At least for the hospital sector, investors should expect 2011 to look much like 2010 – with soft patient volumes, flat reimbursement rates and lots of mergers and acquisitions.
The was the message today from a group of health care industry analysts speaking at the Nashville Health Care Council’s annual elbow-rubbing Wall Street panel event. The discussion, moderated by Community Health Systems CEO Wayne Smith, focused mostly on the hospital and health care services space that dominates Middle Tennessee’s health care scene.
In short, the three analysts on the panel who cover hospital stocks – Adam Feinstein from Barclays, Kemp Dolliver from Avondale Partners and Frank Morgan from RBC Capital – said many of the dynamics of 2010 will persist this year, giving them a positive outlook for the sector.
“As we go into this year, we’re very bullish on the health care facility space, especially the hospitals,” Feinstein said. He reasoned that M&A will continue to be a big theme, with many of the deals in the market looking “very accretive,” that hospitals will have better visibility on Medicare and limited exposure to Medicaid payment reductions, and that they’ll have some modest “bounce back” in volumes.
Dolliver said he’s expecting a “quite robust” M&A environment with good opportunities for Nashville’s companies and volumes that are basically flat. Morgan said he doubts the economy will move enough in the near term to meaningfully affect volumes.
Volumes should pick up in a few years, however, when the Patient Protection and Affordable Care Act’s provisions to extend coverage to more Americans begin to take hold. The panelists today were dismissive of the idea that the law will be repealed, as Republicans in the House of Representatives have pledged, but were somewhat more cautious about the outcome of current court challenges to the law’s provision requiring everyone to purchase health insurance.
“It has to stay in,” Feinstein said of the individual mandate. “If you pull it out, it’s going to kill health care reform… There’s a lot of rhetoric, but I think it has to stay.”
When it came time to give stock picks for the year, only one panelist named a local company – Dolliver listed LifePoint Hospitals (Ticker: LPNT) among his favorites.
“I think most of my competitors have underestimated what they can do this year, particularly with acquiring Sumner Regional Medical Center,” Dolliver said.
Others picks from the panel included Fresenius Medical Care, HealthSouth, Express Scripts and LabCorp, among others.