Yesterday afternoon, Pennsylvania announced that it would use federal dollars to pay private insurers to cover eligible Pennsylvanians. UBS analysts A.J. Rice and Jailendra Singh think Community Health Systems (CYH), Tenet Healthcare (THC) and LifePoint Hospitals (LPNT) stand to benefit the most from the deal:
AP Pennsylvania Gov. Tom Corbett Community Health Systems would be the biggest winner with 11% of its beds in PA (12% of revenues). Community Health Systems currently has roughly 23% of its beds in Medicaid expanding states (would go to 34%
with PA coming in), and the company is guiding for $100-$160 mln of ACA related benefit in 2014. Tenet Healthcare also has roughly 4% of its beds in the state. Tenet Healthcare has roughly 34% of its beds in Medicaid expansion states and expects $75-$125 mln of health reform EBITDA benefit in 2014. Finally, LifePoint Hospitals, which has not historically been in PA, is expected to close its pending acquisition of Conemaugh Health System in early September. The health system includes three hospitals (total 474 beds) generating roughly $500 mln in annual revenue (or roughly 10% of our estimated 2015 revenues).
Rice and Singh also expect Indiana to make a similar move:
Similar to models pursued by Pennsylvania and Arkansas, Republican Governor Mike Pence is pursuing Medicaid expansion through his version of the state-run Healthy Indiana Plan (“Healthy Indiana Plan 2.0″). In early August, CMS returned the Pence administration to include input from a tribe in the state and resubmit its proposal. Our understanding is that the state is coordinating with CMS and remains on track to launch its Medicaid expansion alternative plan effective January 1, 2015. Community Health Systems is most exposed to the state (10% of its revenues) among the five public hospital companies.
Shares of Community Health Systems have gained 3.4% to $55.27 at 12:02 p.m., while LifePoint Hospitals has risen 2.9% to $61.73 and Tenet Healthcare has advanced 1.9% to $75.58.
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