Obama Win Preserving Health Law Buoys Hospitals as Insurers Slip

Wednesday, 07 Nov 2012 10:42 AM

 

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HCA Holdings Inc. and other hospitals will get more paying customers while insurers like UnitedHealth Group Inc. will see profits squeezed as U.S. President Barack Obama moves to preserve the health-care overhaul he championed.

Obama’s re-election win rallied shares of HCA Holdings Inc., the largest for-profit hospital company, by 5.3 percent at 9:58 a.m. while Community Health Systems Inc. and Tenet Healthcare Corp. also saw gains on prospects for millions of newly insured patients being added to their admission rolls. UnitedHealth, the largest U.S. medical insurer, fell 2.6 percent and WellPoint Inc., Humana Inc. and Aetna Inc. also saw declines as that industry faces profit limits and new taxes to help pay for the coverage expansion.

“Volumes of business will improve for hospital companies and bad debt will go down with the reduction in the uninsured” as the law moves forward, said Frank Morgan, an analyst with RBC Capital Markets in Brentwood, Tennessee. While a Mitt Romney win might have benefited insurers, the Republican would have brought “a cloud of uncertainty” for hospitals, he said.

Obama’s signature achievement during his first term was to expand health-care coverage to as many as 30 million uninsured people starting in 2014 through a sweeping law that Romney had pledged to overturn. That made this election as significant as the 1964 race, where Lyndon Johnson’s win over Barry Goldwater led to the enactment of Medicare and Medicaid, said David Blumenthal, a professor at Harvard Medical School in Boston.

“The next president will have his hand on the health-care lever,” Blumenthal, who was Obama’s first national coordinator for health information technology, said in an interview before voting ended.

Traders’ Bets

The Bloomberg Industries hospitals stock index rose 6.4 percent. HCA shares rose to $32.76, Community Health jumped 6.7 percent and Tenet 5.4 percent.

The Affordable Care Act is the biggest change to the U.S. health-care system since Medicare and Medicaid began providing taxpayer-funded health care for the poor, elderly and disabled in 1965. Traders bought hospital stocks and sold off commercial insurers after Obama’s overhaul passed Congress in 2010, a scene repeated when the law survived a challenge before the Supreme Court.

Romney said in June that he disagreed with the Supreme Court’s decision to uphold the constitutionality of the plan and that what the justices failed to do he would “do on my first day if elected president.”

‘Modest Negative’

The law’s survival “represents the status quo and means that the industry will undergo significant change and new regulations beginning in 2014,” said John Sullivan, a health- care strategist at Boston-based investment bank Leerink Swann & Co., in an Oct. 23 note to clients. It’s a “modest negative” for managed-care companies, he said.

The health law bans insurance plans from keeping more than 85 percent of the premiums they collect for profit or administrative expenses. It also imposes about $84 billion in taxes and fees, according to a September analysis by Bloomberg Industries. Plans will have to compete for the new customers on state-by-state exchanges where consumers can comparison-shop.

On the exchanges, “product standardization and transparency will pressure margins, which we believe will more than offset the upside from an increase in the number of people with health insurance,” Sullivan said.

The S&P 500 Managed Health Care Index dropped 3.1 percent. UnitedHealth fell to $54.92, while WellPoint lost 4.7 percent to $58.35. Aetna declined 2.9 percent to $43.29, and Humana tumbled 6.3 percent to $71.33.

Helping Hospitals

For hospitals, the Affordable Care Act will extend coverage to 92 percent of the population, from 82 percent, according to the Congressional Budget Office. The law includes a reduction in payments to private Medicare Advantage insurance plans, and curtails growth in reimbursement rates for medical providers other than doctors. It also encourages consolidation among hospitals and doctor practices, with physicians leaving independent practice to become hospital employees.

Preservation of the overhaul helps most hospitals, which had already moved ahead with implementing aspects of the law despite the election. Samuel Hazen, president of operations for HCA, told analysts on a Nov. 1 conference call that the Nashville, Tennessee-based company had started to prepare for health system changes, many of which begin to kick in by 2014.

Romney Plan

Romney’s plans would have pressed hospitals to find new ways to deliver care at a lower cost, Wayne T. Smith, chief executive officer of Franklin, Tennessee-based Community Health, the second-largest U.S. hospital chain, said Oct. 31.

“If it is a Romney win, you’re going to test our ability to continue productivity and develop new strategies around reductions in cost and product -- and how we can better deliver it, our care at a lesser cost,” Smith told analysts on an earnings conference call. “If Obama is re-elected, we’ll be working more on the revenue side.”

Hospitals would have continued to migrate toward more incentive-based pay that lowers costs even if the mandate for universal health care coverage was repealed under Romney, said Frederick Isasi, senior health policy adviser and managing director at Advisory Board Co., a research and consulting company based in Washington.

Doctor Fees

Hospitals have been paid each time they do a procedure, in arrangements known as “fee for service.” The law shifts them to incentive systems where the focus is on more efficient care. They may get a set amount of dollars to spend on a patient, for example, and can keep surplus if they can provide care for less.

Republicans have said they wouldn’t seek to undo the transition to the newer payment models, Isasi said. That would mean continued hospital consolidations and hiring of doctors, since those cost savings are accomplished through economies of scale.

“The ball has already dropped,” James Weinstein, chief executive officer of the Dartmouth-Hitchcock health system in Lebanon, New Hampshire, said in an interview. “It’s like New Year’s when the ball is rolling. Provider organizations need to take the lead in creating a sustainable health system.”

© Copyright 2014 Bloomberg News. All rights reserved.

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