The Policy in Focus series highlights a new policy driven investment theme (legislation or regulation) our team is monitoring. You can subscribe to the Weekly Market Recap to receive this report each week and visit www.EventSharesFunds.com for our investment solutions.
Background: Affordable Care Act & Value Based Reimbursement
A Texas judge recently ruled the Affordable Care Act (ACA) is unconstitutional. This introduced uncertainty into health insurance and will likely lead to a multi-year appeals process. The judge elected to keep the insurance exchanges and law in place while the issue is appealed. The Trump administration and Republican governors are beginning to look at expending Medicaid/ Medicare, which may increase the insured populations in those government health insurance programs. Health tech firms focused on increasing efficiency by improving patient outcomes and lowering costs may increase revenue as the healthcare sector moves to a value based reimbursement system.
Our Take & Timing: The Opportunity
The ACA continues to be a significant policy priority. Since its passage in 2010, the ACA has been the subject of both legislative and regulatory changes. In our view, the volatility presents trading opportunities. As a result, we believe investors may being overreacting to the recent Texas court ruling. In the hospital industry, the big story is the move from fee for service to value based reimbursement. This will likely pressure hospital margins in the short-term, with the question being how long the transition will take. To transition to value based reimbursement, hospitals will need to track their patient populations and a wide variety of quality measures (e.g. 30 day readmissions, patient outcomes). This will require increased investment in healthcare technology to efficiently monitor quality.
LEARN MORE: This research is a byproduct of our active ETF.
Charts: Trading Range & Relative Performance
Impacted Companies: Stocks to Watch
- Hospitals: HCA Healthcare (HCA), Universal Health (UHS), Encompass Health (EHC)
- Health Insurers: Molina Healthcare (MOH), Centene (CNC), WellCare Health (WCG), Humana (HUM)
- Healthcare Tech: Cerner (CERN), Teladoc Health (TDOC), ASGN (ASGN), Allscripts Healthcare (MDRX), Omnicell (OMCL), Vocera (VCRA), Evolent Health (EVH), Tabula Rasa (TRHC)
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EventShares is an investment management firm dedicated to translating legislation and regulation coming out of Washington D.C. into real world investment solutions. The firm's goal is to provide its clients with attractive, long-term results by following a disciplined and differentiated approach to investing.
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