Likely Healthcare Victors

 | Jul 12, 2012 | 9:30 AM EDT  | Comments
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In my Tuesday article, I briefly looked at a few changes the Massachusetts healthcare law has had on the state's hospitals. In the last six years since "Romneycare," hospitals have had to merge, partner and look for more patients. The Harvard teaching hospitals were the first to take the plunge, and they have branched out all over the state looking for new patients to pump through the system. They've combined purchasing and computer systems, are trying to achieve economies of scale and have engaged in frantic deal making.

Out of a population of about 6.5 million, approximately 98% of Massachusetts's residents have health insurance. About 43,000 have opted out for one reason or another and, of those, approximately 5,000 have avoided paying the fine imposed for not enrolling in a plan (mostly for religious reasons).

According to an analysis done by the Massachusetts Taxpayers Foundation, in the last six years the health insurance law has upped the state's budget by 1.4%. 75% of employers with three or more employees now offer health insurance to their employees.

The rate of premium increases has slowed from 15% to 20% per year, two years ago, to 2% to 3% in 2012. In the last year, the state has turned the focus on slowing the growth rate of health insurance premiums. (In order to get all the players to sign on to the reform plan, slashing premiums and saving money was not a focus initially. They all agreed that would come later.)

In 2009, Massachusetts had the highest health insurance premiums in the nation. Now the state now ranks ninth, even when taking into account that 15% of the hospital admissions in the state are to more expensive academic medical centers. (In the rest of the country, only 1% of hospital admissions are to an academic medical center.) Massachusetts has four medical schools, and each has an extensive collection of affiliate hospitals. For example, Tufts University has 21 affiliated hospitals.

Let's assume the Affordable Healthcare Act stands and use the example of Massachusetts. After "Romneycare" passed, the vast majority of the uninsured signed up within the first three years. That would mean about 20 million to 25 million people (out of 30 million to 35 million) would be actively looking for healthcare, insurance and doctors. That's about the number of folks who subscribe to Comcast (CMCSA) cable television.

In Massachusetts, in the early years of reform emergency room visits rose by about 10% as patients -- mostly those without a regular physician -- tested out their new benefits. But there is new research that indicates emergency room visits are declining, especially during the day, when patients can see their own doctor. Those 600,000 new patients have figured out the system and are going their own doctors instead of the emergency room for non-emergencies.

Given the sheer size of the potential new patient population, hospitals should greatly benefit from all those new customers. Public hospital chains such as Hospital Corp. of America (HCA) and Community Health Systems (CYH) should see increased revenue. In addition to increased patient volumes, I think the public chains will go on a mergers-and-acquisitions spree. Smaller chains will get gobbled up and larger outfits will acquire hospitals in order to achieve economies of scale. Managed care providers such as WellCare Health (WCG) should also be long-term winners.

The testing laboratories should benefit, too. Quest Diagnostics (DGX) and Laboratory Corp of America (LH) will have the wind at their backs for a few years as all those new patients get blood tests and disease screenings.

Finally, insurance companies should see increased revenue as new customers sign up. In Massachusetts, Blue Cross Blue Shield has begun to shift from a fee-for-service model to a global payment model. Under global payments, the insurance company pays a doctor group a budget to manage patient care. Of the 4,800 doctors on the plan, Blue Cross saw savings of 3.3% as doctors figured out ways to cut unnecessary spending while providing high patient satisfaction. Based on these results, I believe insurance companies will move to such a model, and that they will most likely pocket the savings.

While it's impossible to know what will happen in the next few months regarding the presidential election and healthcare reform, it's important to at least try to anticipate the coming changes. If the president is reelected, healthcare could be a long-term winner starting in November.

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