The Motley Fool Previous Page

Hospitals Trapped in Love/Hate Relationship with Obamacare

Keith Speights
June 8, 2014

Hospitals have arguably been Obamacare's biggest fans since the beginning. The industry's lobbying organization, the American Hospital Association, pushed hard for passage of the Affordable Care Act. During the time between President Obama's signing of the legislation into law and the actual implementation, hospital stocks performed exceptionally well.

Now that we're well into the first year of implementation of the key components of Obamacare, how are hospitals reacting? Plenty are celebrating some victories -- but others are lamenting the effects of health reform. Here's why.

Several publicly traded hospital chains have enjoyed nice stock runs so far this year. Shares of the nation's largest hospital operator, HCA Holdings (NYSE: HCA), climbed nearly 15% since January -- much higher than the S&P 500 index, which has moved up less than 6%. Tenet Healthcare (NYSE: THC) shares are up over 10%. Meanwhile, Lifepoint Hospitals (NASDAQ: LPNT) stock jumped 19% year-to-date.

Hospital executives give Obamacare credit for some positive developments. HCA's CFO, William Rutherford, told investors during the company's first-quarter financial update that uninsured admissions dropped by 29% in the four states where HCA operates that expanded Medicaid.

Tenet CEO Trevor Fetter reported that uninsured and charity admissions plunged by 33% in the states that expanded Medicaid. Lifepoint's CFO Leif Murphy claimed an even more impressive statistic: Uninsured admissions fell by an average 26.1% across the board.

Lifepoint appears to be one of the most optimistic about the impact of Obamacare. CEO Bill Carpenter called the legislation "a net positive" for his organization. Around 5% of Lifepoint's EBITDA in 2014 will stem from health reform, according to Murphy.

Not everyone is so cheerful about the impact of the President's signature bill. Hospitals are getting hit with major reimbursement cuts from Medicare as a direct result of Obamacare. When the law was passed, the assumption was that every state would expand Medicaid, so hospitals would need less money to help uninsured individuals. However, the Supreme Court ruled that forcing states to expand Medicaid was unconstitutional. The reimbursement cuts weren't adjusted to reflect the reality that some states would opt out.

Maggie Elehwany, vice president of the National Rural Health Association, or NRHA, told The Wall Street Journal that rural hospitals "are in crisis mode". At least 14 rural hospitals closed in the last year -- more than the previous 15 years combined. These organizations are particularly dependent on federal dollars, receiving around 60% of total revenue from the government.

Some hospitals that don't operate in rural settings have also encountered rough times due partially to Obamacare. The Cleveland Clinic, a prominent health-care organization, announced last September budget cuts of up to $300 million. CEO Dr. Toby Cosgrove listed the Affordable Care Act as one of the key factors behind the cuts. Other hospitals across the nation have also slashed jobs, blaming Obamacare in part for their actions. 

Steer clear or have no fear?
Should investors jump aboard the hospital bandwagon? Reduced uninsured admissions in states that have expanded Medicaid represents good news for hospital chains operating in those states. So far, however, 24 states have elected n