Hospitals Could Pay Price to Mend Medicare

Skolnick stepped up her warnings as well. She also dissected the Medicare report in an attempt to diagnose the program's problems. She determined that new Medicare reforms -- which have lifted some pharmaceutical and rural hospital stocks -- shaved two years from Medicare's life expectancy. She also concluded that Medicare's core hospital insurance program could last just 15 years, absent serious changes, even without the recent reforms.

Skolnick now believes that the "bankruptcy of Medicare" could become a hot political issue during this year's Presidential race. Still, she doesn't expect any real Medicare cuts until after the election ends.

"The implications of this for investors should be obvious: 2005 does not look like it will be a good year for hospital stocks," she wrote. "As depressing as our negative commentary on the hospital stocks may be to some, it pales in comparison to the [Medicare] Trustee's report. ... We remain very comfortable with our negative outlook on the sector."

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