We're a few weeks away from the opening up of many new insurance exchanges under the umbrella of health care reform, and it looks like investors' expectations are being dialed down a good bit. Citigroup analysts Gary Taylor and Carl McDonald said this morning that the market is counting on about 4 million people signing up for health insurance in the coming months. That's down from the 7 million projected earlier this year by the Congressional Budget Office. But Taylor and McDonald say any perceived shortfall could become an opportunity to snap up shares of HCA (Ticker: HCA) more cheaply than today.
Also on the health care spending front, Moody's analyst Ron Neysmith said size is becoming increasingly important in the ambulatory surgery space, which favors Nashville-based AmSurg (Ticker: AMSG) and Symbion, among others. Surgery centers' relatively low overhead and lower reimbursement rates have made them more attractive to insurers paying the bills, Neysmith writes, and have allowed the industry's volumes to easily outpace those of the hospital sector. There are some bumps ahead in terms of payment changes, he adds, but the fundamentals are in place for solid long-term growth.
Brandon Edwards, CEO of health care public relations firm ReviveHealth, has penned a good read on how many health insurance exchanges might look once they're rolled out this fall. The short answer: Cheaper than expected but you'll get what you pay for. And that will have repercussions for the insured, the insurers and the hospitals between them.
When will consumers discover that their BlueCross isn’t the BlueCross that parents, friends, or work colleagues have? When will they realize they bought a product that is significantly inferior to what others buy, and who will they blame? And how will hospitals deal with a new pool of uneducated health care consumers who may unleash their dissatisfaction with out-of-pocket costs on an unsuspecting hospital or physician’s office? There could be a scary backlash lurking in the wings.
Shares of HCA Holdings, Community Health Systems, LifePoint Hospitals and their peers all are down in Wednesday trading after the Obama administration said it will give large employers another year to comply with health care reform's insurance requirements. Among the locals, industry leader HCA is taking the news hardest and is down about 4 percent — on heavy volume — to its lowest point since February. Community and LifePoint are giving up about 2 percent.
A little perspective is in order, though: Shares of HCA, CHS and LifePoint all are still up more than 17 percent year to date, outpacing the gain of the S&P 500. Check the chart here.
Analysts at Fitch Ratings say the rollout of the various parts of the Affordable Care Act won't radically overhaul the health care sector overnight. In fact, they write, the breathlessly anticipated bump in patient volumes early next year merely "might provide a temporary boost to utilization." Beyond that, the biggest effect of the reform law will be to quicken the already vigorous pace of mergers and acquisitions.
Without an obvious catalyst for a recovery in weak organic growth, healthcare providers must instead look for a bottom-up solution to offset the effects on financial results. A trend of industry consolidation is reflective of the fact that economies of scale and vertical consolidation will support profitability in an environment where healthcare providers face slow organic growth and are required to accept more financial risk, such as through bundled or value-based payments.
Much of the impressive 2013 run for hospital stocks has been optimism about the sector's 2014 prospects, when large numbers of uninsured people will make their way into the system. But Fitch Ratings analysts on Thursday said the benefit won't be instantaneous.
The health insurance expansion mandate of the ACA will provide a boost to the industry's weak patient utilization trends in starting in 2014. However, given the slow progress in the development of some of the key elements of the legislation, it will be a transitional year. The benefits to the hospital industry, including higher patient volumes and a lower level of uncompensated care, will occur gradually.
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