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Rush to Judgment

Sigma Investment Counselors

June 29, 2012

Healthcare represents 1/6thof the total economy. It is a complex behemoth that cannot be changed overnight. Regardless, the early market analysis of the Supreme Court ruling on the Patient Protection and Affordable Care Act creates winners and losers. Among the “winners” are the hospital companies, Medicare providers and diagnostic testing service providers. The “losers” include insurer’s/managed care providers, medical device companies and pharmaceutical companies. The rush to judgment by the market presumes that companies have not materially changed behavior since the passage of the healthcare bill and that all members of an industry act the same.

In fact, well managed companies have not stood still while the issues moved through the court system. Companies with adept management teams have studied the new laws and worked to be successful whatever the environment. Given the size of our healthcare industry and its reach to every American, the only rush to judgment one can really make is that it will be a long time before the dust settles. When that happens, I suspect that the list of winners and the list of losers will look far different than what we see today. A rising tide will not lift all boats. There will be good hospital companies and bad hospital companies, good managed care providers and bad managed care providers.

Evidence of this is in an e-mail I received from University Hospitals, a very large hospital system in Cleveland where I serve in a volunteer capacity on a Foundation board:

The ACA (American Healthcare Act) and this ruling underscore the fact that our nation’s health care system is in an unprecedented era of transformation. This transformation began before the ACA, and it will continue for years to come.

Our entire health system has prepared for the future by committing to innovative, high-value, patient-centered care and diligently managing costs. We are well positioned for sustainable growth and will continue to provide unsurpassed service to our patients, their families and our community.

This theme has been taking place across the healthcare industry. Companies where managements have been good stewards of the assets and have invested in products and services that improve life and or reduce costs in the system will be the winners in both the short and longer term.

Denise M. Farkas, CFA

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