Not even the billions of dollars spent on the economic stimulus package and assorted bailouts sparked the outrage fomented by President Obama’s push to reform health care.

Congress has reconvened after a raucous summer recess in which efforts to drum up support for health care reform were drowned out by outraged constituents. You know you have a heck of a push-button issue when town hall meetings degenerate into shouting and, in some cases, even fisticuffs.

The brouhaha has investors understandably anxious, though sentiment towards the sector has slowly shifted. Profit expectations, as gauged by the sector’s price-to-earnings ratio, have increased from their March lows but remain muted by historical standards. The specter of uncertainty continues to haunt the sector, investors appear to be pricing in Armageddon for many individual names.

But the health care industry is complex, made up of numerous subsectors ranging from hospital operators and drug manufacturers to innovators in biotechnology and health care information technology (IT). Although insurance outfits could suffer under reform measures–particularly if they’re forced to compete with the pricing power of the US government–many other industries could thrive in the event a reform bill passes.

One of the most obvious beneficiaries will be health care IT. Vice President Biden recently announced $1.2 billion in grants to help hospitals transition to electronic health records. That’s just a small part of a broader $35 billion spending program to maximize the utilization of electronic medical records by 2015. Quality Systems (NSDQ: QSII) and Cerner Corp (NSDQ: CERN) are two leaders in the health care IT space that are licking their chops.

The balance sheets of the nation’s hospitals could get a major boost if the number of uninsured patients declines. Bad debts associated with the uninsured have been a constant challenge for hospital operators, which are required to provide stabilizing care for any critically ill patient who comes through the doors, regardless of his or her ability to pay. For larger operators, that translates to millions of dollars each year. In the case of Universal Health Services (NYSE: UHS), bad debts eat up more than 9 percent of revenue; the expanded rolls of the unemployed and ultimately uninsured only adds to this pressure.

Increasing the number of insured patients would greatly reduce the bad debt burden on hospitals; on balance that would likely largely offset any lower prices negotiated by insurers.

By and large, the sector should ultimately benefit from broader insurance coverage, a move that would deepen the customer bases of all players.

The Funds

Regardless of the shape the reform package takes, biotechnology-focused funds should escape unscathed because companies operating in this space would benefit from an expansion in insurance coverage–an increase in the number of insured translates into more customers.

Our favorite biotech fund is Fidelity Select Biotechnology (FBIOX), which focuses on larger, more-established names such as Amgen (NSDQ: AMGN) and Gilead Sciences (NSDQ: GILD). Many funds in the space–including Rydex Biotechnology (RYOIX), our pick for investors with a higher risk tolerance–tend to focus on smaller caps, seeking to identify the industry’s up-and-comers.

Fidelity Select Pharmaceuticals (FPHAX) also stands to benefit from health care reform. The pharmaceutical industry has agreed to $80 billion in concessions on pricing and consumer support, which should prevent a tougher crackdown.

Judging from the industry’s price-to-earnings ratio, investors aren’t convinced that big pharma won’t be targeted for more price givebacks.

But sentiment also soured before the launch of Medicare Part D, as many investors feared that the industry’s price concessions would erode profitability. In that case, although earnings took a bit of a hit initially, the program actually turned out to be quite lucrative for pharmaceutical firms because their customer base widened substantially.

It’s a reasonable bet that things will work out similarly this time around, especially if the reform package includes an individual mandate.

And if an individual mandate doesn’t make the cut, the fund includes healthy doses of generic drug manufacturers and pharmacy benefit managers, both of which should thrive even under more stringent reform proposals.

Our final recommendation, T. Rowe Price Health Sciences (PRHSX), is a broader play on the health care sector. Although the fund focuses on smaller-cap stocks–the average market cap of its portfolio holdings is just over $7 billion–it’s much more diversified than our other three picks. Manager Dr. Kris Jenner, who holds an M.D. from Johns Hopkins School of Medicine, has a clear bias toward biotechs at the moment, but the fund also includes benefits managers and health care IT companies.

Health care reform will pose challenges for some companies in the industry, but the pervading uncertainty offers an opportunity to pick up quality names on the cheap.