Who Will Come Out On Top After Reform?

To hear the Clinton Administration tell it, everyone wins with health-care reform. The mantra on the Potomac: We'll all pay less and get more. But on Wall Street and among health-care executives, there's a touch more skepticism about what reform will bring. Says one not-so-sanguine analyst, Kenneth S. Abramowitz of Sanford C. Bernstein & Co.: "I don't think there'll be any winners--just various gradations of losers."

Maybe so. But some in health care clearly will handle Washington's changes better than others. Companies that made out like bandits under a laissez-faire regime--drugmakers, for instance--will likely suffer under spending limits and price reviews. Many hospitals will likewise feel the knife. By contrast, outfits that have made cost restraint their raison d'etre may do well.

METAMORPHOSIS. One potential winner: Humana Inc., the hospital operator-turned-HMO. On Mar. 1, the Louisville company spun off 76 hospitals and became essentially a 1.7 million-member HMO. In a blink, it eliminated the internal conflict of interest that had hobbled it when it tried to run both for-profit hospitals and health-care plans whose mission was to save customers money.

Humana's focus on HMOs could pay off: Hospitals may lose out as Clinton caps reimbursements under such programs as Medicare and Medicaid. Along with losing such direct payments, they could wind up bearing the cost of some medical bills--for illegal immigrants, say, who won't be covered by health-care reform. And with a glut of hospital beds spawning vacancy rates of up to 50%, hospitals are hardly a growth business. "More than half the hospitals here are already operating in the red," complains Duane Dauner, president of the California Association of Hospitals & Health Systems.

Smart hospital operators, however, could turn the changes to their advantage. Columbia Hospital Corp. boosted its fortunes by agreeing to acquire Humana's Galen Health Care hospitals spin-off, forming Columbia Healthcare Corp. The merged outfit, now the nation's No.1 hospital chain, hopes to be one of the few operators efficient enough to make money. Then there's HCA-Hospital Corp. of America. The 96-hospital company, based in Nashville, has been trimming expenses, and it hopes to parlay its clout into profit gains.

Many investors are also betting that reform will benefit HMOs. Operators such as California-based FHP International Corp. and Boston's Harvard Community Health Plan hope to reap big gains as universal coverage brings people who can't afford insurance into HMOs. Generic drug companies, such as A.L. Laboratories Inc., that can copy off-patent drugs--and sell their versions at low prices--also should prosper.

Many traditional drugmakers, however, may be vulnerable. Health-care reform could further weaken such outfits as Syntex Corp., the West Coast drugmaker hard-pressed by the expiration of patents on its main drugs and a dearth of new products.

To be sure, the dramatic change the Clinton Administration is promising won't come overnight. But one thing's clear: Companies that can't save money may end up on the critical list.

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