To judge by current Medicare proposals, lawmakers seem intent on abiding by the same Hippocratic oath that guides the medical profession itself.
They have opted to "first, do no harm" to the private health care industry. Their proposed legislation, meant to provide seniors with prescription drug benefits, also rewards health care players across the sector.
"In order to get the drug bill passed, Congress needed unanimous support, which was only possible by increasing payments for all groups," Lehman Brothers analyst Adam Feinstein explained on Thursday. "Thus, this is likely to create a near-time windfall for all provider groups."
Indeed, only a handful of specialty groups seem exposed to possible pain. Most health care players should instead receive top-notch care. And some can expect to achieve their strongest health in years.
(The Medicare bill itself was struggling in the Senate Monday morning, with a filibuster promised by Democrat opponents. To read more,
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Two groups in particular -- senior insurance programs and rural hospital chains -- could be poised for the biggest recovery of all.
For years, companies such as
clung to a tough insurance market that others quickly abandoned.
They provided insurance coverage to senior citizens through so-called "Medicare+Choice" programs. Despite painful reimbursement cuts -- which sent other insurers fleeing -- both companies continue to rely on Medicare+Choice plans for most of their profits.
"These companies have attempted to maintain the viability of the business by reducing benefits to seniors and by exiting service areas," Morgan Stanley analyst Gary Lieberman wrote on Tuesday. "Hence, immediate payment relief in 2004 -- as supplied in the House version of the bill -- is crucial to maintaining the profitability of this book of business."
If passed, the bill would nearly double Medicare+Choice hikes to 3.7% annually. PacifiCare, which relies on Medicare+Choice for 80% of its profits, has already seen its stock price rocket on the proposed increase. Indeed, both PacifiCare and Humana have recently set new 52-week highs.
But other insurance companies -- including one of the industry's strongest -- stand to benefit from the higher payouts as well.
, which ranks as the nation's second-largest insurer, has already forged a strong relationship with seniors that could pay off even more.
"United, we believe, has significant opportunity to be a material player in the evolving Medicare managed care program," Legg Mason analyst Thomas Carroll wrote on Wednesday. "United currently offers many health insurance and health benefit-related products through its Ovation division to this part of the population."
Both Carroll and Lieberman pointed to UnitedHealth's exclusive relationship with the American Association of Retired Persons -- which has expressed support for the proposed Medicare changes -- as an especially valuable tool.
Carroll also believes that
, which offered Medicare+Choice in the past, could re-emerge as a national force in the program. In addition, he expects some strong regional players -- such as
-- to profit from the reforms.
Hospitals, particularly rural ones, look like winners as well.
"We note that the rural hospitals (or hospitals with significant rural facilities) stand to gain the most from the bill," Feinstein wrote on Thursday. "It seems that
, with urban facilities, will gain the least."
For the first time since 1997, hospitals are in line for a "full market-basket update" that promises Medicare increases for several years to come. But the boost to earnings should be relatively modest. Indeed, Feinstein calculates that Tenet -- with just a 0.94%, or 1-cent, jump in profits -- would snare the biggest gain.
However, Tenet could lose out altogether in more lucrative categories. Feinstein expects windfalls for rural and charity care to bypass both Tenet and HCA and instead reward smaller chains such as
. He believes all four of those chains are in line for at least a 4% jump in profits.
Still, Feinstein stressed that some of the gains have already been baked into current expectations, and he seemed to downplay the impact of the Medicare bill overall.
"In a nutshell, Medicare is a clear positive as we are in the midst of a very favorable Medicare cycle," he wrote. "Thus, we view this compromise bill as just a continuation of a favorable Medicare cycle rather than a sea change."
Feinstein went on to single out one niche that could actually get hurt. He said the current proposal would freeze rates for orthotics and prosthetics for at least the next three years. He called this a "slight negative," particularly for
, since he was expecting a 2.1% rate hike next year.
Lieberman said clinical labs could be in for an even longer rate freeze. Still, he called the seven-year freeze "the lesser of two evils," since clinical labs could have weathered a more damaging co-pay mandate instead.
Lieberman pointed to physician-owned specialty hospitals as probable losers as well. He said the new Medicare proposal would delay, by at least 18 months, a sought-after exemption that would have allowed physicians to refer patients to hospitals that they own.
"The argument is that specialty hospitals effectively siphon off the more profitable cases, such as orthopedics and cardiology," Lieberman wrote. "Moreover, critics believe that allowing physician ownership creates an incentive for investing physicians to refer the more lucrative cases to that specialty hospital -- urging permanent removal of the ... exemption."
Lieberman expects general acute-care hospitals, which might otherwise lose business to the specialty clinics, to benefit from the delay. In the meantime, Feinstein is already starting to question just how long the new Medicare benefits will really last.
"When Medicare is trying to spend money, it tends to overspend, with the reverse holding true when it attempts to cut payments," he wrote. "Medicare may have to cut payments in future periods. Nonetheless, our outlook for Medicare reimbursement is very positive for both this year and next."