Analyst: Hospitals Face Trading Risk In Obamacare Case

Hospital investors faced with uncertainty over pending Supreme Court arguments regarding Obamacare should rest comfortably, an analyst said Friday.Coming before the court in March is whether subsidies for the 5 million people receiving health insurance through federal exchanges are legal. Plaintiffs will argue that Congress intended that the subsidies only be available through state-sponsored insurance exchanges.But Sterne Agee's Brian Wright said rather than threatening fundamental financial results for hospitals, the issue for investors is a shorter-term "trading risk." If the Court's ruling, expected in June, favors plaintiffs, "it would be in the the best interest of the Republican party toquickly enact fixes," Wright said, in preference to the untidy political prospect of "premium shock" to over 5 million people.The exchanges operate in about a third of the states.Whether a trading risk or fundamental, Wright acknowledged a downside risk of 20 percent to at least some of the hospital companies he covers.On the other hand, Wright said the potential upside from a favorable Court ruling is more than three times, on average, than that on the down side.Based on the companies' dependence on patients who are insured through federal health insurance exchanges and other factors, Wright sees zero downside risk to Community Health Systems (NYSE: CYH).Tenet Healthcare Corp. (NYSE: THC) and Universal Health Services, Inc. (NYSE: UHS) each face a roughly 20 percent downside risk.LifePoint Hospitals Inc. (NASDAQ:LPNT and HCA Holdings Inc.(NYSE: HCA) could see downside of around 14 percent.But in the event of a favorable court ruling, Burns sees a potential upside of more than 100 percent for Community Health and 75 percent for Tenant.Upside potential for other companies range from 23 percent for Universal to 52 percent for HCA.