Big changes are coming to Medicare, changes that are going to dramatically effect health plans, providers, PBMs, and pharma.
Medicare Advantage’s “bonus” payments are going to be cut significantly, Part D sponsors will likely see reductions in their payments from the Feds, and the planned 10% reduction in Medicare’s physician reimbursement is not going to happen.
So why isn’t the stock market reacting?
The big health insurers have been experiencing high valuations of late, and recent news about pending state and Federal health care reform initiatives have done nothing but increase market cap. United Health Group, the largest health plan publicly traded, actually has seen its stock price bump up recently. This despite its position as one of the largest participants in Part D.
Health care (provider and manufacturer) stocks’ recent decline has paralleled the S&P’s drop; the market doesn’t look to be more concerned about health care than about the overall economic picture.
Perhaps analysts and investors don’t think the Democratic majorities are going to slash MedAdvantage payments, address Part D overpayments, or keep paying docs.
If that’s the case, they are likely wrong.
“United Health Group, the largest health plan publicly traded, actually has seen its stock price bump up recently.”
Since the election is one way to slice it. Since September 1, 2006 is another. Since January 1, 2006 is another. And any way you choose to slice it, one must take into account the company’s own earnings guidance, and Wall Street’s assessment of that guidance. Put in perspective, the runup since November doesn’t seem to me all that remarkable.
1. In February – that would be after the election – UNH announced its earnings and forward guidance, and both were positive. CreditSuisse initiated its analyst opinion coverage of UNH at “outperform” – on election day November 7th, 2006. And here is Barron’s comment:
“With sales and profits up smartly, shares of UnitedHealth, which closed on Friday at $50.88 on the New York Stock Exchange, could climb to the 70s within two years, Barron’s said in its edition of February 12.”
h**p://biz.yahoo.com/rb/070211/unitedhealth_shares.html?.v=1
2. Keep in mind that UNH stock had already fallen off throughout 2006 as a result of their mismanagement of stock options.
3. On Jan 1 2006, UNH stood at almost $65. As of September 1, 2006 it stood at about $52. As of yesterday, it still stood at about $52.
4. UNH stock did decline about 15% in the 60 days prior to the election.
5. The improvement in the stock price since the election? Only puts UNH back to $52 – that is, back to the level as of September 1 2006, but still 20% below January 2006.
6. Above all, UNH has many businesses besides Medicare advantage or Medicare D, some of which are larger – and a few much larger – in terms of net revenue. The overall impact of reduced margins (not losses but reduced margins) on Medicare Advantage is not going to have a significant effect overall. To the extent that Part D profits exceeded expectations, a reduction in government reimbursement will not harm forward estimates. And the majority of UNH’s business is ASO which is indifferent to the physician reimbursement formula for Medicare. I think that is what UNH guidance is telling us, and Wall Street seems to agree. Of course, Wall Street analysts could be wrong and you could be right. But even Bob Laszewski is second-guessing himself.
http://healthpolicyandmarket.blogspot.com/2007/02/if-medicare-advantage-rates-are-going.html