Cooler heads have prevailed. A showdown between the executive
branch of government and the judicial branch of government looked
to usher in a new era of intra-governmental rancor that our
Founding Fathers sought to avoid. But the Supreme Court's decision
to let much of the Obama Administration's health care law stay
intact is a victory for anyone who wants to see policy makers in
Washington move forward -- not backward -- in addressing many of
our nation's major's fiscal challenges.
Opinions vary widely on the merits of the far-reaching
legislation, with detractors on both sides of the partisan aisle
(albeit for differing reasons). Yet many agree that health care is
in need of some sort of fix. For roughly two decades, we've been
spending a rising percentage of our
gross domestic product (
on health care (which by some estimates has reached 17%) without a
commensurate increase in the quality of care we receive.
The Obama administration's goals of expanded coverage and
streamlined costs through the use of best practices are laudable.
The proof, as they say, will be in the pudding. Chances are, the
plan will need to be tinkered with as some anticipated benefits
fail to materialize. For example, hospitals will be rewarded (or
punished) as they move to meet goals of improved patient outcomes.
Quickly and radically improving the delivery of hospital-based
health care is more daunting than you might think.
Yet even if the plan achieves all of its goals, a range of
health care segments will either benefit or suffer from the
legislation. Back in the beginning of June, I gave
on the health care law itself and how the Supreme Court's possible
decisions would affect various health care sectors and stocks. And
despite how you may feel about the legislation itself, you need to
be aware of the winners and losers so that you can position your
Clear winners from this landmark ruling include:
• Hospitals that no longer need to shoulder the burden of
uninsured emergency room patients who can't pay their bills when
they come due. (These hospitals will also benefit from an increase
in higher-margin elective surgeries as more patients get
Stocks that could possibly benefit include:
Community Health Systems (NYSE:
Tenet Healthcare (NYSE:
Universal Health Services (NYSE:
• Health insurers that will gain access to millions more
As I said in my previous article, "Insurers hate the idea of
being forced to extend insurance to high-risk patients. Yet they
agreed to take on these patients as long as all patients --
high-risk and low-risk -- were enrolled. Insurers realized that if
they had to cover any patients seeking coverage, without all being
required to participate, then people would simply wait until they
got sick to apply for insurance. "
Stocks that could benefit from this ruling include
Coventry Health (NYSE:
United Health (NYSE:
, although I would caution against buying these stocks strictly
because of this news, as some experts feel differently about
whether these stocks would benefit, and it will likely take a while
for this to play out before we really know for sure.
On the flip side, any companies that sell medical devices or
pharmaceuticals are faced with a stark reality. Reimbursement
pressures are rising and will get even more severe. A key goal of
the health care overhaul is aimed at utilizing the lowest-cost
, assuming outcomes are equal.
As a result, look for medical-device makers to start investing
only in new products that have lower price points than products
that are currently on the
(or at least
vastly superior outcomes that save money in terms of post-treatment
Boston Scientific (NYSE:
is a specific stock in this sector that got hit on news of the
Pay close attention to stocks in these two sectors, as a number
of other challenges are facing them, and this could be the kind of
thing that causes a wave of selling.
Risks to Consider:
As I alluded to earlier, it's difficult to say exactly how all
this will play out. As someone who's watched this very closely, I
my best informed guess. You will need to study a stock closely,
judging it by its own fundamental merits, in addition to the
context of today's ruling.
Action to Take -->
The Supreme Court's ruling doesn't mark the beginning or end of our
nation's ongoing healthcare crisis, but is simply another mile
marker along the way. In the next five or 10 years, look for
further discussions about how to improve or alter the delivery of
health care as it becomes increasingly apparent that cost pressures
have not fully gone away.
But with these challenges come opportunities to
. Whether it's a biotech company developing
the next life-saving cancer treatment
, or a software company that will help hospitals and doctor's
transition to electronic medical records
, the health care sector is one well worth watching -- and one that
can be very lucrative for smart investors who make the right
-- David Sterman
David Sterman does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC does not
hold positions in any securities mentioned in this article.