By Bill Berkrot
Oct 3 (Reuters) - Shares of hospital operators rose on Thursday on a strong show of interest in newly launched insurance plans under President Barack Obama's healthcare law, raising hopes that millions more Americans would become paying customers next year.
One of the biggest issues traditionally pressuring the profits of hospital chains has been the debt incurred by treating vast numbers of uninsured patients using emergency rooms for primary care and then being unable to pay their bills.
New online health insurance exchanges meant to provide subsidized coverage under the Affordable Care Act, commonly known as Obamacare, opened on Tuesday, with states and the federal government reporting millions of visitors within the first 24 hours. The turnout defied expectations of a muted launch and overwhelmed many of the websites meant to handle their queries.
Shares of Tenet Healthcare Corp, were up more than 6 percent, HCA Holdings Inc shares were up 1.6 percent and Community Health Systems Inc shares were up 2 percent. The broader Standard & Poor's 500 Index was off about 1 percent.
"All these website crashes and outages are being interpreted as very high demand," said Jeff Jonas, a portfolio manager with Gabelli and Co. "Anything that reduces their bad debt and charity care would certainly be good for the hospitals."
Ahead of Tuesday's launch, healthcare investors had expressed concern that a series of delays to implementing the law and expected technical glitches on the exchanges would weigh on enrollment in its first year.
Frank Morgan, an analyst with RBC Capital Markets, said heavy traffic on the healthcare exchange web sites was driving up hospital stocks on Thursday.
"It's still early in the process and there have been some technical glitches that have slowed down people's ability to access it, but it's encouraging that so many people are trying to access it," Morgan said.
He added that upcoming third quarter earnings reports for the sector were expected to be uneventful and that investors might be looking further down the road with optimism.
"We're getting closer to reform, closer to hopefully getting some good news with guidance, and these news accounts around all the interest in getting into these exchanges is certainly a positive," Morgan said.
Next year, earnings before interest, taxes, depreciation and amortization - a commonly used metric for hospital financial performance - for six major publicly traded hospital companies are expected to rise by 11.1 percent on average, according to an analysis of analyst estimates compiled by Thomson Reuters I/B/E/S. That compares to a slight increase of 0.1 percent this year.
Tim Nelson, healthcare analyst with Nuveen Asset Management, said shares were up for hospital chains that have a particularly large footprint in large states that so far have refused to expand Medicaid access for poorer citizens.
"The hospitals that are doing well are those that have a high percentage of beds in Florida and Texas," he said. "We're expecting a bigger exchange participation there because Medicaid isn't being expanded in those states," Nelson said.
"People that are between 100 and 133 percent of poverty level, if they want insurance, are going to have to look on the exchange for subsidized private insurance," he explained about those who don't qualify for Medicaid under current guidelines.
Nelson said if those people enroll, it would likely be for the cheapest level of care offered by the exchanges.
"People enrolling in low-end products through the exchanges are likely to be targeted to a Tenet or Community Health or HCA hospital," Nelson said. "They have strong positions in narrow network products."
Jonas said Tenet was up more than the rest in part because of the earlier than expected closing this week of its acquisition of Vanguard Health Systems, and good bond ratings.
"That's helping them specifically, but it's the whole sector that's moving," he said. (Additional reporting by Lewis Krauskopf; Editing by Michele Gershberg and Nick Zieminski)