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Hospital shares bounce back as Obamacare replacement opposition grows

Bertha Coombs

Hospital shares rose on Thursday after congressional committees concluded a marathon session marking up the American Health Care Act to prepare for a vote next week.

Speaker Paul Ryan tried to assuage critics of the plan by outlining that it was just the first of three steps in replacing Obamacare.

The S&P Health Care Facilities sector snapped a three-day losing streak, as hospital stocks had been hit hard after the GOP health plan was unveiled on Monday.

"I'm surprised that they declined as much as they did after the bill came out," said Michael Newshel, Evercore ISI director and health-care services analyst.

Newshel said the strong backlash against the bill from conservative Republicans, and from medical association groups has some investors betting that some of the cuts will be rolled back.

"The outcome people are trying to game out is… will the House move more in the hospitals' favor? Or perhaps the Senate will," Newshel explained.

Opponents are concerned the bill's proposed restructuring of Medicaid will result in more people losing coverage, and less funding for the federal-state health-care program, which covers the poor, elderly and disabled. The GOP plan would restructure federal funding from an open-ended payment of health costs, to a per capita plan that would pay a limited amount per person covered in state.

Tenet Healthcare (NYSE: THC) shares gained more than 3 percent, to close at $20.27, after Leerink analyst Ana Gupte raised her price target on the stock to $25, while maintaining a "market preform" rating. In a note to clients, she said senior management officials expressed confidence about being able to navigate potential Medicaid cuts from the GOP health bill.

"The CFO noted that potential negatives from repeal and replace could be offset from (Tenet's) large exposure in Texas and Florida, which are non-expansion states," she wrote.

The Kaiser Family Foundation estimates more than 10 million people gained coverage under Obamacare Medicaid Expansion. Analysts see the repeal of Medicaid Expansion in 2020 as most negative for non-profit hospitals, which are more tied to government-funded health care than corporate facilities.

"Our rated corporate hospital companies typically have less Medicaid business and are more diversified across states," wrote S&P Global credit rating analysts in a research note. "Those with a meaningful presence in expansion states had a modest benefit to those hospitals, but that did not affect ratings."




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