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Obamacare Has Helped Make Hospital Stocks Healthier

8 August 2014 in Trading Ideas

The early diagnosis on the Affordable Care Act has been positive – as far as publicly traded hospitals and their shareholders are concerned.

As a story in the Wall Street Journal noted earlier this week, hospital operators are seeing their incomes getting a boost as newly insured consumers get more back surgeries, seek maternity care, and visit emergency rooms with some frequently.1

According to the Journal, Tenet Healthcare’s patient volumes rose 4% from a year earlier, while uninsured inpatient admissions fell 22%. Meanwhile, the company’s pretax income jumped 37%.

 

Tenet CEO Trevor Fetter said volume was high in maternity care, spine treatment and other procedures among people enrolling in plans offered through new health-law marketplaces, many of whom were previously uninsured and had likely delayed care. In some states, he said, hospitals received a lift from Medicaid programs that swelled under the law.

In short, Fetter said the new law drove one-third of the growth in patient volumes.

And Tenet wasn’t alone in seeing its patient rolls grow. Peer HCA Holdings, the largest publicly traded hospital company, posted second-quarter revenue growth of 9.2%.

Stronger financial performance has contributed to a rally in the stocks of hospital operators.

The hospital segment (33%) of the Obamacare motif, for example, is up 11.6% in the past month and has gained 46.9% in the past 12 months.

The overall motif has gained 0.5% in the past month and 26.7% over the past 12 months. During those same respective time frames, the S&P 500 is down 2.8% and up 15.5%.

More than 8 million people obtained private coverage in health-law marketplaces between last fall and April, the Journal said, and millions more signed up for state-run Medicaid programs.

While it’s not clear how many of those were previously uninsured, the Journal said the hospitals’ boost suggests many who delayed care—likely during periods without coverage—are now seeking treatment.

In addition, suppliers to hospitals have noticed early signs that patients seeking care may be helping their business. The Journal said surgery robot-maker Intuitive Surgical said there was a 5% uptick in procedure using its equipment in the second quarter, driven in part by Obamacare.

Insurers, meanwhile, are still grappling with law’s new marketplaces and, in some cases, higher-than expected-costs.

Mega-insurer Cigna said it spent a bigger share of the premiums collected in the second quarter on medical expenses than last year, according to the Journal. Cigna and other insurers are seeing their “medical loss ratio” rising in part because new enrollees under the health law—many of whom may previously have been uninsured—are seeking health services like surgeries at higher rates.

While future enrollments may, in the words of Cigna’s CEO, ultimately bring about a “healthier mix” of insured consumers, hospital operators and their shareholders have yet to see much downside from the Affordable Care Act.

1Christopher Weaver, “Hospitals Cash In On the Newly Insured,” wsj.com, Aug. 4, 2014.

Tags: Obamacare

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