People across the healthcare spectrum are waiting with baited breath to hear the U.S. Supreme Court’s verdict on President Barack Obama’s landmark healthcare reform law.
Healthcare analysts at Minneapolis investment bank Piper Jaffray in Minneapolis did a little exercise in evaluating how the universe of the public companies they cover — from medical devices to diagnostics and pharma to health IT — will be affected depending on the high court’s decision.
In a June 15 research note, the team of 11 healthcare analysts detailed three possible scenarios but agree that the Supreme Court will most likely strike down the individual mandate leaving the rest of the law intact.
If the individual mandate is struck, but other parts of the Affordable Care Act are kept intact, we believe this could be a worst-case scenario for the health care sector as the medical device and pharmaceutical excise taxes would still be effective in 2013, as well as the rate cuts from the clinical lab fee schedule and home health that were used to help fundthe legislation. While this could potentially be the worst outcome for the sector, we believe this scenario is generally considered the Street consensus (emphasis added).
So how will such a verdict affect the players?
Analysts Thom Gunderson and Brooks West believe that large medical device companies won’t really be affected if only the individual mandate faltered and the rest of the law remained intact. That’s because current valuations of those companies already reflect the hit that medical device companies are going to take when the 2.3 percent excise tax goes into effect.
However, medical technology companies that have exposure to a younger population — those younger than 50 that would enter the healthcare system if the mandate were upheld — would be slightly hurt, said analyst Matt Miksic. Some of these companies are NuVasive, which makes minimally disruptive spinal surgery products, ArthroCare, a sports medicine company, and Wright Medical Group Inc., an orthopedics medical device company.
Pharma analyst David Amsellem believes that a blow to the individual mandate necessarily means a blow to pharma.
“… in broad strokes webelieve that loss of an incremental 30 million covered lives cannot possibly be seen anyother way than a negative for pharma,” Amsellem declared.
Valuations of biotech companies would largely remain unaffected if the high court upholds the law while striking down the individual mandate, said analysts Ian Somaiya and Edward Tenthoff.
While people are playing guessing games about the court’s verdict, some firms have decided that irrespective of what the nine justices rule, certain popular elements of the Patient Protection and Affordable Care Act will survive.
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