Cuts in Government Spending Would Actually Boost Profits for this Unusual Stock

Government spending cuts would utterly devastate most companies that rely on Uncle Sam for business. But there's one company that would almost certainly earn hundreds of millions of dollars more if the federal government would make a very specific spending cut, one that lawmakers propose nearly every year.

As the national debate about health care continues, I've spent hundreds of hours researching companies that would be affected by the proposal currently before Congress. And in the process, I found something I've never seen before. It's a unique situation involving one of the most popular and successful government programs on the planet -- Medicare.

 

Medicare is the largest customer in the $2.4 trillion-a-year health care market. And for one treatment -- and one only -- Medicare is the only purchaser. If you need this critical, life-saving treatment, you'll be enrolled in Medicare regardless of your age.

There's one catch. If you're under 65 and are still working, then your health insurance will be responsible for most of the treatment expenses for the first 30 months of your care. (This treatment is typically required for the remainder of the patient's life, unless an organ transplant is performed.)

The treatment is dialysis.

Though Uncle Sam pays for most of the dialysis treatments in the United States, dialysis providers don't make much money from Medicare. They basically break even on every treatment Medicare pays for. Instead, profits in this industry come from the treatments that private insurance pays for during patients' initial 30 months of care.

Just how much money do dialysis providers make on treatments paid for by insurance providers? Well, in some cases, insurance companies pay ten times what Medicare pays -- even though the treatments are exactly the same. (I swear I'm not making this stuff up.)

The bottom line is that the more private-insurance patients a company has -- or the longer it can bill those insurance companies -- the more profits the dialysis providers will make.

Now, surely this is one program that no one would ever propose cutting, right? But don't think it can't happen. It does. During most budget cycles, a handful of powerful politicians regularly propose this type of budget cut. Specifically, they put forward that the government could save money by decreasing the dialysis benefit. In 2007, for instance, the House wanted to ax $500 million from dialysis funding -- a cut that could have meant billions in additional profits for dialysis providers.

It happened again the following year. President Bush's 2009 budget sought to extend the period during which insurance must pay for dialysis treatments (before Medicare takes over) from 30 months to 60 months for large employers. The move would have saved Medicare $1.1 billion over five years, but it would have meant many times that in additional revenue for dialysis providers.

Remember, all the treatments are exactly the same, but the fewer that Medicare pays for -- and the more that private insurers pay for -- the more profits dialysis providers will generate.

In the latest issue of my premium newsletter -- Government-Driven Investing -- I explain the dialysis benefit in detail. I also give my readers complete details on the one stock that would benefit the most from this type of government spending cut, and I show them precisely how to make money from it.