President Barack Obama yesterday (Tuesday) signed the $940 billion health care reform bill with support from pharmaceutical companies and the hospital industry. Both will benefit from a sharp increase in the number of insured customers, as the bill expands healthcare to up to 32 million more people.
While the bill will cost tens of billions of dollars over the next 10 years, the planned reforms create something drug companies and hospitals can't live without: paying consumers.
And the favorable implications are more than just a customer increase:
- Hospitals: Over the next 10 years, hospitals will contribute $155 billion to paying for the legislation by taking smaller payments from government-funded programs. But they will gain a much larger customer base seeking medical care - one that is insured and will not cost hospitals billions in bad debt - that offsets those fees. Hospitals will suffer less financially by no longer treating patients who can't pay for the care they receive.
- Brand name drug companies: Healthcare reform fees and lower drug prices for Medicare patients will cost drug companies $85 billion in the next 10 years. However, those companies will gain tens of millions of customers. They also stand to profit from already-insured patients who have more affordable healthcare and are less likely to skip prescription refills or medicine doses to cut costs. A special perk also exists for companies that manufacture pricey biologic drugs - drugs made from living cells. They now have 12 years of market exclusivity, preventing generic names from tapping into their market share.
- Generic drug makers: The healthcare reform bill's final version dropped a provision banning brand-name makers from compensating generic producers for delaying the introduction of competing drugs. Although some - including the Federal Trade Commission - see this allowance as anti-competitive, it allows generics to make money from Big Pharma fearing profit loss.
With a clearer picture of the future, these companies can start to strategize for long-term profitability.
In the short-term, health care companies saw initial market gains. Before Obama's inked signature could dry, making the bill a law, stocks rallied as the veil of uncertainty over healthcare stocks lifted.
Hospital stocks, like Tenet Healthcare Corp. (NYSE: THC) and Health Management Associates (NYSE: HMA), saw huge gains Monday in anticipation of the law passing, rising 9% and 11%, respectively. Tenet edged up another 0.48% yesterday to close at $6.30 a share, while Health Management remained flat at $9.05 a share.
Pharma stocks rose more modestly, with world leader Pfizer Inc. (NYSE: PFE) up 3.37% this week and Bristol Meyers Squibb Co. (NYSE: BMY) up an even 3%.
The Standard & Poor's 500 Pharmaceuticals Index, which tracks 11 drug makers, rose 0.8% Monday and 0.93% Tuesday.
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