Health Care ETFs and Massachusetts' Election

BOSTON (TheStreet) -- More and more, it's looking like Republican Scott Brown could win the race for the U.S. Senate seat formerly held by the late Ted Kennedy.

The impact of such a result could have a big impact on national health care reform legislation -- and on health care exchange-traded funds.

The latest polls taken by Suffolk/Boston Channel 7 indicate that Brown may be taking the lead over Democratic opponent Martha Coakley, currently the Massachusetts attorney general.

If Brown wins, it will be a significant victory for Republicans in this traditionally blue state and will also pose a significant threat to the Democratic-sponsored health care reform legislation in Congress.

That's because both houses of Congress need to agree upon a revised version of the bill. Currently, Democrats have the 60 Senate votes required to pass a full version of the legislation, but Brown has promised to vote against it.

As my RealMoney.com colleague Howard Simons noted Friday in Columnist Conversation, medical devices has been one of the areas most affected by the proposed legislation in recent months.

ETFs like iShares Medical Devices(IHI) and mutual funds like Fidelity's Medical Devices and Systems (FSMEX), which have seen modest gains in early 2010, target this subsector.

Baby boomers are aging, and while the demand for medical devices is not tied to the economic cycle, many of the cost-cutting measures in the health care bill could impact the prices of frequently used items. According to a recent Morningstar report, two thirds of implants for total knee replacement and 80% of cardiac rhythm management devices are reimbursed by Medicare through the Part B program. With such a significant number of health care devices on the government's tab, this health care subsector is a target for price reform.

The importance of this election has been mirrored by the willingness of top Democratic party leaders to rally in Boston as Tuesday's vote draws closer. Former President Bill Clinton and President Obama will have visited Massachusetts before the first ballot is cast.