November 9, 2009 / 5:51 PM / 8 years ago

Health companies expect relief in Senate

<p>Pills line the shelves in a Los Angeles pharmacy, April 16, 2007.Lucy Nicholson</p>

NEW YORK (Reuters) - Health insurers, drugmakers and other companies expect U.S. Senate lawmakers to soften health reform legislation narrowly passed by the House of Representatives that calls for a greater government role in the industry.

Pharmaceutical and insurance sector stocks rose with the overall market on Monday, up about 2 percent following the approval of the House bill late Saturday that includes a public insurance option and a government role in drug prices under the Medicare insurance program.

Company executives and investors took the House vote in stride, with expectations growing that a final measure could be delayed until next year.

"We feel much more encouraged by what's developing in the Senate," Eli Lilly and Co Chief Executive John Lechleiter told the Reuters Health Summit in New York.

With the House bill out of the way, attention has shifted to the Senate and whether Democrats can stay united and make good on President Barack Obama's pledge to overhaul the nation's $2.5 trillion healthcare system and expand coverage.

If it passes, the plan would bring about the biggest industry changes to the United States since the Medicare insurance program for the elderly and disabled was created more than 40 years ago.

Senate Democratic leaders need every vote -- they control 60 of the legislature's 100 seats -- but face opposition from more moderate members who oppose a government-run insurance program as proposed by the House.

Industry has blasted the House bill and vowed to fight for changes.

Angela Braly, CEO of insurer Wellpoint, said the House had been widely expected to pass a bill with a public plan option -- but she now sees a battle ahead in the Senate.

"I do think there is an expectation that the process in the Senate will be a fulsome one and there will be a great discussion about the true impact of these reforms," she said at the Reuters summit.

Drugmakers are also looking for major changes in the Senate.

"We are still hopeful that before the curtain comes down on health care reform, the Senate will seriously consider the impact any final legislation will have on U.S. jobs and innovation," said Pharmaceutical Research and Manufacturers of America Senior Vice President Ken Johnson.

Still, if House Democrats are successful in pressing their case, insurers could see their margins squeezed.

"If they can put through some kind of public option where they can drive down prices (or) control prices that would obviously cut into the profit margins of certain firms," said Marc Pado, U.S. market strategist at Cantor Fitzgerald & Co.

Morgan Stanley pharmaceutical analyst Andrew Baum said the Senate is unlikely to pass any bill with an "unbridled public plan" that could deflate prices.

"Any eventual healthcare reform is likely relatively benign to the pharmaceutical part of the healthcare value chain," Baum said in a note to clients.

Heading Into 2010

Obama wants health reform to pass this year, and Democrats are counting on a legislative victory to help them stave off Republicans gains in the 2010 mid-term elections. Democrats currently control both houses of Congress.

"We have long anticipated that Obama was willing to sign virtually any version of health reform that he could spin as a victory and that he would have to intervene to get liberal members to compromise on cornerstone issues," Kim Monk, a healthcare analyst at Capital Alpha Partners in Washington, said in a research note.

Monk and a growing number of analysts see cracks that could push any final measure until early next year, possibly as far as February or March.

Even if the Senate passes its bill by the end of this year, lawmakers must negotiate to merge it with the House version before Obama could sign a final measure into law.

"While we still believe there is a good possibility that reform passes in 2009, the Senate is going to have to move quickly," Capitol Street analyst Ipsita Smolinski said, adding there is 20 percent chance reform could slip to next year.

Shares of insurers close up 2 percent Monday on both the Morgan Stanley Healthcare Payor and the S&P Managed Health Care indexes. Pharmaceutical companies rose 1.9 percent on the NYSE Arca Pharmaceutical stock index.

The broader market as measured by the S&P 500 closed up 2.2 percent.

Reporting by Susan Heavey and Ben Hirschler; Additional reporting by Ed Krudy; Editing by Tim Dobbyn

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