Obamacare Part II: The Great Hospital Squeeze

Jul. 04, 2012 11:31 AM ETCYH, HCA, LPNT, THC, UHS14 Comments
Deja Vu profile picture
Deja Vu

Making Money Off of Obamacare

Part II

On the heels of the Supreme Court decision upholding Obamacare, hospital stocks shot higher. The conventional wisdom is that hospitals, which swallow a significant share of cost of the cost of caring for the uninsured today, will benefit from having a larger number of insured patients and a lesser number of uninsured patients. They are expected to benefit from reduced ER visits and increased compensation for ER visits.

My thesis is that, in the near future, hospitals and hospital chain holding companies are going to be subject to a tremendous financial squeeze that they are ill prepared for. I would suggest shorting HCA Holdings (HCA), Community Health Systems (CYH), Universal Health Services (UHS), Tenet Healthcare Corp (THC), and Lifepoint Hospitals (LPNT).

Doubtful Revenues from the ER and Uninsured

I explained in "Obamacare Part I - Will Insurance Companies Survive", the number of insured people is actually expected to drop significantly as people realize that they can now protect themselves from catastrophic medical bills by purchasing insurance when they need it. Hence I don't see a huge uptick in people with insurance coming to the ER. Indeed, as the people drop insurance, the number of people without insurance who show up at the ER, fail to give their identity and stroll off with free treatment will very likely increase significantly.

Currently, the average fully employed person has health insurance and is likely to use the Urgent Care or a regular provider much more than an ER. However, as fully employed people drop health coverage due to the reinforcing spiral (see part I), these people can and will utilize the ER since a) the ER has a limited ability to collect what's owed b) these people will be unwilling to pay the full market price for care

This article was written by

Deja Vu profile picture
Engineering degree from the Indian Institute of Technology Madras. MBA from the Booth School of Business at the University of Chicago.

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