Boston Globe columnist Steven Syre recently asked, "What do each of this year's 10 worst-performing stocks in Massachusetts have in common?"¹ Before I reveal his answer, recall what a stock represents in a market economy. A stock represents a share of ownership of a publicly held corporation. Firms sell new stock in the primary market in order to raise capital, and they have a great deal of control over this process. The secondary market, on the other hand, is where individual investors exchange shares on an auction basis. Here, investors control the price—each one influencing the stock price upwardly if he believes in a positive future for the company (and buys stock), or downwardly if he believes in a less-than-positive future (and sells stock). If a stock performs poorly, it is an indication that investors believe a company's prospects are (at best) less bright than previously thought. At worst, poor stock performance indicates that prospects are downright bad or at risk.

The answer to the Syre's question is that all ten of the state's biggest losers are public companies that deal with medicine. The cause of the sector-wide decline in Massachusetts is not that these companies have all been coincidentally mismanaged, or that the breakthrough of another company has made the products of these companies obsolete overnight. The overarching cause is the uncertainty associated with doing business under ever-changing rules set by the government.

A portfolio manager quoted in the article said that healthcare stocks are "fraught with unanalyzable risk." Bad policies do not merely not work; they destroy.

Consider the price instability that healthcare companies face when the government declare that federal and state insurance reimbursements will be falling—again. Or, that companies must give Medicaid patients "best price" on drugs and other components of care, irrespective of whether Medicaid is a better customer for them than other insurers. (And lest a company look to benchmarking its competitors in forming a pricing strategy, and subject itself to government investigations of price fixing.²) Worse, imagine dealing with the arbitrary and enforcement of liability laws that presume omniscience on the part of drug companies, medical device manufacturers, and healthcare providers.

These are not conditions amenable to growth or profitability. The market reflects this, as Syre notes:

One bellwether stock, Johnson & Johnson, is exactly the kind of investment that should be popular today. But it's not. Johnson & Johnson runs a giant business diversified among drugs, medical devices, and everyday consumer healthcare products, none of which has been trouble. But J&J's stock has gone nowhere this year. Shares worth $60.10 at the end of last year were available for $60.04 yesterday.³

The Dow Jones Industrial Average, over the same period, rose 434 points.

The business of making people healthy could continue to stagnate, unless constraining forces are removed (i.e. repealed).

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¹ Syre, S. "Health stocks get the blahs." Boston Globe, July 6 2006.

² For a sample of cases, see: Department of Justice, Antitrust Division."Summary of Health Care Cases Since August 25, 1983."

³ Ibid.

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