Thursday, November 8, 2012

The Obama Win and Healthcare Reforms could Benefit Hospitals

Hospital stocks reacted with optimism to the news that President Barack Obama had won a second term, making the fate of the healthcare reform law even more certain – this according to a Bloomberg report.

The Affordable Care Act, or “Obamacare”, is the biggest change to the U.S. health-care system since Medicare and Medicaid began providing taxpayer-funded services in 1965.

That enthusiasm for hospitals seems to be a repeat.  Traders bought hospital stocks and sold off commercial insurers after Obama’s overhaul passed Congress in 2010, and again when the law survived a challenge at the Supreme Court.

Romney said in June that he disagreed with the Supreme Court’s decision to uphold the constitutionality of the plan, and that he would repeal the law on his “first day if elected president.” This caused investors to be unsure as some agencies planning for implementation slowed or even stopped preparation until after the election.

The law’s survival represents the status quo, however, and means that the industry will undergo significant change and new regulations beginning in 2014. With the status quo, comes renewed optimism in hospital stock.

While share prices of the largest insurers declined, shares rose for companies that focus largely on Medicaid.

Preservation of the overhaul helps most hospitals, which had already started moving ahead with implementing aspects of the law despite the election. Romney’s plans would have pressed hospitals to find new ways to deliver care at a lower cost.

Up to now, hospitals have been paid each time they do a procedure, in arrangements known as “fee for service.” This law shifts them to incentive systems where the focus is on more efficient care. They may get a set amount of dollars to spend on a patient, for example, and can keep surplus if they can provide care for less.

While exact implementation plans for healthcare reform remain unclear, confidence in hospital stocks is expected to remain high. 

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