HCA Gains While Insurers Fall on Health Law Ruling

Tenet Leaps With Hospitals as Insurers Fall on Health Law Ruling
Tenet Healthcare in Atlanta. Photographer: Erik S. Lesser/Bloomberg

Hospital companies led by HCA Holdings Inc. jumped in New York trading after the Supreme Court upheld a U.S. health-care law that may arrest a rising tide of uninsured patients unable to pay their medical bills.

Medicaid insurers also rose, paced by Molina Healthcare Inc., after the court mostly supported a rule expanding the U.S. health plan for the poor. Commercial carriers such as WellPoint Inc. fell in the face of the law’s new regulations.

The court, voting 5-4, largely left intact the Affordable Care Act’s transformation of the U.S. health system, saying Congress has the power to make Americans get insurance or pay a penalty. They also let stand a plan to expand Medicaid by about 16 million people, though the justices limited the power to punish states that don’t comply.

“No one in the hospital land really expected the entire law to be upheld,” said Sheryl Skolnick, a health-care analyst at CRT Capital Markets in Stamford, Connecticut, in a telephone interview. “They expected something in the muddy middle. And with surprise, you get big swings.”

HCA, the biggest U.S. hospital chain, rose 11 percent to $29.47 at the close of trading. Tenet Healthcare Corp., the third-biggest chain, increased 5.4 percent to $5.25, while Long Beach, California-based Molina rose 8.6 percent to $23.16. Indianapolis-based WellPoint, the second-largest U.S. health insurer, dropped 5.2 percent to $65.90.

HCA, Molina

HCA and Tenet have hospitals in urban areas with large numbers of uninsured patients, making the Dallas-based chain a potential winner from the law’s coverage expansion, Skolnick said in a telephone interview. Likewise, Molina and fellow insurers specializing in Medicaid are in line to win business from state governments expected to contract out much of that program’s new enrollees.

While the court’s opinion closes one chapter in the debate, it isn’t over, said Daniel Mendelson, chief executive officer of Avalere Health LLC, a Washington-based research and consulting company. Republicans have vowed to kill the overhaul if they win the White House and Congress in the November elections.

The ruling “removes an overhang” for health-care stocks, Mendelson said in a telephone interview. “Getting some more certainty around the fate of the industry should be a positive. It would be more of a positive if you didn’t have one of the parties vowing to repeal.”

The justices’ Medicaid decision may delay the growth of the program in some states, and with it the opportunity for some carriers, said David Cordani, chief executive officer at Bloomfield, Connecticut-based plan Cigna Corp.

Cigna’s ‘Clarity’

Still, the decision adds “another chapter of clarity,” he said in a telephone interview. “And what I wanted more than anything was clarity.”

The number of people without coverage swelled to 49.9 million in 2010, or 16 percent of the U.S. population, from 36.6 million, or 13 percent, in 2000, according to Census Bureau data. The percentage of people covered through their jobs decreased to 55.3 percent from 65.1 percent in 2000.

The law may add coverage for 32 million people by decade’s end, according to Congressional Budget Office estimates.

WellPoint, the biggest seller of small-business and individual plans, will win new customers from the law. It also faces regulations that may cut into profit margins, such as a provision banning insurers from discriminating against people with preexisting conditions. UnitedHealth Group Inc., the biggest U.S. insurer, rose less than 1 percent to $59.60.

Taxing Power

While the federal government “does not have the power to order people to buy health insurance,” Chief Justice John Roberts wrote in his opinion today, “the federal government does have the power to impose a tax on those without health insurance.” The law “is therefore constitutional because it can reasonably be read as a tax.”

“The decision essentially maintains the status quo,” said Carl McDonald, a Citigroup analyst in New York, in a note to clients. “We can argue the stocks might be off a little, since there was hope the court would eliminate some of the negative aspects of health reform. At the same time, it’s easy enough to argue for the stocks to rise a bit now that we’ve gotten through this significant overhang.”

Industry’s Impact

The health-care sector makes up more 18 percent of the U.S. economy, giving the decision wide-ranging implications.

“WellPoint will continue to move forward with our efforts to improve our nation’s health-care delivery system,” said Kristin Binns, a company spokeswoman, in an e-mail. “The road to implementing health-care reform will be a challenge, however, we look forward to working constructively with policymakers and other key stakeholders.”

Humana Inc., the second-biggest provider of Medicare and Medicaid coverage after UnitedHealth, said some of the expanded benefits for the uninsured “threaten to undermine the goals of access and affordability” unless they’re phased in gradually. The provisions are now due to take effect in 2014.

“Costs will jump unfairly on small businesses and many seniors” due to the law’s tax on insurance companies that is meant to help pay expanding coverage, the Louisville, Kentucky-based company said in a statement.

The Standard & Poor’s Health-Care Index declined less than 1 percent, with drugmaker stocks mostly unchanged.

New Taxes

Pfizer Inc., Johnson & Johnson and Amgen Inc., leading makers of drugs and medical products, will face $47 billion in taxes and fees under the law.

Drugmakers agreed to provide about $100 billion over 10 years in taxes and discounts on therapies as part of a deal to avoid even deeper price cuts in government health care programs. Device makers also face $20 billion in new taxes.

The euphoria for hospital stocks and other companies could be short lived, said Skolnick. U.S. lawmakers still have to find ways to fund budget deficits in the Medicare program, the country’s health insurance for the elderly and disabled. A new round of policy making means uncertainty and potentially more taxes for drugmakers as well, said Christie Bloomquist, a partner with the law firm Hogan Lovells in Washington.

“We’ve got the Supreme Court ruling, but we’ve also got a busy year of ongoing discussions about the debt ceiling,” Bloomquist said in a telephone interview. Policies the drug industry put to rest in the health-law debate, like deeper discounts for Medicare and Medicaid, could resurface.

The justices’ ruling was a defeat for Republicans, who have attacked the insurance-buying mandate as unconstitutional. That was a political reversal for the party, which originated the idea of a mandate in the 1990s as an alternative to then-President Bill Clinton’s health-care bill. House Republicans have scheduled a vote for the week of July 9 to repeal the law.

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