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Do These Obamacare Winners Look Like Losers Now?

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Have the Obamacare winners become losers? When the Patient Protection and Affordable Care Act, or PPACA, was first passed, most analysts pegged hospital systems as obvious winners from the new law. That viewpoint also held true last year as the Supreme Court upheld much of Obamacare.

The stock market clearly agreed. Immediately after the Supreme Court decision, hospital stocks surged. Community Health Systems (NYSE: CYH  ) jumped 8%. Health Management Associates (UNKNOWN: HMA.DL  ) shares rose 7%. The largest private hospital chain, HCA Holdings (NYSE: HCA  ) , soared by 10%.

Since the high court ruling, few sectors have performed as well as hospitals have. Community Health Systems shares rose as much as 88% by late March. Likewise, HMA stock nearly doubled. HCA shares rose more than 50% during the same period. No hospital stock performed better than Tenet Healthcare (NYSE: THC  ) , though. Tenet's shares skyrocketed 140%.

That was then. The performance of these stocks in the month of April thus far tells a much different tale.

Spring backwards?
Community Health Systems shares are down almost 13% since the beginning of April. HMA isn't far behind, with shares falling 12%. HCA stock has dropped 7.5%. What about the biggest winner: Tenet? It's now the biggest loser, with shares plunging more than 16% this month. Has the luster of Obamacare worn off?

Many hospitals wanted the ACA to succeed. The industry's lobbying organization, the American Hospital Association, actively supported the legislation and even submitted an amicus brief to the Supreme Court in support of the individual mandate.

The primary reason behind support for the bill stemmed from the prospects of millions of currently uninsured Americans gaining insurance. Many hospitals must write off large amounts of money when individuals with no insurance cannot pay for the care provided. If more people gain insurance under Obamacare, hospitals hope that these write-offs will decrease significantly.

However, many currently uninsured Americans could choose to pay fines rather than obtain insurance. If this scenario becomes widespread, the benefits to hospitals could be dampened.

Others suspect that the costs of the ACA could minimize the advantages for hospitals. Bob Kirby, a director with Fitch Ratings, said last year that "it is unclear if the incremental revenue generated from increased utilization and lower levels of uncompensated care will offset the potential compression in margins." 

All in the timing
Obamacare's timing could also be problematic. Even if millions of uninsured Americans buy insurance as hoped for, that scenario won't happen until 2014. In the meantime, hospitals are dealing with some of the challenges of the ACA.

One goal of Obamacare was to reduce hospital readmissions for specific diagnoses. Medicare penalized over two-thirds of all hospitals in the U.S. for readmitting too many patients within 30 days of discharge. These penalties totaled $280 million so far.

While no one questions the intent of the objective to hold down readmissions, many aren't happy about the way the penalties have been enacted. In particular, some hospital executives say the penalties unfairly impact hospitals that provide care for high numbers of low income patients. These patients are readmitted more frequently in many cases.

Multiple factors
The primary reasons for hospital stocks falling in April, though, vary by organization. HMA, for example, recently lowered its outlook for 2013 after first quarter admission rates were lower than expected. A negative 60 Minutes story in December may have played a role in these results.

HCA reported slower admissions growth and weakness in outpatient volumes for the first quarter. The company lowered the upper end of its 2013 earnings guidance.

Meanwhile, Deutsche Bank downgraded shares of Community Health Systems and Tenet Healthcare earlier this month from "buy" to "hold." The investment firm noted the rapid increase in valuation of the stocks stemming from ACA-related expectations was warranted but said that investors could be leery of buying at current price levels. 

The current pullbacks in hospital stocks could just reflect the likelihood that 2013 is a transitional year. Shares of the leading publicly traded hospital operators enjoyed big gains in the anticipation of benefits that really won't begin to materialize until next year.

These companies have certainly been the big winners of Obamacare so far. 2014, though, will be showtime. We'll then see if the winners of the past year ultimately become losers.

Which stock did The Motley Fool's chief investment officer select as his big winner for this year? Find out in the brand-new free report: "The Motley Fool's Top Stock for 2013." Just click here to access the report and find out the name of this under-the-radar company.

Read/Post Comments (10) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 26, 2013, at 4:12 PM, Jimsopinion wrote:

    Obamacare sucks and the PC won't be dead until I am.

  • Report this Comment On April 26, 2013, at 4:23 PM, HCPRO wrote:

    Being a VP with a major HC company I can tell you it is near impossible for us to project the impact. Especially in regards to managing our own employees and the impact of the regulations from that aspect.

    I find it very amusing that those that fought so hard, wrote briefs to the SCOTUS are now finding that their selfishness and disregard for the "little guys" has created a mess they don't even want to deal with.

