Top court’s PPACA ruling could shake hospitals, insurers

States at risk

Publicly traded hospitals are concentrated in states such as Florida and Texas that use U.S.-run exchanges at the center of the case. HCA, the biggest for-profit U.S. hospital chain, generated 46 percent of its revenue in those two states last year, according to company filings. Tenet has about a quarter of its hospital beds in Texas and 17 percent in Florida.

Hedge funds have cut their exposure to hospital companies ahead of the ruling, according to a report by Bloomberg Intelligence. During the fourth quarter, funds cut stakes in Community Health (NYSE:CYH) by 4.9 percentage points and in LifePoint Hospitals Inc. (Nasdaq:LPNT) by 3.6 percentage points.

"As we have said before, we are in favor of actions that improve access to care and provide more people quality health insurance," Ed Fishbough, an HCA spokesman, said by e-mail. Donn Walker, a spokesman for Tenet, declined to comment, and Community Health didn't respond to a request for comment.

Health insurers

Health insurers' stocks have performed better than the hospitals and some are near all-time highs. Cigna Corp. (NYSE:CI) has rallied 20 percent and Aetna Inc. (NYSE:AET) has gained 18 percent since the court took the case.

Gupte says insurers are less vulnerable than hospitals, in part because they're less reliant on customers who purchase the subsidized coverage. Humana Inc. (NYSE:HUM) will get about 2 percent of its 2015 earnings from customers on federal exchanges, and most other large insurers will get 1 percent or less.

The industry has still fought a ruling against the law. Clare Krusing, a spokeswoman for trade group America's Health Insurance Plans (AHIP), said loss of the subsidies would create instability. In a brief submitted to the court, the group said losing subsidies would create a "death spiral" where insurers raise premiums and all but the sickest stop buying coverage.

See also: King vs. Burwell: 5 PPACA patch ideas.

A group of Republican senators has proposed providing subsidies for a transitional period, which could limit the initial impact on hospitals, according to Brian Wright, an analyst at Sterne, Agee & Leach. States could also find fixes.

The Obama administration has said there's no backup plan if the court knocks down the subsidies.

"Hospitals will incur significant financial harm if subsidies suddenly disappear," according to a court brief on the case from hospital groups. A decline in insured patients "could imperil some hospitals, and will make it more difficult for others to carry out their missions."