Healthcare: Money to Be Made in Acute Care, JP Morgan Says

The pundits are pouring over the passage of the healthcare reform bill today. Most health insurers are up, with Aetna (AET) rising 40 cents, or 1.4%, $34.86, but WellPoint (WLP) down 13 cents, or 0.2%, at $65.20.

JP Morgan analysts John Rex, Scott Hansen, and Kris Weber this morning write that managed care outfits and acute care hospitals are the primary gainers long-term, even though much of the bill wouldn’t become effective till 2014, and even though two upcoming elections between now and then could alter what is actually implemented.

As you’ll no doubt hear many saying today, the passage of the health reform bill was baked into the stocks, with the “clarity trade” pushing up managed care 8% last week.

Amerigroup (AGP), Centene (CNC), and Molina Health (MOH) are among “pure play” Medicaid companies, those that just get paid to managed Medicaid benefits, that will benefit on the bottom line from the expansion of Medicaid coverage by 15 million Americans, the analysts write.

(As I wrote earlier today, Amerigroup was upgraded by Collins Stewart to “Buy.”)

A similar benefit will go to acute care facilities such as Community Health Systems (CYH), Health Management Associates (HMA), LifePoint Hospitals (LPNT), Tenet Healthcare (THC), and Universal Health Services (UHS).

The acute care stocks are up sharply today, with Community Health, for example, up $1.74, or 5%, at $39.90.

Acute care stocks, the authors note, were up an average of 6% last week, outperforming other stocks.

The big insurers — Aetna, for example — will fair better than those companies exposed to small and medium businesses and individuals, write the analysts, given that mandatory coverage come 2014 is “not being coupled with an effective purchase mandate,” which means that the young and healthy will wait until they’re “on the way to the hospital to purchase insurance,” they write.

That means bad news for WellPoint, which has a larger share of individual coverage and small business/group coverage.

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