The Winners and Losers from a New U.S. Healthcare Reform Bill
by Marc Lichtenfeld, Healthcare Expert
Wednesday, December 16, 2009: Issue #1159
According to a Thomson Reuters poll, 59.9% of Americans would like to see a public option in any healthcare reform bill, versus just 40% who don’t.
If this were an election, it would be a landslide victory.
But despite the fact that Main Street actually wants it, the Senate killed the public option in its version of a healthcare reform bill.
Business as usual in Washington.
But regardless of the current bruhaha in Congress, or the pundits blowing enough hot air to affect the global climate, healthcare reform is most likely coming.
Whether or not it will eventually contain a public option remains to be seen. However, Wall Street will likely react negatively to any changes to the system, and healthcare companies and investors alike are concerned that reform will hurt many firms in the sector.
Well, I’m here to tell you to have no fear. In many cases, higher sales volumes will offset the cuts in prices that healthcare providers can charge. After all, having more people insured means more consumers popping pills, staying in hospitals, having procedures, etc.
Let’s take a look at how various groups within the healthcare industry could fare in 2010…
The Winners of Healthcare Reform
- Big Pharma: Cozying Up to the White House
The Pharmaceutical Research and Manufacturers of America, the trade group that represents drug giants like Pfizer (NYSE: PFE) and Merck (NYSE: MRK) wasted little time in reaching an agreement with the White House on healthcare reform.
In consideration for Big Pharma firms lowering drug costs by $80 billion over 10 years, the government has agreed not to impose price controls on the pharmaceutical industry and to keep cheaper foreign drugs outside U.S. borders.
However, some senators are now trying to back out of the agreement and find a way for less expensive imports to cross the border. This could get ugly between lawmakers and the drug companies, but I expect the original deal (or one close to it) to be what both sides agree upon.
So what Big Pharma loses in price cuts should be more than offset by newly covered patients who will now be buying prescription drugs. The mamas of drug company executives and their lobbyists didn’t raise no dummies. It looks like they’ve made a sweetheart deal in what could have been a difficult situation.
If this reform goes through, drug companies will still earn profits. Their only obstacle to growth will be innovation, not Uncle Sam.
- Biotech: Finding Cures and Creating Jobs, Biotech’s Future Looks Bright
One sector that should hold fairly steady throughout the reform ordeal is biotech.
I believe President Obama is sophisticated enough to understand that it typically takes nearly $1 billion and eight to ten years to develop a successful biotech drug. And I don’t think he’s about to remove the financial incentives that biotech investors need to help start these companies.
Not only that, biotech could be one of the primary drivers of job growth in the United States. In addition to research and development, many biotech drugs are still produced in the United States in order to keep a tight control on quality and to appease regulators.
While we could see pressure on some of the most well-known biotech drugs, such as Genentech’s cancer drug, Avastin, which can cost $100,000 per year, I believe most biotech companies will emerge from any new legislation in pretty decent shape. And small-cap biotechs that don’t even have a product on the market yet shouldn’t be affected at all by reform.
- Technology: The Medical “Digital Age” Should Bode Well for These Three Stocks
Another area in which the government is dishing out decent incentives is in medical record-keeping.
The healthcare sector is badly in need of a move towards a more modern, digital age that includes electronic medical records, and this is a trend that will likely continue, whether or not Washington kicks in a few bucks to keep it going.
Electronic medical records should reduce the number of hospital and doctor errors by ensuring that a patient’s information is readable and in one central location.
There are several companies poised to take advantage of this trend: Athenahealth (Nasdaq: ATHN) is one of the fastest-growing firms. Others in the space include McKesson (NYSE: MCK) and Cerner (Nasdaq: CERN).
The Losers of Healthcare Reform
- Hospitals and Hospices: Spending Cuts to Hit Revenues
An area where the government may be able to cut spending is in reimbursement to hospitals, hospices and nursing homes. The current bill proposes slashing $150 billion in reimbursements to those types of institutions.
