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Health reform, good and bad (or both?) __»

Corporate disclosures about the federal health-reform legislation passed this spring continue to trickle in, with some striking differences in how companies see the measure.

Most of the disclosures are simply additional companies disclosing the tax-hit we (and others) have already written about, stemming from changes to a federal subsidy for retiree-health plans. Some of the more recent disclosures: Schlumberger Ltd. (SLB), with a $40 million charge; Beckman Coulter (BEC), at $8 million; Verizon Communications (VZ) at $962 million; Eaton Corp. (ETN) at $23 million; Exxon Mobil (XOM) at $200 million; Eli Lilly (LLY) at $85.1 million; and Norfolk Southern (NSC) at $27 million.

But what really interests us is how some of the biggest players in healthcare are talking about the new law in their filings. Take Bristol Myers Squibb (BMY), for example. In its April 29 earnings release, the company said that first-quarter sales fall by $49 million, and pre-tax income by $42 million, thanks to “higher rebates to Medicaid and Medicaid manged care organizations.” Another $21 million was due to the retiree prescription subsidy tax change. In its 10-Q filed the same day, Bristol Myers said it expects other additional costs, including more discounts to certain rural hospitals and cancer hospitals, among others, and steep discounts on some prescription drugs for Medicare patients. Bristol Myers observes, without any apparent joy, that it will get 12 years of protected sales for “biologic” products before facing competition from cheaper generics, and says that it expects “the negative impact of healthcare reform in 2011 to be approximately twice the impact expected in 2010.”

Contrast that with health insurer Aetna (AET) and drug-store giant Rite Aid (RAD). Both took a more positive approach toward the new legislation.

While warning that it “is reasonably possible that Health Care Reform, in the aggregate, could have a material adverse effect on our business operations and financial results,” Aetna also says in the 10-Q it filed on April 29 that “Health Care Reform presents us with new business opportunities.” (The company’s litany of the measure’s provisions on pages 35-37 of the filing is a good summary of the bill from an insurer’s perspective.)

Just how it will balance out remains to be seen. “Many significant parts of the legislation require further guidance and clarification in the form of regulations,” Aetna said in the filing. “As a result, many of the impacts of Health Care Reform will not be known until those regulations are enacted, which we expect to occur over the next several years.”

Moreover, the insurer makes the case that the broader repercussions go beyond the specifics of the new federal laws:

“Health care reform will significantly alter the federal structure that shapes the state regulation of health insurance, and states will be required to significantly amend numerous existing statutes and regulations. — we expect many states to consider legislation to extend coverage to the uninsured through health insurance exchanges, increase the limiting age for dependent eligibility, restrict health plan rescission of individual coverage, mandate minimum medical benefit ratios, implement rating reforms and enact an autism benefit mandate.”

Rite Aid, meanwhile is practically upbeat in the 10-K it filed on April 28, thanks in part to the end of the so-called “donut hole” in Medicare prescription coverage, which left many seniors paying a significant portion of their drug costs. “We expect the estimated additional 32 million people who will be covered by health insurance in 2014, and the closing of the ‘donut hole’ in Medicare Part D to be good for our business,” the filing notes. That donut-hole issue is one that Bristol Myers cited as a negative, thanks to the discounts on brand-name drugs it will have to provide to Medicare recipients under the change.

Other disclosures are shedding additional light on some of the longer-term effects of the legislation. Medical device maker Teleflex Inc. (TFX), for example, noted in its April 28 10-Q that “the expansion of medical insurance coverage should lead to greater utilization of the products we manufacture,” counterbalancing to some degree the 2013 onset of a 2.3% excise tax on medical-device sales. Teleflex is one of the first companies we’ve seen quantifying the impact of the law beyond the retiree-health provision, saying the excise tax could cost it $16 million a year. Still, the company notes, “As this new law is implemented over the next 2-3 years, we will be in a better position to ascertain its impact on our business.”

So there you have it. Consider it the yin and the yang of the new legislation.

Image source: MAMJODH via Flickr

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