Healthcare Reform Reality Check – Does It Even Matter?

The debate over healthcare reform has left Capital Hill and made its way to Wall Street. It’s also changed slightly, from a “should it and can it pass?” argument to a “who wins and loses?” discussion, in reference to which stocks and industries will be most affected, and how. Incredibly (though not surprisingly), Wall Street analysts and investors can’t come to an agreement about the effect on healthcare companies either… the inevitable result of a 2000 page bill.

One potential outcome that hasn’t been raised yet… the possibility that in the end, this reform will raise the red tape requirement, but end up being a wash when it comes to the fiscal aspects for all the players involved.

All this noise for nothing? Don’t dismiss the possibility.

Pharmaceuticals a split decision: Despite an expected $80 billion in fees the pharma industry will be forced to pony up thanks to the bill, the net benefit of another 30 million customers funneled into the healthcare system will more than offset the extra expense.

Better still, the bill did not mandate price controls, nor did it call for overseas competition. That’s great news for the likes of Pfizer (NYSE:PFE) and Merck (NYSE:MRK).

Even better than that, makers of ‘biologics’ (vaccines and DNA therapies) saw their exclusivity allowances extended to 12 years, meaning the competition within this specialized segment of the biotech world has been headed off at the pass. That’s great news for Amgen (NASDAQ:AMGN) and its peers.

All of those decisions are unfortunate, however, for generic pharmaceutical companies like Teva (NASDAQ:TEVA). Not only will Teva and its peers now have to wait 12 years to begin marketing a biologic (assuming they could or would take the challenge on), the bill itself doesn’t make a particularly strong push for lower-cost drug alternatives.

Hospitals mostly on top: Hospitals were deemed the bill’s biggest winners, as universal health coverage should eliminate the bulk of bad debt stemming from the treatment of uninsured (and non-paying) patients…. and it’s not chump change at stake.

Tenet Healthcare (NYSE:THC), for instance, has to eat about $1 million in bad debt every day. For a company that earned only $181 million last year, clearly reimbursements for all treatment – even on the low end of the payment scale – will be a welcome change.

Insurers on the bottom: The private insurance industry is going to be seeing an inflow of about 16 million to 23 million new paying customers within a few years; whether or not the insurers can turn them into a profit is up to them. See, the healthcare reform bill dictates how, where, and whom the insurers will cover.

The bill will also be cutting a big chunk of the payments ($200 billion, to be exact) currently going to Medicare Advantage plans. That may prove particularly tough for Humana (NYSE:HUM), which has built a big business out of serving as a Medicare plan provider.

Still, health insurers like Aetna (NYSE:AET) – with a more diversified produce base - see the benefit of more paying customers as bigger than the downside of tougher rules and more competition.

Bottom line: More customers are on the way for the healthcare industry, and that’s good. But, per-customer revenue and profits are likely to fall, and that’s bad. The healthcare industry, however, isn’t going to look stunningly different in four years – not as different as the media hype would lead one to believe anyway. It’s the same players as before, now just in a slightly different game. As always, some players will win, some will lose, and some will cheat. That’s nothing new for investors though.