HCA and WellPoint Tripled Swings Amid Supreme Court Confusion

Photograph by Andrew Harrer/Bloomberg

Journalists run out of the Supreme Court building after receiving the court's decision on the Affordable Care Act in Washington on June 28, 2012.

CNN and Fox News’ misreporting of the Supreme Court’s health ruling didn’t just embarrass the networks last month. It also whipsawed shares of companies including HCA Holdings Corp. and WellPoint Inc.

Hospital and health insurer stocks swung wildly in the minutes after the court’s June 28 decision — as the networks wrongly reported President Barack Obama’s health law had been overturned. That briefly made bargains out of companies that would soon surge, like HCA, the biggest U.S. hospital chain, and WellPoint, the second-biggest carrier.

Shares of the 14 largest health plans and hospitals changed direction twice in the 10 minutes following the ruling, an analysis of trading records shows. As a result, the gap between high and low prices for UnitedHealth Group Inc., the biggest insurer, was four times its usual spread for an entire day.

WellPoint and HCA tripled their average daily movement.

“There was a lot of confusion and there was a lot of opportunity to make or lose money,” said Michael Meyers, chief executive officer at Arcoda Capital Management, a New York-based hedge fund, in a phone interview.

The total spread in prices represented a combined market value of $46 million for the companies, more than 14 times the average daily trading for UnitedHealth alone.

Meyers said he was one of the winners. Arcoda snapped up shares of Health Management Associates Inc., a Naples, Florida based hospital owner, after it suddenly dipped following the court decision. Confident from other reports that the law had been upheld, Meyers said he knew the stock should be going up.

The justices voted 5-4 that the government can mandate that Americans get insurance coverage, upholding the bulk of Obama’s Affordable Care Act. That was generally seen as good news for hospitals, who will get relief from a rising tide of uninsured patients, and bad news for commercial health plans like Minnetonka, Minnesota-based UnitedHealth and Indianapolis-based WellPoint whose profits will be squeezed by new regulations.

For a subset of insurers, those specializing in Medicaid coverage for the poor, the ruling was seen as a boon because the law will expand the program by as many as 17 million people.

That’s how stocks reacted — at first.

Chief Justice John Roberts began reading the much-anticipated opinion at 10:06 a.m. and 40 seconds, according to an account of the ruling on SCOTUSblog, a Bloomberg Law partner that covers the court.

About a minute later, Bloomberg ran a headline saying the law had been upheld. A minute after that, SCOTUSblog’s website announced the same.

HCA, the hospital operator based in Nashville, Tennessee, leaped from $27.42 at 10:06 to $29.35 a minute later, a 7 percent rise. Within minutes, WellPoint dropped 5.5 percent, while Well Care Health Plans Inc., a Medicaid health plan based in Tampa, Florida, jumped 6.8 percent.

CNN and Fox News, meanwhile, had misread the opinion and were telling a different story. Seconds after Bloomberg’s report, Fox put a banner on its screen saying the insurance-buying mandate at the heart of the law had been struck down.

Anchors for CNN told viewers the same.

After a pause in trading for some of the stocks due to high volumes, the shares reversed themselves. HCA fell to $27.75 while WellPoint rebounded to $67.07. WellCare surrendered virutally all its gains.

It wasn’t until 10:09 that Fox told viewers there was “conflicting information” on the ruling and 10:15 when CNN changed its on-screen banner to “entire law upheld,” according to SCOTUSblog’s account.

The trading turned again, though possibly too late for some shareholders. An investor who bought WellPoint on its seeming upswing at $67.07 would have lost 2 percent by the end of the day. Those who gave up on Medicaid plan Molina Healthcare Inc. when it slid to $22.08 would have missed a 6 percent rebound for the Long Beach, California-based company.

There were similar patterns for the other companies, including UnitedHealth and Hartford, Connecticut-based Aetna Inc., the third-biggest insurer, and Dallas-based hospital owner Tenet Healthcare Corp.

Much of the trading may have been driven by computers programmed to buy or sell based on news headlines, Tweets and other online information, said Les Funtleyder, president of the investment advisory division at Poliwogg, a health-focused hedge fund in New York.

“I believe it had an impact,” he said in a telephone intevrview. “The computers read the headlines wrong, they sell off the stock, people don’t know what’s happening and then they sell. You can see how it could screw the market up.”

Bloomberg’s Shin Pei contributed to this post

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