By picking a fierce critic of Barack Obama's 2010 health care reform law to oversee the government's role in delivering medical care in the U.S., President-elect Donald Trump may be casting a pall over hospitals and operators of other acute care facilities and over HMOs specializing in covering Medicaid patients under state contracts.
Trump announced Tuesday that he would nominate current House Budget Chairman Tom Price, R-Ga., to head the Department of Health and Human Services, the department that the Centers for Medicare and Medicaid Services, the Food and Drug Administration and the National Institutes of Health.
Price, a former physician has introduced his own legislation to repeal the law that, like a plan mapped out in House Speaker Paul Ryan's, R-Wis., "Better Way" agenda, would replace direct federal funding with block grants to the states. Price's legislation, however, would provide much less funding for grants meant to help fund coverage for patients with pre-existing conditions and other high-risk individuals. Price's plan would provide just $3 billion in grants to cover those individuals whereas Ryan's would provide $25 billion.
The appointment of Price would further stoke fears among investors that Trump's pledge to repeal and replace the Accountable Care Act, Obama's most prized legislative accomplishment, would hit hospitals and Medicaid HMOs particularly hard.
Other analysts have made similar predictions, Mizuho Securities USA's Sheryl Skolnick said the Republican sweep of both chambers of Congress and the White House will mean that hospitals no longer receive the revenue from patients covered under Obamacare. Meanwhile, cuts to hospital reimbursements and the taxes and fees on managed care imposed on them to partially pay for the program will remain, because Washington won't give up the $1 trillion those cuts and levies are predicted to raise over the next 10 years.
Eliminating coverage benefits while leaving the pay-fors in place "is the worst of all possible worlds for hospitals," she wrote.
Other stocks likely to be hit include Centene (CNC) and Molina Healthcare (MOH) which provide services to government health care programs, Leerink analyst Ana Gupta wrote in a Nov. 22 note. She estimated that repealing and replacing Obamacare could have a one-time earnings downside of 17% and 50%, respectively.