Shares of Community Health Systems Inc (>> Community Health Systems) dropped 7.6 percent and Tenet Healthcare Corp (>> Tenet Healthcare Corp) shares fell 4.8 percent at mid-afternoon. HCA Holdings Inc (>> HCA Holdings Inc), Universal Health Services Inc (>> Universal Health Services, Inc.) and Envision Healthcare Corp were all down around 2 percent.

Sector stocks had gained after Republicans on Friday pulled legislation to gut the 2010 Affordable Care Act, often dubbed Obamacare, and said they would move on to other issues on President Donald Trump's agenda, like tax reform.

But some observers and investors were skeptical.

Julius Hobson, a healthcare lobbyist and attorney with the law firm Polsinelli, said a "full blown push at the repeal and replace is going to be extremely difficult to pull off. I can't see how they achieve that."

Republicans had long promised to repeal and replace former President Barack Obama's signature domestic healthcare policy, but could not get their various factions to agree on a bill. The law expanded medical coverage, aiding hospitals by reducing the number of uninsured patients who could not pay bills.

House Majority Leader Kevin McCarthy said on Tuesday that Republicans promised to repeal and replace the law. But House Speaker Paul Ryan would not provide a timetable for a bill, saying they wanted to "get this right."

Hospital stocks fell after Trump, who vowed to repeal Obamacare, won the Nov. 8 presidential election. Hospitals have been helped by the expansion of Medicaid, which extended insurance to millions of people and helped hospital revenue.

The Congressional Budget Office forecast that 24 million people would be uninsured in 2026 if the healthcare bill that the House of Representatives pulled last week was enacted.

"The Republican health care reform is perceived to be bad for hospitals. So any inkling of a rebirth is going to lead to that reaction," said Les Funtleyder, health care portfolio manager for E Squared Asset Management.

(Reporting by Michael Erman in New York and Richard Cowan and Yasmeen Abutaleb in Washington D.C.; Editing by Richard Chang)