NEW YORK (The Deal) -- Hospital stocks popped Thursday after the Supreme Court rejected a challenge to the Affordable Care Act, an indication that deal-making will quicken in the industry and in adjacent sectors such as insurance and real estate investment trusts.
The 6-3 ruling in King v. Burwell, with Chief Justice John Roberts Jr. writing the opinion for the majority, means that hospitals can confidently broaden their geographic reach and widen their care offerings by acquiring physician groups, imaging businesses and urgent-care facilities. And they can also buy other hospitals.
The ruling is a positive for hospitals looking to buy and sell, said Trey Cobb, a managing director at Ziegler and Co., who focuses on both not-for-profit and for-profit health care organizations.
"People have been paying close attention to the ruling, and now it is clear that the Supreme Court has allowed the federal subsidies to continue with insured people in the U.S. and pave the way for additional insured lives in 2016," he said. "It helps to remove an unknown that could cause sellers of hospitals to remain on the sidelines until this ruling became clear or could have caused acquirers to sit on the sidelines."
Large players in the hospital sector include Tenet Healthcare (THC), which formed a joint venture with Welsh Carson Anderson & Stowe's United Surgical Partners International this year in a deal valued at $1.9 billion. Others include Community Health Systems (CYH), acquisitive HCA Holdings (HCA), Universal Health Services (UHS), which also operates in the behavioral health sector.
Pure-play behavioral health provider Acadia Healthcare Company (ACHC) may also be looking to buy.
The ruling may spur more public-private partnerships in the hospital space, a practice prevalent in Canada and the United Kingdom, said Patrick Pilch, of BDO's Healthcare Advisory practice.
Health care REITS, which are already active acquirers, also stand to benefit, he said.
"The right capital goes back to redesigning your health care model and to help improve outcomes for patients," said Plich of the possibility of health care REITs being able to scoop up more real estate in the space as hospitals seek to offer more services. "Hospitals are moving from a facilities-driven outlook to a patient-driven outlook."
By the end of the summer there will be 17 public health care REITS in the United States, Pilch said.