Welcome to Health Reform Watch, Sarah Kliff’s regular look at how the Affordable Care Act is changing the American health-care system — and being changed by it. You can reach Sarah with questions, comments and suggestions here. Check back every Monday, Wednesday and Friday at 2 p.m. for the latest edition.

Let's say you’re an Obamacare supporter: You called your legislator about passing the legislation and proudly adorn your car with a pro-reform bumper sticker.

That's all well and good, but perhaps you'd like to make a few dollars off of President Obama's signature legislative achievement too. And, if so, some Wall Street analysts have a deal for you!


Every year, the Nashville Health Care Council invites a group of top Wall Street analysts, all specialists in health-care industries, to talk about the best investments in the coming year. I listened in on their Thursday presentations and learned why hospitals are hot, nursing homes aren't and that there’s always money in the dialysis business.

With the full disclosure that I am not a financial adviser of any sort, here's what Wall Street thinks will be the best Obamacare bets in 2013.

Buy: Hospitals! There was near universal agreement among these analysts that the hospitals would be the hottest health-care sector in 2013. “I think if you pick your favorite national hospital, the stocks are going to do well,” says Frank Morgan, a managing director at RBC Markets. “You’re seeing hospital investors moving in [and] you’re buying hospitals today because of what you think will happen next year.”

What will happen next year, of course, is the insurance expansion: Hospitals, which spent $41.1 billion on uncompensated care in 2012, will suddenly have someone paying all those unpaid bills. This is likely to be true for hospitals across the country, and especially true for those in states that participate in the Medicaid expansion. “Clearly, if you believe reform will be a positive driver for earnings, they’re all going to work” as investments, says Josh Raskin, managing director at Barclay’s Capital.

Steer clear of post-acute care. One way the Affordable Care Act financed a coverage expansion for 30 million Americans was by reducing payments to Medicare providers. All told, it cut more than $150 billion in reimbursements to Medicare providers, places like home health agencies, nursing facilities and rehab centers.

These types of businesses are already pretty dependent on Medicare for much of their revenue. They won’t benefit from an expansion of private insurance and Medicaid as much as, say, a hospital would. “The sector we’re most concerned about is post-acute care and the rate pressure there,” says Kevin Fischbeck, Director and Senior Equity Research Analyst, Bank of America Merrill Lynch. “It’s hard to argue that the rates over the next five years will be better than the last five.”

This is generally true for health-care providers that are heavily reliant on Medicare dollars: They’re going see a lot of the drawbacks of reimbursement cuts, without the benefits of an insurance expansion.

ACOs? More like AC-I-Don’t-Know.  “Did anyone used to watch the Smurfs?” one of the analysts asked. “Whenever they didn’t really know what something was, they would throw the word Smurf in. ACO is kind of the same thing.”

ACOs are, as devoted readers of this blog know, Accountable Care Organizations, where hospitals and doctors band together and accept a lump-sum payment for a set of patients’ care. The idea is that this will incentivize providers to provide the most cost-effective care, by putting them under a fixed budget.

That’s the theory, at least. Nobody is quite sure yet, however, whether hospitals will be able to turn a healthy profit as ACOs — or if doctors end up blowing through that global budget and producing no additional savings.

“The government program has a lot of excitement and also some skepticism,” says Barclay’s Raskin. “You’ve got a lot of skepticism around the structure of these payments.

Immigration reform could pay dividends for emergency rooms. Sure, it’s not part of the Affordable Care Act, but immigration reform could expand citizenship — and bring about 7 million new beneficiaries into the Affordable Care Act. That would be a boon to emergency rooms, which tend to see high volume from undocumented workers who lack insurance coverage.

“Somewhere around 3.5 to 4 percent of admissions are illegal immigrants,” Raskin says. “To the extent that an improvement in coverage can happen, I think you could see some unintended positive impact in the health facility space.”

There’s always money in the dialysis business. If you’re a nervous investor, one who might fret about the Affordable Care Act not going exactly as planned, dialysis might be the sort of surefire investment you’ve been looking for. Bank of America’s Fischbeck explains: “The leading causes of kidney failure like diabetes suggest that dialysis will have a 4 to 5 percent volume growth organically. That leads us to be a little bit more optimistic.”

KLIFF NOTES: Today’s top health policy reads from around the Web:

Women's health groups are cheering the new contraceptive rules — religious groups, not so much. "The Obama administration proposed broader latitude Friday for religious nonprofits that object to the mandated coverage of contraceptives, one that will allow large faith-based hospitals and universities to issue plans that do not directly provide birth control coverage." Sarah Kliff and Michelle Boorstein in The Washington Post.

South Carolina hospitals: Tax us to pay for the Medicaid expansion! “Carolina Republicans say they do not support Obamacare because its cost to the state would be more than $1 billion, cumulatively, by 2020. But what if Palmetto State hospitals agreed to cover that tab?” Adam Beam in The State.

The Obama administration has missed more than a few health law deadlines. “Some of these deadlines appear to have slipped as the administration focuses on carrying out two of the biggest provisions in the health law designed to expand coverage to as many as 30 million people.” Phil Galewitz in Kaiser Health News.

A new report finds that out-of-network costs are pretty much out of control. "A health insurance industry report ... contrasts some of the highest bills charged by non-network providers in 30 states with Medicare rates for the same services. Some of the charges, the insurers assert, are 30, 40 or nearly 100 times greater than Medicare rates." Roni Caryn Rabin in the New York Times.