Hospital investments: Mixed prognosis

Email to a Friend

A delay in noncritical or elective surgeries combined with possible reductions in Medicare and Medicaid reimbursements might have some hospital stocks on shaky ground.

The lagging economy has caused financial uncertainty and led patients to delay certain medical procedures, The Wall Street Journal reports.  

Unexpected reductions in federal health-care programs’ reimbursement rates due to the large federal budget deficit could hurt hospitals’ financial health, says Erick E. Ormsby of Alcosta Capital Management. That’s because the revenues of many hospitals includes Medicare and Medicaid reimbursements. Although health-care reform might improve the picture, its implementation is still years away and might change, Ormsby says.

Ormsby gives a thumbs down to Tenet Healthcare (NYSE: THC; Price: $4.36); Health Management Associates (NYSE: HMA; Price: $8.65); and Community Health Systems (NYSE: CYH; Price: $32.50), because of high levels of debt, lowered earnings expectations and declining stock prices, he says.

But George Stamas, who is an adjunct professor of finance and economics at Northwood University’s West Palm Beach, Fla., campus, says health-care reform ultimately should be a plus.

Long term, he likes Universal Health Services (NYSE: UHS; Price: $40.22), which operates 25 hospitals and 102 behavioral-health centers, because of its management; and Community Health Systems (NYSE: CYH; Price: $32.50), which operates 122 hospitals, because of its strong balance sheet.

S. Berg