While hospitals could take the biggest hit, they’ll also benefit from fewer indigent patients racking up huge expenses in emergency rooms, only to be charged off. And with a greater number of people covered by insurance, hospitals will see more of those types of charges reimbursed.
It’s too early to say how reform will impact hospitals. I suspect it will still be negative, but not devastatingly so. On the other hand, hospices and nursing homes could suffer more, as it will be difficult for them to make up for the lost revenue.
~ Insurance: Scrambling to Fight Change
I’ve never been a fan of health insurers. It doesn’t make sense to me to invest in a company whose profit motive is to deny customers access to its services, thereby angering those customers.
The area is even less appealing now and insurers are clearly worried about reform, as evidenced by UnitedHealth Group’s (NYSE: UNH) urging its employees to write to their senators to lobby against reform.
In fact, UnitedHealth Group has spent $3.5 million on lobbying efforts and through September, the insurance industry spent over $120 million lobbying Washington. Clearly, they don’t want reform and are spending huge sums of money to fight it.
Those that participate in Medicare Advantage could be affected even worse. That’s because a healthcare overhaul will likely cut Medicare spending, particularly in Medicare Advantage, which provides benefits such as lower co-payments and gym memberships to 11 million seniors.
Companies like Humana (NYSE: HUM) and UnitedHealth Group that offer Advantage plans could see their profits decline significantly. According to Goldman Sachs, Humana derives two-thirds of its earnings from Medicare Advantage while UnitedHealth Group gets roughly one-third of its profits from the program.
Additionally, private insurers could face competition from a public plan, or be forced to take on higher-cost patients with pre-existing conditions. This is one group that I don’t expect to fare well in a reform bill.
Profit from Healthcare Reform Misconceptions
One thing seems certain: If healthcare reform gets passed, many within the healthcare sector will be bent out of shape. The ensuing scare tactics will likely lead to a selloff in healthcare stocks, since most investors simply think reform means lower revenue.
But as you can see, many companies will be just fine. Others will even gain more customers than they’ve ever had. There are many misconceptions out there at the moment, but you can use this to your advantage by buying quality healthcare and biotech stocks that will continue to grow, no matter what bill Washington eventually spits out.
Healthcare’s Biggest Week of the Year
Next year is going to be a very interesting one for healthcare companies – and despite the political chaos, I expect there to be many winners.
Each year, the industry wastes little time setting the stage for the following 12 months, with the massive JP Morgan Healthcare Conference taking place in San Francisco in January.
This is by far the most important healthcare investor conference of the year and I’ll once again be making my annual pilgrimage to the event. Over the years, it’s become an increasingly exclusive conference and even being a portfolio manager doing business with JP Morgan doesn’t guarantee you entry into it.
Over 300 companies will make presentations, while several hundred others who didn’t get invites will descend on the city to meet with the investors who are in town.
For me, it means a jam-packed schedule, as I meet with company executives, industry insiders and hedge fund managers. I’m already working on several good ideas for 2010, but I expect to come away from the conference with many more.
I’ll send updates from the conference and as always, I’ll be here to reveal the healthcare stocks with the greatest potential for gains in 2010.
Hoping your longs go up and your shorts go down,
Marc Lichtenfeld
Any investment contains risk. Please see our disclaimer.
19 Responses to “The Winners and Losers from a New U.S. Healthcare Reform Bill”
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Marc is a senior analyst at Investment U. His investment career started out at the trading desk of Carlin Equities in San Francisco, CA, where he executed dozens of trades each day for his clients.
Everything I’ve read or seen the numbers are opposite what yours are. The poll numberes I’ve seen do not want the government in their health care.
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“According to a Thomson Reuters poll, 59.9% of Americans would like to see a public option in any healthcare reform bill, versus just 40% who don’t.”
Uhhh, that would be INCORRECT!
