Hospital stocks endure Wall Street smack down

The growing likelihood that health reform will not be realized has hurt publicly traded hospitals, reports the Wall Street Journal. While many insurers have seen their stock prices jump since a Republican won the Massachusetts Senate seat vacated by the death of Democrat Ted Kennedy, hospital stocks are up to 20 percent lower than their January highs.

It turns out that, just like the hospitals themselves, investors are concerned that without the influx of insured patients promised by health reform, uncompensated care will threaten to tank many facilities. At hospital chains such as Health Management Associates (HMA) Inc. in Naples, Fla., and Community Health Systems (CHS) Inc. in Brentwood, Tenn., uncompensated care totals 20 percent or more of revenues, says John Ransom, an analyst at Raymond James. Also, investors worry that federal and state budget cuts could reduce the stability of Medicare and Medicaid funding--a problem when these programs bring in 40 to 45 percent of hospital revenues, says Ransom.

Another strike against hospital stocks: Credit rating agencies are warning that hospitals and other companies with heavy debt loads may have trouble repaying bond and bank loans that will come due from 2010 to 2014, according to Forbes. Companies with low credit ratings could face bankruptcy or other restructuring, says Diane Vazza, head of fixed-income research at Standard & Poor's. Net debt for CHS totals $8.5 billion (almost three times market capitalization), while HMA carries $2.8 billion in net debt (1.7 times market capitalization). 

With cost-cutting strategies stretched to the limit at most hospitals and significant revenue risks, hospital stocks could continue to spiral downward this year as investors eschew potential bargains in a volatile sector. 

To learn more:
- read the Wall Street Journal article
- here's the Forbes article