Health Care Reform and Your Health Stocks

Changes Without Legislation

Still, Oppenheimer's Kevin DeGeeter, who specializes in small-cap biotech and specialty pharmaceuticals, cautions that tighter budgets mean more pressure to curtail spending, and regulators can go a long way without new legislation from Congress.

Centers for Medicare and Medicaid Services (CMS), for instance, isn't immune to an overall budget, he says. This could mean more effort to control its budget by controlling access, he says. Consider anemia drugs, for which CMS didn't stop reimbursing, "but rather rewrote the rules for what they would reimburse."

Thus, biotechnology companies could face exposure to increased scrutiny from CMS in terms of how drugs are used, particularly those administered in a hospital setting, says DeGeeter. "CMS has the ability to go back and review access -- to ask who really ought to be able to get reimbursed and are drugs being used in the way they are intended for," he says. "CMS does have the structure to implement guidelines, and on a very case-by-case basis there is likely to be some exposure."

CMS also has the ability to curtail how much it pays for products to be administered, says DeGeeter. And physicians can feel that they are making very little money or that they are actually losing money in the process, he says, which can influence their treatment preferences and ultimately the companies that market those treatments.

In Europe, some treatments are already subject to cost-benefit analysis that's tied to reimbursement, and it's possible the U.S. could at some point proceed in that direction.

But, opines RA Capital Management's Kolchinsky, there remains a portion of health care that is considered "non-discretionary," for instance, cancer, hepatitis C, HIV, orphan indications, prenatal testing, he says. "If you have a drug or product in one of these specialty areas that offers a meaningful benefit to a patient, the patient will want it, physicians will consider it unethical not to offer it, and ultimately the system will pay.

These companies could theoretically include hepatitis C specialist Vertex (VRTX Quote) or orphan drugmaker Genzyme (GENZ Quote).

"These are the kinds of companies and products that investors refer to when they say that health care is recession-proof and that health-care reform won't be able to negotiate down the price of truly non-discretionary innovative products," he says.