Underlying the healthcare debate over the past few years has been the state of the hospitals and the uninsured. Public hospital companies have faced significant pressure from investors as the levels of bad debt have increased, the number of uninsured has grown and the profitable medical procedures have moved from the hospital setting to ambulatory and specialty surgery centers like NovaMed (Nasdaq:NOVA) and Amsurg (NYSE:AMSG).

IN PICTURES: 9 Simple Investing Ratios You Need To Know

The History
The largest hospital company, HCA, went private several years ago, in part to get away from the equity capital swings and constraints. Other hospitals, such as Community Health (NYSE:CYH) and Tenet Health (NYSE:THC), have watched their stock prices hit bottom and begin the slow climb up, while specialty and ambulatory surgery centers, like Amsurg, have been pretty consistent during the downturn. Companies like AMSG, however, are not immune to reimbursement risk, especially when Medicare announces changes as seen with AMSG's price drop from $17 to $13.60 in mid-February of 2009. Conversely, THC saw its stock fall from $6.26 to $1.21 from September 2008 to November 2008 and it remained at these low levels for over five months. Despite these risks, the surgery centers tend to recover faster and are more consistent performers. (For more, see Investing In The Care Side Of Healthcare.)

The Future
Despite the stock pressures felt by the hospitals over the past three years, these companies have several positives. The healthcare reform act goes a long way to reduce the greatest pressure facing hospital companies - the uninsured. Providing insurance to the 32 million uninsured in the U.S. should alleviate the bad debt expense that has plagued hospitals. Additionally, the law placed a ban on the creation of new physician-owned hospitals and the expansion of existing ones. As such, the specialty and ambulatory surgery centers that have been competing for and winning the most profitable procedures have just become less competitive, bringing a lucrative revenue stream back to the hospitals.

These positives may be offset by the level of reimbursement that hospitals may experience for these newly insured patients, but industry experts tend to think that since the hospitals were taking a write-off on these patients anyway, any reimbursement is a positive. While the stocks have seen significant appreciation since the bill was passed and signed, with THC appreciating over 38% and CYH over 34%, from the passage in the House to the signing of the bill on March 23, 2010, the implementation of the bill still has not occurred, so the impact is still unknown and creates investment opportunity. (For more, see Investing In The Healthcare Sector.)

Bottom Line
As we come to the beginning of the employer-sponsored renewal coverage time period, the level of newly insured should begin to slowly increase and the impact of the bill's changes should begin to be seen in the hospital setting. While these changes are projected to take effect extremely slowly, the hospitals should experience the positive impact almost immediately, giving investors a glimpse into the potential positive profit when the bill takes effect in its entirety. (For more, see Healthcare Sector: Play Or Stay Away?)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    How Does Oscar Work and Make Money?

    Learn how startup Oscar is taking on the health insurance giants by offering customers free doctor's visits, generic drugs and 24-hour phone access to doctors.
  2. Stock Analysis

    5 Cheap Dividend Stocks for a Bear Market

    Here are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
  3. Investing

    How to Win More by Losing Less in Today’s Markets

    The further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
  4. Fundamental Analysis

    Use Options Data To Predict Stock Market Direction

    Options market trading data can provide important insights about the direction of stocks and the overall market. Here’s how to track it.
  5. Insurance

    Life vs. Health Insurance: Choosing What to Buy

    When you only buy the coverage you truly need, the debate over medical insurance vs. life insurance might just be one you can avoid.
  6. Stock Analysis

    2 Oil Stocks to Buy Right Now (PSX,TSO)

    Can these two oil stocks buck the trend?
  7. Investing News

    What Alcoa’s (AA) Breakup Means for Investors

    Alcoa plans to split into two companies. Is this a bullish catalyst for investors?
  8. Investing

    A Look at 6 Leading Female Value Investors

    In an industry still largely predominated by men, we look at 6 leading female value investors working today.
  9. Term

    What Is Financial Performance?

    Financial performance measures a firm’s ability to generate profits through the use of its assets.
  10. Stock Analysis

    Top 3 Stocks for the Coming Holiday Season

    If you want to buck the bear market trend by going long on consumer stocks, these three might be your best bets.
  1. Are Cafeteria plans exempt from Social Security?

    Typically, qualified benefits offered through cafeteria plans are exempt from Social Security taxes. However, certain types ... Read Full Answer >>
  2. Can your insurance company cancel your policy without notice?

    In most states, an insurance company must give a policyholder written notice of at least 30 days before canceling a policy. ... Read Full Answer >>
  3. How do I calculate insurance premium tax?

    In the United States, consumers do not pay any additional tax on health insurance premiums. However, your insurance premiums ... Read Full Answer >>
  4. Can your insurance company drug test you?

    Insurance companies have the right to require drug tests for health insurance and life insurance policies, but not all of ... Read Full Answer >>
  5. What is the difference between a peril and a hazard?

    The two related terms "peril" and "hazard" are often used in reference to the insurance industry. Essentially, a peril is ... Read Full Answer >>
  6. How do I use discounted cash flow (DCF) to value stock?

    Discounted cash flow (DCF) analysis can be a very helpful tool for analysts and investors in equity valuation. It provides ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!