High court ruling benefits most health care firms

Associated Press Modified: June 28, 2012 at 6:01 pm •  Published: June 28, 2012
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TRENTON, N.J. (AP) — The Supreme Court's decision Thursday to uphold President Barack Obama's historic health care overhaul is expected to benefit nearly every corner of the health care industry by expanding coverage to millions of Americans. But it's not a slam dunk.

Hospitals and drugmakers are expected to be flush with new customers because of the law's requirement that most Americans have insurance by 2014 or pay a fine. Insurers also are expected to experience a boon, but they'll face a new round of fees and restrictions. It's unclear if medical device makers will get the same jump in business, and the law calls for them to pay new taxes.

Meanwhile, the overhaul is expected to boost health care stocks both by increasing access to — and use of — health care. On Thursday, shares of hospitals and some insurers rose following the ruling. Shares of the largest U.S. drug companies were mixed, while shares of medical device makers dipped slightly with the broader market.

But the health industry — and company stocks — still face uncertainty, at least until the November's presidential election. Republicans want to scrap the law. And health care companies oppose some aspects of it.

Some companies and industry trade groups issued statements Thursday that said they plan to work with the White House and Congress to change or eliminate provisions that they consider bad for their businesses, patients or both.

One of them, French drugmaker Sanofi SA, has extensive operations in the U.S. The company, which makes the popular blood thinner Plavix, put out a statement Thursday that said it recognizes "the conversations around the direction of health care in America will continue."

Here's the potential impact from Thursday's ruling on major sectors of the health care industry:

HOSPITALS

Some 30 million or more Americans are expected to get health coverage when the so-called individual mandate that requires nearly everyone to have coverage takes effect.

That should reduce the number of uninsured patients who need urgent care showing up at hospitals. Such charity care has been a drag on hospitals, totaling about $39 billion in 2010. Federal payments to hospitals to offset some charity care costs likely will be reduced as more people are insured.

But hospitals will benefit from those who are newly insured. Those people are expected to seek more tests and nonemergency treatments at hospitals, including for chronic health conditions such as diabetes.

"Hospitals may be the biggest beneficiary because their biggest problem is people without insurance," said Les Funtleyder, health care fund manager at Poliwogg, a private equity fund for small investors.

But there are downsides for the sector. Roughly half of the patients gaining insurance will be covered by Medicaid, the federal-state program for poor and disabled people. Like Medicare, it reimburses hospitals less than care actually costs — and less than private insurers. In addition, hospitals will get smaller annual increases in Medicare payment rates under the law.

Additionally, the government and private insurers will demand better outcomes, not just more care. In order to achieve that, hospitals will be forced to make improvements. And technology shifts such as adopting electronic health records won't come cheap.

"There are a lot of variables to be worked out," said UBS health care services analyst A.J. Rice. But "the net effect should be positive."

DRUGMAKERS

For drugmakers, the law may be a wash.

The law — which the industry strongly supported — didn't carry significant reductions in what government programs pay for medicines. That's a big positive given that drug prices are much higher in the U.S. than other countries.

Biotech and traditional drugmakers likewise already are absorbing the costs of the health care law. Those include industry fees totaling about $85 billion over 10 years. Each company pays according to its market share of government health programs

In addition, drugmakers have to give increasing discounts to seniors on Medicare when they hit the "doughnut hole" coverage gap each year, and must pay much-higher rebates to the government on drugs bought through Medicaid.



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