With much about President-elect Donald Trump's health-care agenda still unclear, the health-care industry's initial response to his election has been scattered. Hospital stocks were down. Health insurers' stock prices were mixed. Pharmaceutical and biotech stocks, on the other hand, got a big bump.
Trump's clearest policy position in health care has been his commitment to repealing the Affordable Care Act and replacing it with another policy. But the responses to his election varied in large part because the details of exactly what would replace the Affordable Care Act and how that transition would occur have been vague. Without knowing those details, it's hard for investors to have a clear response, said Benjamin Isgur, a leader in the PwC Health Research Institute.
“These health organizations are like large ships, and you can’t turn them on a dime,” Isgur said. “When you think back to what it took to get ready for the ACA, for many health-care companies, it was two to three years of developing plans and provider networks and marketing plans. . . . There's a lot of work that is required to implement any new program.”
Hospitals are down
The health-care industry has benefited under the Affordable Care Act in several ways, Isgur pointed out. As the uninsured rate has declined, health-care providers such as hospitals and health systems can serve more people with insurance. Drug companies benefit when more people have access to their drugs. Although much has been made of the instability of the marketplaces where people without employer-insurance can buy coverage, it has remained attractive to many insurers who continue to participate and see the business as viable in the long term. Chip Kahn, the president of the Federation of American Hospitals, said that there is considerable uncertainty for hospitals since the election.
“We have tens of millions of people who depend on the architecture of the ACA, and if there’s going to be a teardown and rebuild of that, we do have to assure there will be a transition from then — from where we are now — to ways that policy will allow them to have affordable coverage” going forward, Kahn said.
HCA Holdings, a for-profit operator of health-care facilities, was down more than 14 percent in midday trading Wednesday. Tenet Healthcare, which owns health systems including hospitals, was down more than 23 percent. HealthSouth, which owns rehabilitation hospitals, was down more than 4 percent.
A boost for drug companies
In contrast, the election provided a clear bump for drug companies. A closely watched ballot initiative in California that would have capped drug prices for state-funded health programs was defeated.
Investors seemed to think that the scrutiny of drug prices that has prompted congressional hearings would pass. Pfizer's stock was up 8 percent in midday trading. The iShares Nasdaq Biotechnology Index was up more than 7 percent.
Investors saw the election as a respite from the pressure on drug prices, according to an initial investor survey by Umer Raffat at Evercore ISI. “Investors believe odds of a major drug pricing reform have gone way down,” Raffat wrote in a research note.
Trump has suggested that Medicare should be able to negotiate on drug prices, a policy the pharmaceutical industry opposes.
“On the long-term, it's a bit of an open-ended question,” Ronny Gal, an analyst at AB Bernstein, said in a video sent to investors. “We believe the U.S. continuing to pay 2.5 times what the world pays for the drug industry might seem a bit excessive to him.” But Gal noted that that a Republican Congress could help advance the drug industry's agenda.
Uncertainty for insurers
Major health insurers' stocks were mixed Wednesday, with some slightly up and some way down, likely reflecting the confusion about what the repeal of the Affordable Care Act would entail and how and when it would be enacted. Aetna was up 3 percent in midday trading, for example, while UnitedHealth Group was down 2 percent. Companies that have been performing relatively well on the exchanges and Medicaid plummeted. Centene's stock was down more than 17 percent, and Molina Healthcare's stock was down nearly 15 percent.
“I think what the industry is concerned about is a partial repeal that takes away customers and doesn't replace them with anyone,” Isgur said.
The trade group for insurers, America's Health Insurance Plans, released a statement supporting the notion that a competitive private market can provide choice, quality and lower costs in health care. The organization expressed a commitment to working with Trump “to find solutions that deliver affordable coverage and high-quality care for everyone.”
Michael Cannon, director of health policy studies at the Cato Institute, said that he will look to Trump to take specific actions soon if he genuinely plans to repeal the Affordable Care Act. That could help set the course going forward — and help the industry prepare for what's next.
“There’s considerable uncertainty about what President Trump actually plans to do,” Cannon said. “He's been all over the map on health care — from single-payer, to … repealing Obamacare and replacing it with something terrific, but something different from what Republicans on Capitol Hill have talked about.”