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Judge's ruling raises uncertainty for health care execs

February 2, 2011

After a federal judge in Florida struck down the entire health reform law, investors shrugged. But the uncertainty for executives in health care companies increased.

Judge Richard Vinson was the second federal judge to say that the mandate in the Patient Protection and Affordable Care Act, which requires nearly all individuals to buy health insurance, exceeds Congress’ authority under the commerce clause of the U.S. Constitution. But Vinson far exceeded the December ruling of Judge Henry Hudson by declaring that the individual mandate cannot be separated from the rest of the law, meaning that the entire act must be struck down.

“The market's uncertainty about implementing the Affordability Act just went up exponentially with a second federal judge ruling against it. And, there is nothing like the whole thing being thrown out in a suit 26 states have brought,” wrote health insurance consultant Bob Laszewski on his blog on Monday.

Others, however, said that health care investors already had substantial doubts about the future of the health reform law—even before Vinson’s ruling came down Monday afternoon.

Shares of Indianapolis-based health insurer WellPoint Inc. and Indianapolis-based drugmaker Eli Lilly and Co. rose slightly on Tuesday, but in line with the broader markets. Publicly traded hospital chains—none of which have significant operations in the Indianapolis area—received a similar response from investors.

Barron’s magazine cited Citi analyst Gary Taylor in saying that hospital stocks would have already been trading at higher values if investors truly believed health reform would go ahead unchanged. That’s because the law would create federal subsidies to help 16 million extra Americans buy health insurance and another 16 million get health benefits through the federal-state Medicaid program.

That means 32 million more paying customers for hospitals, insurers and drug companies.

But with the Obama administration appealing all decisions against the law, health care companies and their investors will likely have to wait 18 months before the U.S. Supreme Court settles the legal questions about the law, noted Brian Betner, an attorney at Indianapolis-based health care law firm Hall Render Killian Heath & Lyman.

And even then, there are movements afoot in Congress to alter the law—including House Republicans' vote in January to outright repeal it.

All these clouds make life quite difficult for executives trying to find a winning business strategy.

“If you are a provider, do you now spend millions of dollars developing an Accountable Care Organization? Do you build that new building or make a big technology purchase?” Laszewski wrote. “If you run an insurance company, do you make a big strategic bet on exchanges or [are they] now marginal markets?”

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