    The entire legislation is going to either be repealed, or the complete destruction of our entire system will be felt across all industries. There is no possible way to make this work without a destructive impact to all industries.

    the poor people that thought it wold be something for nothing are soon going to be squealing hysterically when they realize the impact of paying far higher premiums than they would have paid had no legislation been passed. that is if they even have jobs after their employers lay em off because they can't afford it either

  • Report this Comment On April 26, 2013, at 4:23 PM, consAREidiots wrote:


    - LOWERS the deficit, which conservatives have pretended is their top priority

    - EXTENDS the solvency of medicare

    - REDUCES medicare fraud

    - INCLUDES cost controls, which is why so many people have received rebate checks from their insurer.

    Its essentially entitlement reform on a relatively small scale, but ignorant cons whine regardless.

  • Report this Comment On April 26, 2013, at 8:29 PM, PoliticsDebunked wrote:

    Despite the uninformed comment above, Obamcare doesn't control costs, the name "affordable care act" is as Orwellian a distortion of reality as "war is peace".

    The major reason healthcare prices rise is that the system is full of favors for special interest groups which limit competition and price shopping which allow prices to rise unlike the way they would behave in a normal competitive free market. Obamacare makes the situation worse overall, not better, even if some people fail to bother learning enough about business and economics and healthcare to discover this. This page details many of the myriad ways government drives up prices:

    The rebate checks the poster refers to are due to the Medical Loss Ratio requirements, which as that page explains claim to be to lower insurance overhead, but in reality are a tricky way to inspire insurers to let healthcare prices rise.

  • Report this Comment On April 26, 2013, at 10:14 PM, TropiczThunder1 wrote:

    The above comment is correct. Obamcare is a failed attempt at socialism and as Warren Buffet put it, "is a tapeworm eating at the competitiveness of America".

    Sorry demo-rats, but this is a sht-storm waiting to decimate America's small businesses as well as many other aspects of our nations economy. Even a blind man can see this, quit following out of emotion and start using logic. Socialism works until you realize you are working for those who don't. If the Japanese won't embrace it, then we sure as hell shouldn't.

  • Report this Comment On April 26, 2013, at 10:20 PM, VRSEFgold wrote:

    When are people going to realize that a Community Organizer just doesn't qualify someone with sealed records to become President?

  • Report this Comment On April 26, 2013, at 10:29 PM, banmate7 wrote:

    I agree with PoliticsDebunked that Obamacare does basically nothing to control costs. We're still heading for a day of reckoning with medicare and medicaid, even social security.

    However, what I think is the main culprit for driving up medical costs is 3rd party payment by insurance companies. In Singapore, you directly pay for your medical services. You negotiate. I believe you get vouchers from government. You also can get insurance, but you must negotiate with medical providers, not insurance companies.

    This ultimately forces real supply & demand forces on the medical industry. In contrast, pricing is distorted when hospitals & insurance companies negotiate.

  • Report this Comment On April 27, 2013, at 7:18 AM, dale19357116 wrote:

    The truth of the matter is ,Obamacare can't be graded until it's fully takes effect,then the Stock Markets will respond.I can tell you this ,Millions of cover Insurers and the World will want a piece of the pie.

  • Report this Comment On April 27, 2013, at 8:26 AM, annmariedris wrote:

    What is it that Canada , Great Britain and others with socialized medicine have in their laws. You are limited in how much you can get in a medical malpractice suit. There is a max amount if you die due to a doctors negligence. There is a set max on every possible injury with a max the Lawyer gets. Yet with Obama care the lawyers still will sue and get their huge pay check. real reform should of started with limiting what everyone gets if injured and then costs would come down. States and local governments are protected in such a way , in my state no one can get more then 100 grand if a school bus hurts are kills you , Jury award is capped. Also why do Canadians come to America in droves for Cancer treatment or heart issues , Because by the time the approval boards let you receive treatment you are at the point of death. They come here and get a Broker who has agreements with treatment hospitals and get the treatment to save their lives. They return to Canada and are fined for getting treatment instead of dying. Watch how many Doctors will stop taking Medicare and medicaid as we have happening here. My fathers Doctors, everyone of them, now only take Medicare Advantage plans but only till 2014 at which time they will no longer take that, just private plans. See how many people will get stuck waiting for months for treatment and the quality of doctors go down for those on medicaid and Medicare. And as the wealthiest leave the country in droves breaking last years record pace who will be left to pay the taxes that fund all these social programs ,the 48% of working people who pay no taxes now will get a reality check when they have to pay up and are so broke they can not afford to pay for the free health care they wanted.

  • Report this Comment On July 27, 2013, at 1:13 PM, roger142 wrote:

    I read that one set back concerning for profit hospitals is that the more people who have health insurance, the less money they will be able to deduct on their taxes. Good.

    Hospitals charge uninsured people full retail for services and supplies, which gives them a big deduction. Where as insurance companies get contract prices that can be 65% less than the uninsured are charged.

    For instance at my local hospital ER, the doctor who talks to the patient charges $650, even if he only sees the patient for 1 minute. Where as insurance companies pay around $65 for the same doctor.

    Maybe if hospitals had a little compassion in their pricing, some of the uninsured could actually afford major medical care.

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