This paper explores the costs and benefits of the early 1990's debate on comprehensive health care reform with respect to private stakeholders of major pharmaceutical firms. Following escalating health care costs during the late 1980's, containment of health care costs emerged as a concern for both businesses and the American public. The issue became central for both the 103rd U.S. Congress and the candidates in the 1992 presidential campaign. The impact of this debate on the pharmaceutical industry and its stakeholders is examined here in a financial framework which analyzes the reaction of industry equity market values and volatility measures to public information regarding the scope and likelihood of health care reform. A 22% short-term loss in market capitalization was observed in the total equity capitalization of 15 major pharmaceutical firms during the period in which health care reform was debated. Stakeholders also may have been negatively affected by changes in the risk of these firms. The riskiness of major pharmaceutical companies, as measured by their market equity volatility, increased 46% during the period of health care reform debate. The framework outlined in this paper provides a means of estimating both the nature and magnitude of the market impact of health care reform and may provide insight for the current health care reform debate.
- Health care reform