How old is that poll? What’s the source of the sample? Do those surveyed even vote? It’s what the voters think that matters and they’ve been speaking loudly and clearly for some time, to wit:
Gallup:
December 16, 2009
Healthcare:
Majority of Americans Still Not Backing Healthcare Bill.
Healthcare reform legislation still lacks a strong public mandate, with 46% of Americans generally supportive of passing a bill this year and 48% generally opposed.
Monday, December 14
Rasmussen: Health Care Reform
40% Support Health Care Plan, 56% Oppose It
Fifty-six percent (56%) of U.S. voters now oppose the health care plan proposed by President Obama and congressional Democrats. That’s the highest level of opposition found – reached three times before – in six months of polling.
The latest Rasmussen Reports national telephone survey finds that just 40% of voters favor the health care plan.
Perhaps more significantly, 46% now Strongly Oppose the plan, compared to 19% who Strongly Favor it.
Overall support for the health care plan fell to 38%, its lowest point ever, just before Thanksgiving. This is the fourth straight week with support at 41% or less. With the exception of a few days following nationally televised presidential appeals for the legislation, the number of voters opposed to the plan has always exceeded the number who favor it.
http://www.rasmussenreports.com/public_content/politics/current_events/healthcare/september_2009/health_care_reform
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I don’t know about Thompson-Reuter, but every other poll shows that the majority are not only against the public option but are moving quickly against ANY of the reform currently on the table…
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Your quoted poll results at the beginning of the article are questionable…..All polls I have seen are 60-40 AGAINST this bill and a public option.
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You mentioned 2 of the bigger drug firms. A while back you recommended buying Bristol Meyers. Is it still a buy, a hold or a sell?
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William,
Bristol-Myers Squibb is still part of the Xcelerated Profits Report portfolio. For updates, be sure to check the latest issue.
Thank you,
Investment U
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The author is either a liar, or has not done his homework. Passage of any healthcare plan would be disastrous to the economy. The impact on Wallstreet would be immediate. The recession that is bottoming out at this point, would mushroom into a long term depression on Mainstreet, as the impact of the plan would take effect. The liberals that constructed the plan ignore the options that would actually have a positive impact such as tort reform.
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Marc ;
You need to get your facts straight RE : the poll numbers.
I agree that the Health Ins. industry needs to be set back on it’s heels and reformed . The Insurers, such as Humana and UHG are obviously in bed with our politicians[ big donations] ;as is Big Pharma
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I have trouble listening to a “Healthcare Expert” who sites poll numbers that are backwards compared to every poll I have seen. If you cannot even report polls accurately, just what kind of an expert are you?
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I agree with the previous comments regarding the poll you cited. I think Sen. Leiberman stated it best when he said that the public option is “unnecessary”. A simple first step could be allowing all insurance companies to market nationally and eliminating preexisting clauses in policies. This would eliminate further govt. expense and the results could be measured in a couple of years…when the current proposals were to begin anyway.
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Big Pharma’s supposed agreement to cut $80 billion in drug costs over 10 years is a hoax. Every major drug company has increased prescription drug prices by 10 – 15% over the past 8 months in anticipation of the passage of a health care bill. So, an increase of something like $150 billion in revenue coupled with a decrease of $80 billion from the higher total revenue amount is what I would call a fantastic business deal.
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I agree with comments 1 thru 4. I’ll bet most people don’t understand what public option really means.
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The cut in payment for Medicare Advantage is appropriate – they are getting paid more for the care they provide than care would cost in fee for service. The cut is long overdue.
You didn’t mention the impact on physicians – every year physicians fight to stop the cut in Medicare payments – it’s up to 20% due to be cut in payments in 2010 unless Congress acts. Putting more patients into Medicare and Medicaid creates a false sense of access – it costs a clinic $45 to get paid on a $25 claim for Medicaid. There are disincentives to taking Medicaid patients as it is now. Medicare is quickly approaching the same state of affairs – physicians cannot take more of these patients and remain financially solvent.
