Reality of Health Care Reform Failure Sets In for Hospital Stocks

Anyone who thought that failure to repeal and replace the Affordable Care Act would be a triumph for hospital stocks may be in for a rude awakening.

Stocks for major hospital companies Universal Health Services (ticker: UHS) and HCA Holdings (HCA) were among those that shot up after Trump withdrew his health care reform bill. However, investor optimism seems to have faded on Tuesday, as both stocks are have already given back significant portions of those gains.

Hospitals now face a difficult long-term climate of rising interest rates, growing deductibles and higher copays that threaten to take a bite out of their bottom lines.

Mizuho analyst Sheryl Skolnick says hospitals are now left to deal with a number of headwinds they were previously facing under the Affordable Care Act.

“Volumes in hospital land have been coming down even with the ACA, and that’s because of innovation,” Skolnick says. “If the growth rate slows or emergency room visits decline, as they are for some of these companies, that could spell a problem for that part of the business where you’ve deployed the most capital, and that’s the in-patient hospital bed.”

In addition to underlying concerns about the hospital business, Republicans may not be finished with health care. Height Securities analyst Andrew Parmentier believes Republicans could attempt to include a “skinny” version of their ACA repeal plan in their tax reform bill.

According to Parmentier, this version of ACA reform “could included repeal of all or some of the ACA’s taxes and repeal the individual mandate, replacing it with the surcharge penalty introduced in the AHCA or some other softer penalty intended to compel younger, healthier people to participate.”

While hospitals may have dodged a bullet and avoided a large potential risk for now, reality may be sinking…

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