Last Updated Feb 6, 2009 6:35 PM EST
When things turn around, this piece forecasts, "more volatile and beaten-down sectors like financial services and energy are likely to post the biggest gains. Meanwhile, defensive plays like health care will fall out of favor."
Of course, nobody expects the recession to end anytime soon. So health care issues did better than the average stock in January, losing 1.3 percent as the S&P 500 dropped 8.6 percent. Pfizer's acquisition of Wyeth for $68 billion--two-thirds of it in cash--is seen by some investors as an indication that the health-sector is strong.
But the strength is unevenly distributed, with some types of companies looking much better than others. Pharmaceutical firms, for example, have been hit by the rise of generic drugs and some of their blockbusters going off patent. In fact, that was part of the motivation for the Pfizer purchase of Wyeth. And device makers will probably see slower sales of big-ticket items like MRI machines and 64-slice CT scanners as both hospitals and physician groups find it harder to obtain capital.
Health IT firms will benefit if the $20 billion-plus for their products in the economic stimulus package makes the final cut. The incentives for physicians to acquire electronic health records will not be available until 2011, and the legislation favors companies that serve software over the Internet. But in the long run, the intensified government effort to spread health information technology should pay dividends to all players in the field, says Glen Tullman, CEO of Allscripts. Moreover, if the final legislation pays physicians for use of EHRs, rather than their acquisition, there will be a lot of activity prior to 2011.
All of this is small potatoes, however, compared to the potential impact of health-care reform efforts. Although the Obama Administration had a setback with the departure of Tom Daschle, Democratic leaders in Congress, including Sen. Max Baucus (D-MT) and Sen. Ted Kennedy (D-MA), are pushing forward with their reform plans.
The expectation is that reform will lead to expanded coverage, which would be good for the healthcare industry. But it's also clear that the Administration and Congress will have to find a way to control costs, which would be bad for the industry, at least in the short run. Meanwhile, the number of people who are uninsured or on Medicaid--traditionally the poorest payer--is growing. This means more bad debt and charity care for hospitals and physicians alike.
So on balance, the long-range outlook for the health-care business is mixed. While people will always need health care, just like they need food, fewer and fewer of them may be able to afford it. And if the government figures out a way to make health care affordable to everyone, healthcare providers will pay.