worries about tax hikes, sequestration and debt crises in the eurozone as well as perhaps some self-correction after investors bet and lost on a Mitt Romney victory.

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