Health Care Reform and Your Health Stocks

If the noninterference clause is removed, Funtleyder says, the government could negotiate directly with drug companies. In this capacity, the government would be like Wal-Mart (WMT Quote), he says, "the world's biggest buyer" and that would perhaps give it the ultimate negotiating power to affect lower drug prices -- a negative for pharmaceutical companies.

However, Justin Ferayorni, the founder and principal of Tamarack Capital Management and a RealMoney.com contributor, notes that if the government is negotiating for 100% of the population, pricing will go down; however, volume may increase enough to counter that decrease.

Another relatively low-cost change would be the removal of the so-called Medicare Fee for Service. Under this benefit, the government pays managed-care companies a little bit extra to set up shop in underserved communities. "Overpayment was probably going to go away," says Funtleyder, but [the new administration's health care reform] will probably make it go away faster." That is a negative for managed-care companies, like Humana (HUM Quote), Aetna (AET Quote) and those mentioned above.

Biotechnology companies -- the Genentechs (DNA Quote), Gileads (GILD Quote) and Biogens (BIIB Quote) of the health care industry -- and medical-technology companies stand to be less affected, according to Funtleyder.

But keep in mind they do have exposure to potential reform. "Biogenerics" or "biosimilars" have been lurking in the back of biotechnology investors' minds for sometime. There is currently no regulatory pathway for generic biologics -- but most industry watchers believe that it is only a matter of time. However, that sort of change -- once structured -- would likely take time to enact, and so it's unlikely to have a negative impact in the near term.

Also, medical-technology and device companies -- like Medtronic (MDT Quote), Boston Scientific (BSX Quote) or Stryker (SYK Quote) -- could be affected by the implementation of medical-device registries. These are databases that are meant to track products once they are implanted in patients. Problems with medical devices emerge faster with the use of data from such registries, and such a change could add to the regulatory burden for med-tech companies, according to Funtleyder.