Health Management Associates Inc (HMA), Tenet Healthcare Corp (THC): Could the Obamacare Dream Turn Into a Nightmare for This Industry?

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If we were to draw two columns — one for winners from the Patient Protection and Affordable Care Act, or PPACA, and another for losers — the word “hospitals” would probably be listed near the top in the winner’s column. Large hospital chains Health Management Associates Inc (NYSE:HMA) and Tenet Healthcare Corp (NYSE:THC), have seen their stocks more than double over the past year, while Community Health Systems (NYSE:CYH) is up around 75%.

Health Management Associates Inc (NYSE:HMA)

Investors flocked to hospital stocks in anticipation of the full implementation of PPACA, commonly referred to as Obamacare. In the minds of many, Obamacare presented a dream come true for helping hospitals to flourish. But could that dream now be turning into a nightmare for the industry?

Pleasant dreams
Many hospitals currently write off large amounts of bad debt when patients can’t pay for services. They also often face competition from specialty physician-owned hospitals that are sometimes accused of cherry-picking the most lucrative patients with generous insurance benefits.

Key components of Obamacare sounded great to hospital operators. Medicaid would be expanded in all of the states to cover more uninsured Americans. The legislation’s employer mandate promised to force all but the smallest employers to provide health insurance with extensive benefits or pay steep fines. Likewise, most individuals not covered by their employers or through government programs would be required to purchase insurance or pay fines. The dream of reducing those huge bad debt write-offs seemed attainable.

Obamacare also prohibited the establishment of new physician-owned hospitals. For ones already in existence, the bill placed restrictions on expansion. While Obamacare didn’t fulfill the wildest dreams of hospitals not run by physicians, it seemed to deliver some pleasant changes to the status quo.

Rude awakenings
The biggest drawback for Obamacare was that hospitals had to go along with $155 billion in Medicare and Medicaid cuts. That wasn’t considered too bad, though, since they would get that money back and then some, with all of those previously uninsured patients gaining insurance. Unfortunately, there have been a few rude awakenings disrupting the dream.

First, the Supreme Court ruled last summer that Obamacare’s requirement that states expand Medicaid was unconstitutional. As of last count, 18 states opted to either not expand Medicaid or are leaning in that direction.

Earlier this month, the White House delayed implementation of the employer mandate that was scheduled to go into effect in 2014. The House of Representatives is also pushing forward with a proposed delay of the individual mandate.

Meanwhile, those Medicare and Medicaid cuts are scheduled to move forward. This has prompted calls by the American Hospital Association to push back the cuts along with the employer mandate, especially since the employer mandate delay “comes at a time when there is significant uncertainty regarding Medicaid expansion.”

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