Hospital Stocks Drop as Investors Shift Bets to Insurers

Tenet Healthcare Corp. and HCA Holdings Inc. led hospital stocks lower as traders shifted bets to health insurers that stand to benefit from a U.S. government decision to pare back a cut in their Medicare payments.

Tenet fell 7.8 percent to $44.09 at the close of trading in New York, its biggest decline since Dec. 2, 2011. Nashville, Tennessee-based HCA, the biggest for-profit hospital chain, fell 4.9 percent, the most since Dec. 13, 2012. Community Health Systems Inc., based in Franklin, Tennessee, tumbled 4.7 percent.

Most health insurers, including Humana Inc., gained for a third day on the U.S. government’s April 1 announcement that the companies won a reprieve from a planned cut in a key Medicare payment rate. Investors may be shifting money from hospital stocks into health insurers after the decision, Sheryl Skolnick, an analyst at CRT Capital Group in Stamford, Connecticut, wrote in a note to clients today.

“We see this as a sector rotation out of hospitals and into health plans that started with the Medicare Advantage rate release Monday evening and that continues today,” she said.

Humana rose 0.9 percent to $79.81 at the close after gaining 14 percent in the previous two days. Aetna Inc. climbed less than 1 percent to $54.43, following a two-day jump of 6.2 percent.

Medicare Advantage

About 13.1 million elderly and disabled people are enrolled in Medicare Advantage plans, in which private insurers provide medical benefits in place of the traditional Medicare program.

The plans have attracted about a quarter of Medicare’s beneficiaries by offering extra benefits such as lower out-of-pocket costs. The government expected to pay insurers in the program about $136 billion last year.

The Obama administration said Monday it would change a proposed 2.2 percent cut in a payment rate for the plans to a 3.3 percent increase after ordering Medicare’s actuaries to assume Congress will raise payments to physicians next year, instead of cutting them by 25 percent.

Insurers had pressed for the change, winning letters of support from more than 160 lawmakers, according to America’s Health Insurance Plans, the industry’s Washington lobby group.