Investors are almost as interested in what the Supreme Court does with health care reform Thursday as patients and doctors.
Depending on what the high court decides regarding the legality of the Patient Protection and Affordable Care Act, the fate of the nation's health care system is in balance, potentially upending again how the key players are paid.
The statute, often called Obamacare, passed in 2009 and stands to change the industry, so the decision is critical to investors in health care stocks. "It's a sweeping piece of legislation that has a broad impact on how (health care) industries are structured," says Matthew Coffina, health care analyst at Morningstar.
Investors are anticipating how stocks in various areas will react:
•Managed care companies and insurers. If there's a part of the medical industry facing the most flux from the rule, it's insurers, says Dave Shove, analyst at BMO. Insurers, such as UnitedHealthcare, WellPoint and Aetna, stand to benefit as more than 30 million additional Americans become potential customers. "It's one of the biggest growth drivers the industry will ever have," says Jeffrey Loo, analyst at S&P Capital IQ. But with that comes the increase in government rules over the size of insurers' profits, Shove says.
•Hospital operators. Hospitals are big winners from the statute, thus the largest potential losers if it's struck down, Coffina says. Under the measure, hospitals get paid for visits by uninsured patients, rather than eating these "charity care" cases, he says. Large hospitals include HCA and Universal Health Services.
•Medical technology companies. Companies that make medical equipment are among those helped least by the measure, Loo says. These companies must pay a 2.3% annual fee on U.S. sales as a tax part of the rule, Loo says. Big players include Johnson & Johnson and Stryker.
•Drug companies. If health care reform stands, drug companies benefit, because it takes many more onerous rules off the table, Loo says. If the measure is overturned, drug companies may need to brace for discussion to reopen on tougher rules , he says.
Since most health care companies benefit from the rule, the biggest risk is the measure being overturned, Loo says. If the measure is rejected, investors must brace for uncertainty as lawmakers go back to the drawing board, Shove says. "What is judicial risk will turn into election risk and then legislative risk," he says.