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June 28, 2012, 5:04 p.m. EDT

How hospital, insurer stocks fared after ruling

Supreme Court upholds constitutionality of Affordable Care Act

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By Russ Britt and Polya Lesova, MarketWatch

LOS ANGELES (MarketWatch) — The sweeping health-care law upheld Thursday by the Supreme Court proved to be a boon to hospital stocks and some Medicaid insurers, but commercial insurers faced selling pressure.

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Court's ruling and November

The Supreme Court's health-care ruling will instantly reverberate across the presidential campaign. (Photo: AP.)

The decision came as a surprise, as conventional wisdom said the court would strike down the purchase requirement known as the individual mandate. It apparently surprised investors in large, commercial insurers as well, though the selloff tempered as the day wore on.Read a summary of the Supreme Court’s decision.

Shares of WellPoint Inc.  dropped more than 7% at one point and were down 5% at the close. Aetna Inc.  fell nearly 3%, as did Cigna Corp. /zigman2/quotes/208431372/composite CI +0.75%   HealthNet Inc.  shed 2%.

“We expect selling pressure on managed care given our belief that investors would have seen an overturn of reform as a better outcome for the sector,” Goldman Sachs analyst Matthew Borsch wrote in a note to clients.

“However, we think any selling pressure will be modest since this ruling is the outcome most investors had anticipated prior to the oral arguments in late March,” Borsch went on to say. “Moreover, this ruling implies less uncertainty than any other outcome, in our view, and avoids the ‘mandate only’ outcome we believe many investors saw as ‘worst case.’ ”

The court also ruled that the federal government cannot withhold funds from states that don’t comply with the law’s goal of expanding Medicaid coverage. States will be allowed to expand coverage but it won’t be required, under the ruling. Read our full story on the court ruling.

That helped shares of Medicaid-focused insurance companies post strong gains, with Wellcare Health Plans Inc. /zigman2/quotes/207459018/composite WCG +1.35%  trading up nearly 9%, Molina Healthcare Inc. /zigman2/quotes/205492029/composite MOH -1.53%  making similar gains. Amerigroup Corp.  adding nearly 5%.

/conga/story/2012/06/scotus.html 214265

Hospital shares soared with some making double-digit gains. Industry leader HCA Holdings Inc. /zigman2/quotes/205934574/composite HCA +0.80%  rallied nearly 11%, while Community Health Systems Inc. /zigman2/quotes/203657360/composite CYH -5.80%  gained by 8%. Health Management Associates Inc.  jumped nearly 9% and Tenet Healthcare Corp. /zigman2/quotes/207964487/composite THC +0.85%  rose more than 5% .

“We see the promise of more than 30 million new patients gaining insurance in [2014] remaining intact, boosting hospital earnings through reduction of uncompensated care expense, which we estimate has been more than 20% over the past few years,” S&P Capital analyst Steven Silver said in a note to clients.

Medical device makers were largely down on the news, but their losses weren’t as great as those sustained by the big insurers. Had the court struck down the entire law, it would have wiped out an impending tax on the device makers. The chances of that happening, however, were considered remote.

The biggest percentage loser was Boston Scientific Corp. /zigman2/quotes/203726728/composite BSX -0.24% , shares of which sold off to the tune of 1.6%, but that represented only a loss of 9 cents. Industry leader Medtronic Inc. /zigman2/quotes/206816578/composite MDT +0.12%  was off marginally at the close.

Drug stocks, meanwhile, appeared to follow the broader market downward. The NYSE Arca Pharmaceutical Index /zigman2/quotes/210598443/delayed DRG -0.20%  inched up to 341. The NYSE Arca Biotechnology Index /zigman2/quotes/210598458/delayed BTK -0.54%  dipped 2.8% to 1,433.

Of the major pharmaceutical makers, U.K. giant GlaxoSmithKline PLC /zigman2/quotes/209463850/composite GSK +1.52%   lost 1.2%, but Pfizer Inc. /zigman2/quotes/202877789/composite PFE -0.63%  was off marginally

Weighted heavily by the large insurers that fell Thursday, the health-care sector posted losses, tracking the broader market lower. The Health Care Select Sector SPDR Fund /zigman2/quotes/205918244/composite XLV +0.24%  fell less than half a percent, as did the iShares Dow Jones Healthcare Sector Index Fund /zigman2/quotes/210086508/composite IYH +0.15%   and the Vanguard Health Care ETF /zigman2/quotes/207621102/composite VHT +0.08% .

Health-care stocks in the S&P 500 index /zigman2/quotes/210599714/realtime SPX +0.42%  have gained around 6.6% so far this year.

Earlier, trading in some health-care stocks had been briefly halted as news of the court’s ruling broke. They included Tenet, Community Health Systems, WellPoint and Health Management Associates.

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Russ Britt is the Los Angeles bureau chief for MarketWatch. Polya Lesova is MarketWatch's New York deputy bureau chief.

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