Hospitals and doctors may eventually get paid for care for the high risk patients – but they will still have to deal with the costs during the 6 month wait for insurance. For a patient with cancer, diabetes, heart disease – 6 months is a long time, alot of care missed or costs accumulating, a lot of stress and anxiety and debt.
The plan puts a higher burden on the patients and families with chronic health problems – including our parents and children. The wait for insurance and increasing amount for tax purposes puts a higher burden on the patient and families with chronic illness – who already have a higher burden taking care of family members who are not in the hospital and should be or who are discharge early to shorten hospital stays. Family incomes suffer, health of family members is worse, out-of-pocket expenses are signficant.
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MANDATES MUST GO! THE FILIBUSTER MUST GO! It’s undemocratic. It was created to subvert democracy and the will of the people. The Constitution Of The United States only calls for a simple majority vote in the Senate (51 votes). The Senate should pass the strongest Public Option it can with 51 votes by Reconciliation.
The Senate bill is a Swisses cheese of loopholes for the insurance industry. Without a strong Public Option, insurance reforms in the bill are worthless and have no teeth.
CRITICAL!! From jacksmith – Working Class
My Fellow Americans and People Of The World
A strong Government-run MEDICARE like Public Option is CRITICAL!!
A Medicare Buy-in at 55 is a GOOD! idea. But!, not a substitute for a strong Medicare like public option CHOICE for everyone. Nor is the (FEHBP). Without a strong public option on day one the Senate health-care bill is a disaster for the American People and the World. Therefore you must KILL!! it. Without a strong public option the health-care reform bill is MUCH WORSE! than what we have now, and what we have now is a catastrophe. SO YOU MUST KILL!! IT.
What is proposed in the Senate is the worst case scenario for health-care reform. It would shift trillions of taxpayer, public and private dollars into the hands of the private insurance industry (The single most costly, deadly and dangerous product sold in America). And it would compel by law millions of Americans to financially support this oxymoronic criminal enterprise. You cant have a MANDATE WITHOUT A STRONG PUBLIC OPTION CHOICE!
You will have NO! realistic way of controlling cost and quality. Cost will continue soaring through the roof bleeding the American people dry, and KILLing our economy. And our quality of healthcare will continue to decline below our current ranking of “WORST! quality of healthcare delivery in the developed World”.
H1N1 IS A WEAPON OF MASS DESTRUCTION!
I have to tell you now that the H1N1 virus is a man-made WEAPON OF MASS DESTRUCTION! and TERROR! It is a WEAPONIZED version of a flu virus. It has swept the planet infecting millions. And causing a global pandemic that has killed tens of thousands, and injured millions.
The H1N1 virus is the product of the DISGRACEFUL, GREED DRIVEN PRIVATE FOR PROFIT MEDICAL INDUSTRIAL COMPLEX! It was released in the U.S. in Texas in early January of this year, but not recognized until around April in California. The reason I know this is because when it came to America, it came to see me FIRST! How sweet…
This was around the time the MEDICAL INDUSTRIAL COMPLEX! assaulted the Whitehouse with all their devils deals to cripple and weaken YOUR! healthcare reform. Especially your right to have a single payer system like HR676 (Medicare For All) which most of you wanted.
They don’t even want you to have your HUGE!!! compromise position of a strong government-run MEDICARE like Public Option CHOICE. To compete with their DISGRACEFUL, GREED DRIVEN, MURDEROUS, PRIVATE FOR PROFIT PRODUCT (The single most costly, deadly and dangerous product sold in America).
They also wanted to take away your rights to have your government meet it’s responsibility to use it’s full power to regulate, negotiate, and control drug cost, healthcare cost and quality. Something every other civilized country in the developed World has done for it’s people. Their Greed! moral degeneracy and lack of patriotism knows no bounds.
Many of you will remember that before we knew about H1N1. I posted a open message to the President and Congress warning them to be vigilant about their health, and cautious about any medical advice they received. As I said then “they will not hesitate to try and hurt you”.
