A ruling by a federal judge in Texas that the Patient Protection and Affordable Care Act – the main part of the “Obamacare law” — is invalid rocked health care industry investors Monday.
Hospitals and managed care stocks sank, and high-bond yield spreads widened.
A group of states led by Texas has alleged in a lawsuit that Congress’s decision in 2017 to set the Affordable Care Act individual mandate penalty at zero voided PPACA. PPACA is one of the two laws in the ACA statutory package. The other is the Health Care and Education Reconciliation Act.
The federal judge sided with the states that brought Friday.
While many analysts expect the ruling to be reversed by higher courts, the news adds to volatility in a sector that had barely recovered from political overhangs this year. Health care overall remains the top performing sector in the S&P 500 year-to-date.
U.S. hospitals, which are most at risk from the latest ruling, fell 5.7%, to the lowest level since Jan. 10, according to a Bloomberg Intelligence index. Community Health Systems lost almost 14%, while Tenet Healthcare fell 6.8% and HCA Healthcare slid 2.9%. Tenet was also downgraded by Baird after the ruling.
The index had been up 26% this year through Dec. 3. Monday’s sell-off wiped out gains for 2018.
The ACA ruling is “a buying opportunity” for HCA as well as large diversified managed-care companies and WellCare Health Plans, Leerink analyst Ana Gupte wrote in a note. “We see the decision of Judge Reed O’Connor as likely to be overturned by the Fifth Circuit Court of Appeals in 2019, and most likely by the Supreme Court in 2020.”