The Supreme Court issued a ruling this morning largely upholding the Obama administration’s landmark healthcare-reform bill the Affordable Care Act.
The individual mandate will be upheld as a tax under Congress’s power in the Taxing Clause instead of a penalty in other clauses, while the expansion of Medicaid was ruled constitutional, even though the court ruled states cannot be stripped of funds for not complying.
As LCD reported earlier this month, restructuring firms and credit investors have been taking a close look at how the system as a whole and the credits within that system could be affected, as the bill impact every healthcare provider, regardless of industry.
Shares of for-profit hospital chains like Tenet Healthcare and HCA rose following the decision, with Tenet up 8% by 11:45 a.m. EDT, to $5.36. Private equity-backed HCA’s stock was up 9%, to $29.06. Another hospital operator Community Health Systems saw it’s equity jump 10%, to $28.08, over the same time period. Those hospitals would have been hard hit by the cost of caring for uninsured patients if a mandate to buy coverage under health reform was not upheld.
As for the debt, the 6.25% notes due 2018 backing Tenet traded up a quarter of a point following the ruling, to 105.5, according to trade data. Community Health 8% notes due 2019 changed hands half a point higher, at 106, the trade data show.
In the secondary loan market, loans backing Community Health and HCA, market bellwethers for healthcare debt, were stable following the ruling. For example, Community Health’s non-extended term loan due 2014 (L+225) was unchanged, pegged at 98.5/98.75, while HCA’s term loan B-3 due 2018 (L+325) was unchanged from earlier in the week, quoted at 96.625/97.125, sources said.
Importantly, the 2.3% medical-device excise tax included in ACA also survived the ruling. Since debt backing medical-device companies had already accounted for the change, there was little movement in those names, according to sources. The tax is levied on the total revenue of a company and is set to start Jan. 1, 2013.
And the bidding process for Medicare reimbursements will proceed as previously planned. The reimbursement will go forward as implemented by the Centers for Medicare and Medicaid Services whereby suppliers compete to become Medicare contractors for certain items in specific areas by submitting bids. The first round started in Jan. 1, 2011 in nine different areas around the country. So the next round will include 91 more areas as mandated by the ACA.
Given that the companies impacted were already expecting the decreases in reimbursements regardless of the decision, debt of most medical-device or product manufacturers and long-term healthcare providers has remained stable, including Rotech Healthcare, Apria Healthcare Group, Diagnostic Imaging Group,Group Health Cooperative, Hologic, Medtronic, Oncure Medical, and Vertellus Specialties.
While this decision wasn’t what the whole market expected, the prevailing views reflected the impact of the bill being upheld, according to a source, now it just becomes a waiting game with the election. – LCD Staff reports