Hospitals delighted by high court's ruling; other health care sectors mixed

Lauren Dougherty, left, and Ben Lawver, second from left, join others in celebrating the U.S. Supreme Court decision upholding President Barack Obama's health care overhaul, Thursday, June 28, 2012, in Tacoma, Wash. (AP Photo/Ted S. Warren)
Lauren Dougherty, left, and Ben Lawver, second from left, join others in celebrating the U.S. Supreme Court decision upholding President Barack Obama's health care overhaul, Thursday, June 28, 2012, in Tacoma, Wash. (AP Photo/Ted S. Warren)
Posted: June 30, 2012

Hospital executives were delighted Thursday by the U.S. Supreme Court's decision — called an "unexpected twist" by one — to uphold the nation's embattled health reform law.

"This is good for hospitals because 32 million people will now have some kind of coverage, which they didn't have previously. We had bad debts from this group because they didn't have funds to pay," said Alan B. Miller, chairman and chief executive of King of Prussia hospital operator Universal Health Services Inc.

Investors agreed with Miller's assessment, bidding up hospital stocks by an average of 7 percent.

For other key segments of the health-care industry, stock market reaction was mixed. Pharmaceuticals were flat. Insurers that specialize in operating state Medicaid plans were up sharply. Other health insurers, including Aetna Inc. and Cigna Corp., both with a significant presence in the Philadelphia region, were down.

The highly anticipated ruling did not entirely end the suspense over the course of government efforts to expand health coverage to millions of uninsured Americans, an insurance executive said.

"Regardless of the way the ruling went today, we didn't regard today as being the end event," said Matt Manders, Cigna's U.S. president. "The elections become a next triggering point for potential change."

Further, the court's decision that the federal government may not force states to expand Medicaid, the program for the poor, by threatening to cut off federal money for existing Medicaid programs opens yet another window of uncertainty, especially in states like Pennsylvania whose governors have vehemently opposed the law.

As it was, some hospital executives have worried about the financial impact of expanding Medicaid.

"The Medicaid expansion to those over the poverty level concerned me because of the possibility that those now on employer-provided health insurance might wind up on Medicaid," said David F. Simon, executive vice president and chief legal officer at Jefferson Health System, which includes Main Line Health and is the largest in the Philadelphia region.

"If Pennsylvania does not expand Medicaid to those over the poverty level, I assume they will be eligible for subsidized coverage through the insurance exchange," Simon said. "This may be a better path for coverage than Medicaid with all of its problems, such as limited provider networks and payment levels well below costs that cause many doctors not to accept Medicaid patients." He described the decision as "a very unexpected twist."

But Joel Ario, who was Pennsylvania health commissioner during the Rendell administration and now is working as a health policy consultant for Manatt Health Solutions, doubted that many states would opt out of the Medicaid expansion. State governments will be pressured by medical providers who don't want uninsured people showing up in emergency rooms and by employers who don't want to pay higher premium costs to support people without insurance, he argued.

Another uncertainty highlighted by insurance executives is how effective the individual mandate will be in drawing younger or healthier people into the insurance pool. Independence Blue Cross chief executive Daniel J. Hilferty said many may opt out because the initial $95 annual penalty is so small. If insurers can't charge older, sicker clients more than three times what they charge their youngest, healthiest clients, premium costs will go up even more for younger, healthier individuals, making it even more likely they'll skip insurance, Hilferty said.

Anticipating the expansion of Medicaid, Independence Blue Cross placed a big bet on providing managed coverage to the poor through its subsidiary, Amerihealth Mercy, buying out Mercy Health System's 50 percent stake in the company last August in partnership with Blue Cross Blue Shield of Michigan.

The possibility of states' opting out of the law's expansion of Medicaid did not cause Hilferty, who once headed Amerihealth Mercy, to second-guess that bet.

"From a business perspective, it is still a very, very sound business direction for us," he said, citing an anticipated 12 million to 14 million new Medicaid enrollees.

He said it's too early to tell which of the 15 states Amerihealth serves will expand their Medicaid operations. "My guess is that it will be determined as much by their own budgetary issues and concerns" as by health care policy, he said.

The ruling was good news for the pharmaceutical industry, which had backed the measure, hoping to sell more pills. "Pharma has been holding its breath and now it can exhale," University of Michigan business professor Erik Gordon said. "But down the road, I don't think they will be as happy as they think they will be. In 2014, when this fully takes effect, they will be selling a lot more pills, but making even less money."

Among health care trade groups, one for nursing-home operators sounded a rare negative note.

"It's an unfortunate irony that the law designed to provide health care to millions of uninsured Americans actually puts at risk some of our most vulnerable seniors," said Stuart Shapiro, president and CEO of the Pennsylvania Health Care Association.

"Among the ways government is financing this plan is by making deep cuts in Medicare," including $1 billion over 10 years from Pennsylvania nursing homes, he said.

The response of Ralph Muller, chief executive of the University of Pennsylvania Health System, was more typical of health care providers. He said the decision was a "pleasant surprise." If the whole law had been thrown out, he said, "it would have been pure chaos out there."

Contact Harold Brubaker at 215-854-4651 or hbrubaker@phillynews.com.

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