While the broader S&P 500 closed higher following the election, healthcare stocks have posted mixed results. The chart below shows the cumulative stock returns from Sept. 1 to Nov. 30 for five publicly traded health systems (Tenet Healthcare, HCA, Community Health, LifePoint, and Universal Health Services) and two publicly traded healthcare staffing firms (AMN Healthcare and Cross Country Healthcare). The hospital systems are shown in green and healthcare staffing firms in red. For reference, the S&P 500 is shown with a black dashed line.
Fig. A: Cumulative Return of Publicly Traded Hospitals and Staffing Companies vs. S&P 500, 9/1/2016 – 11/30/2016
As is seen in the chart above, the day following the Nov. 8 election hospital stocks dropped sharply. Why did hospital stocks react so poorly while the broader market gained? One reason is the potential dismantling of the Affordable Care Act by the incoming administration, which has promised to “repeal and replace” the law (though it has not yet specified what a replacement bill would look like).
The ACA has resulted in millions of newly insured since 2014, which has driven demand for healthcare services (which has in turn driven demand for healthcare staffing). If the ACA were repealed, it is not clear what would happen to the individuals who gained coverage as a result of the law. For healthcare staffing firms specifically, it is also not clear how hospitals would react to changes in the law, or if it would impact their hiring decisions.
While this development is cause for concern for all companies at the table, it is notable that the two staffing firms in the table have more than recovered their post-election stock price declines. The hospital companies generally have not.
One tailwind for the healthcare staffing industry is that the unemployment rate is now below 5%. The favorable job market is especially conducive to healthcare staffing firms, as greater demand for employment not only increases the number of individuals with insurance (increasing healthcare utilization), but also presents opportunities that make healthcare professionals more likely to leave their job voluntarily, increasing churn and the need to hire additional staff.
What can healthcare staffing firms do with this information? In the immediate future, staffing firms should stay especially attuned to the needs of their clients, and continue to do what they do best: partner to help them become more flexible and nimble in navigating uncertain times.