The U.S. and the World have been under a BIOLOGICAL TERROR ATTACK! for over a year now. It is CRITICAL that We The People Of The United States take away control of our healthcare system from the GREED DRIVEN MEDICAL INDUSTRIAL COMPLEX!
For our own National security, and the security of the world.
A Strong, government-run, MEDICARE like Public Option CHOICE. Available to everyone on day one, with the full unfettered power of the federal government to regulate, negotiate, and control cost and quality. Would be the most workable way to deal with this global crisis at this time. Including patent suspensions as needed for national security or the greater good.
As an American I invite the peoples of the World to help us fix our healthcare crisis. And bring pressure on our government to meet it’s responsibility to protect global security by controlling, and removing the corrupting influence of GREED and the PRIVATE FOR PROFIT motivations from healthcare in the U.S. and around the World.
I call on the governments of the World and the global intelligence community to track down these MASS MURDERERS, and bring them to justice. CONNECT THE DOTS! And be vigilant that they don’t slip in another viral strain on you under the cloak of H1N1 sequestration.
Further, the proposed patent protection on biologic’s must be stripped from the US bill. And greatly shorten/restricted, or abolished completely. This is a grave danger to humanity and global security.
I think President Obama is doing the best he can at playing the disastrous deck of cards he inherited from the previous administration. And I think he is doing an excellent job. But the wolves and devils of the medical industrial complex! are trying to exploit, and take advantage of his good heart, and desperate desire to help suffering Americans. But we must be strong and insist that healthcare reform be done right for the American people. Or everyone loose’s.
This is all I can say in a message post. I’ll try to find a way to tell you more later.
God Bless You My Fellow Human Beings
jacksmith – Working Class
p.s. The so-called nominal H1N1 virus is designed in such a way as to make it more lethal to children and young adults. The medical community must be more vigilant of secondary bacterial infections in the young caused by H1N1. And remember, a viral infection is also a transfer of genetic code to you. Think about it, and be vigilant.
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I’m not an investor and so rarely read this in my mail box. Although a lefty, I was glad to see someone talking candidly about the winners and losers. If a family of 4 pays about $10,000 a year for health insurance, and Congress adds 40,000,000 new customers, that’s a $100,000,000,000 boon to their premiums. As an insider pointed out on Frontline, for-profit health insurance companies make 20% from their premiums meaning a $20,000,000,000 bonus per year. Can Dems expect some quid from than quo come 2010? We’ll see. My prism is political and I’m surprised Republicans didn’t go along. Political theater, in my opinion.
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How much is the DNC paying this guy? Latest estimate is $10K per family for coverage. Who is going to be able to afford this?
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I don’t think your stock advice is worth the time to read it. But, it is worth commenting on a specific industry. The Biotechs will get creamed by this bloated spending monstrosity!! As more people lose their jobs, and yes if this passes they will lose their jobs. Remember the unpredictability of the FDR admin during the great Depression is what caused many businesses to stop hireing well into the late 1930′s.
Currently, the people know this will kill job creation in the U.S., e.g. look at the UNEMPLOYMENT rates in Canada and the UK, higher unemployment than the U.S. for socialized medical system examples. Does the Biotech business as we have here even come close in these and other socialized medical countries? I don’t think so.
Please don’t lie about how Biotech will reap anything but disaster from this hellish legislation.
Hcare Prof Dislclosure: I have worked at Quest Diagnostics for over 10 years.
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We all lose when the people want the government to
control their lives. This government has doomed this nation and the future of our children with their spending practices. They have made a serious mess of social security and medicare and what fool thinks they can handle the health care of the nation. The financial sector had caused the world to shake, now healthcare for the people will stop when the world stops lending the funds to pay for us. Wake-up people, you listening to snake oil salemen. Merry Christmas
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Avastin cannot cost $100,000 per year. Its price is capped at $55,000 per year. Do your research.
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