Signage is displayed outside of Tenet Healthcare's Atlanta Medical Center in Atlanta, Georgia, U.S., on Friday, Dec. 10, 2010. Hospital stocks breathed a sigh of relief with the Supreme Court’s ruling in favour of Obamacare.Erik S. Lesser/Bloomberg
Investors in U.S. hospital stocks rejoiced Thursday after the U.S. Supreme Court upheld a key portion of President Barack Obama's health-care overhaul and eliminated the prospect of a sudden influx of uninsured patients seeking care.
Shares of big hospital operators such as HCA Holdings Inc. and Tenet Healthcare Corp. surged after the court announced a decision that maintained in several states tax credits that play a key role in helping millions of Americans pay for health insurance.
Health-insurance stocks also climbed, to a lesser degree, after the ruling gave some clarity to a small but growing part of their business. Investors were worried that many patients would drop their insurance if they no longer had the subsidies to help them pay for the coverage.
That possibility was made even more daunting because the government had rolled back some extra financial support it used to give to hospitals that treated a high number of uninsured patients before the U.S. Affordable Care Act became law.
Hospitals may collect as little as 10 U.S. cents for every dollar of care delivered to an uninsured patient, said Paul Keckley, managing director of the Navigant Center for Healthcare Research and Policy Analysis. "It can be substantially lower than that," he said. "You may collect $100 for the emergency room and bill for $2,000 and never see it."
About 6.4 million people were at risk of losing their subsidy aid.
Opponents of the overhaul had argued that patients living in U.S. states that did not set up their own health-insurance exchanges were ineligible for the federal tax credits because the 2010 law stated that exchanges should be established by the state. But the justices said in a 6-3 ruling that the subsidies do not depend on where a person lives.
This was the second challenge to the law decided by the Supreme Court, which also upheld the law in a 2012 ruling.
The 6-3 vote this time around means the court may be much less likely to grant a hearing on a third challenge, Leerink analyst Ana Gupte said in a research note.
Mr. Keckley said he thinks lawmakers will focus now on amendments and technical changes to improve the law. "Honestly, I think it's run its course through the courts," he said.
Shares of Tenet jumped 12.2 per cent, or $6.13, to $56.21 Thursday. HCA climbed 8.8 per cent, or $7.35, to $90.72.
Insurance, hospital and other health-care stocks have bounced up and down over the years as the overhaul was debated, passed and enacted.
Health-insurance stocks have been particularly hot the past couple weeks but due to the prospect of multibillion dollar acquisitions. Last weekend, Anthem Inc. went public with an offer worth more than $47-billion for smaller rival Cigna Corp., which Cigna has since rejected.
On Thursday afternoon, shares of Humana Inc. spiked after Bloomberg News reported, citing sources it did not identify, that Aetna was close to making a bid for the Medicare Advantage coverage provider.
Goldman Sachs analyst Matthew Borsch said in a research note that the Supreme Court decision removes some uncertainty hanging over the sector and may pave the way for mergers and acquisitions.