With evolving legislation, tepid industry returns for the past year, and the old-fashioned risk of too many patients dying, investing in the health-care arena is not for the risk-averse. But there are companies whose prospects make for intriguing opportunities. As Stock Advisor analysts wrote of this year's reform package, the goal of expanding coverage will mean more business for hospitals, pharmaceutical makers, medical device companies, and others. But the package's goals of improving quality and arresting the nation's spending growth will likely mean lower profit margins for most of these companies -- and an opportunity for industry leaders to gain strength.

Back in 2002, David Gardner encouraged Stock Advisor members to buy shares of hospital operator Tenet Healthcare (NYSE: THC) after shares dipped dramatically in the wake of a double-whammy. Tenet was accused of employing two "rogue physicians" who were reputedly performing highly profitable, risky, and unnecessary surgery. In addition, Tenet suddenly lost its CFO and COO following an announcement that the Department of Health and Human Services would audit the company's "outlier payments." When David later called for a sell, management was even more unsettled, the company had issued reduced profit projections and suffered a credit downgrade, there was an expensive nursing shortage, and more legal action loomed.

Today, however, Tenet's balance sheet looks much healthier, according to Motley Fool analyst Jim Mueller, with a decreased cash conversion cycle over the past several periods (although rival Universal Health Services has performed even better by that metric). Because of such promising numbers in conjunction with tailwinds from a demographic shift, companies that run hospitals might be worth a look.

Another erstwhile Stock Advisor recommendation in the sector -- and another one-time cautionary tale -- is Amedisys (Nasdaq: AMED). It also seems worth reconsidering after a brutal beat-down. David recommended shares of the home health-care provider at $37 in October 2007, sold less than a year later at $53 amid reports of potential accounting shenanigans, then watched the company get slammed earlier this year when the Department of Justice launched an investigation into billing practices. But insiders at the company are beginning to buy back shares and, as Fool contributor Rich Duprey wrote, technical analysts are heartened by its recent double bottom of the stock price. It's possible the investigation alone caused the company to lose half its market cap and that the risk is now priced into the shares -- where they climbed over $60 per share earlier this year, they now languish around $25.

While Tenet and Amedisys are worth watching for signs of life -- and by the way, we recommend you try the Fool's free new service by clicking on www.MyWatchlist.com as a way to keep up with the news and numbers about the companies you want to keep an eye on -- there's another company in the arena that looks like it might cause fewer palpitations. Medco Health Solutions (NYSE: MHS) is a pharmacy benefit manager (or PBM), which stands to profit from the increased reliance on generics as branded drugs worth a whopping $90 billion in annual sales will go off patent in the next seven years, according to the team at Stock Advisor. Medco, like rival PBMs Express Scripts and CVS Caremark, administers prescription drug plans for managed care organizations, HMOs, and large employers, processing prescription drug claims. That job includes, among other things, substituting generics for brand-name drugs and by negotiating contracts with clients, trying to get deals from manufacturers, and keeping the difference. At one time owned by drug company Merck, Medco shares have increased roughly 300% in value since it became its own company in 2003.

In his most recent comments about the company, David wrote, "Medco keeps down costs better than any benefits manager in the business, which gives it a leg up on keeping its contract with UnitedHealth. Investors are stuck on a small bump in the road as fewer new generic drugs are scheduled for next year, but this short-term worry offers you a buying opportunity."

And that's exactly why it pays to watch. You can help yourself make smarter investing decisions with your own version of My Watchlist, new and free from the Fool. Click here to start building yours, or click below to start following one of the three stocks mentioned above: