Growth in Health Care No Longer Sure Thing; National Attention to Costs May Hurt Profits
For much of this year, investors have been in love with health-care stocks, and for a very simple reason: In a tough economy, health care seemed one of the few sure growth industries.</br></br>After all, people still get sick, we're all getting older and feebler, and most of us don't pay our medical bills anyway - our employers or insurers do. So what's to stop the health-care profit train?</br></br>The answer to that formerly hypothetical question has been coming home in spades in recent months, as Wall Street has shot down a host of highflying medical stocks in rapid succession. In each case, the root cause of the stock's decline was a sudden concern about eroding profitability - or about the lengths to which the company must go to ensure decent profit growth.</br></br>The latest casualty was Santa Monica, Calif.-based National Medical Enterprises, whose stock plunged $4.12 1/2 to $16.12 1/2 Monday, a 20 percent drop in a matter of hours, though it recovered a bit to $17.12 1/2 by Friday. The hospital giant disclosed that some of its psychiatric hospitals are under investigation for alleged excessive or fraudulent billing.</br></br>But even before that, shares of many health maintenance organizations have languished after being trounced on profit worries.