Investor expectations fully contemplate and have discounted the fact that COVID-19 driven utilization declines will drive significant MCO outperformance in Q2 as evidenced by stock performance of ANTM/HUM which both closed lower post raising Q2’20 EPS. In the attached slides we lay out our view on 2Q results across the MCO space as well as updated thoughts on key focus areas into earnings. In addition, we have slides with updated data points on Medicaid rates ahead of state decisions for 7/1 and federal fiscal stimulus likely to pass Congress in August.
Search Coverage List, Models & Reports
Search Results1-10 out of 451
Earlier today (07/08/20) the Pennsylvania Department of Human Services (DHS) announced contract awards for the state’s Medicaid managed care program PA Health Choices that caters to the TANF & Expansion population. CVS-AET, which was a statewide incumbent, lost all 5 zones. UNH was incumbent in 3 zones and kept only 1. We estimate revenue losses of ~$1.2B / $0.8B for CVS-AET / UNH respectively, which at 2.5% net margins would be worth 0.3% / 0.1% to 2021 EPS – see Exhibit 1 on Page 2 for details. 4 non-public incumbent plans incl. AmeriHealth Caritas, Health Partners, UPMC, and Geisinger all scored big wins w/ statewide contracts. Per the state release, 2 non-selected bidders have already filed protest against the awards; and the state clearly stated the “DHS may not take on any further action until the protests are resolved.” 1 losing bidder must be incumbent CVS-AET and we think the other one is likely CNC given the co. bid in both of the previous 2 re-procurements (more background below) and CNC is currently an incumbent plan in the state’s LTSS program.
Senate Majority Leader Mitch McConnell gave a clear signal last week that Republicans are ready to move swiftly on another coronavirus relief package, with the goal of passing both chambers before the August recess that begins on August 10th. We advise investors to focus on the potential inclusion of an FMAP $ increase that could lock in a pre-determined time period for these $ to be paid to states as well as lock in a lack of state Medicaid disenrollment for a similar period.
On Thursday July 2nd Date Set for NC Medicaid Transition – On Thursday July 2nd, N. Carolina Gov. Roy Cooper signed Senate Bill 808 to transition the state’s Medicaid program from fee-for-service to managed care, with a targeted start date of July 1st, 2021. The state will pay five managed care companies $30B over 5 years and will cover an estimated 1.6M members. Notably, while the bill does outline a deadline of July 2021, it does not establish a penalty for failing to meet the deadline.
MCO Election Impact Model - we have analyzed potential Democratic outcomes including, coverage expansion, an increase in exchange tax credits, as well as public option.
MCO stocks have typically had a hard time showing positive returns going into presidential elections. MCOs (incl. ANTM, CNC, HUM and UNH) have struggled recently, underperforming the S&P 500 by ~6.5% since 6/1, and we believe this underperformance has been completely driven by the increasing potential for a Biden win in November coupled with a Democratic Congressional sweep. That said, we expect further swings in sentiment / odds between now and Nov and while uncertainty remains, the breadth of outcomes is much less severe than those contemplated under Sanders/Warren. Overall, we have analyzed potential Democratic outcomes including coverage expansion, higher corp. tax rates and a significant amount of detail around public option, with the combination of current valuations coupled with our est. of manageable impact to earnings in most scenarios leaves a compelling MCO risk / reward setup.
According to IQVIA, the overall market script growth (unadj. for prescription length) has shown continued improvement since mid-May with total market scripts now only down 0.8% y/y for the week ending June 19th vs. -2.3% in the prior week and -9% / -7.5% / -6.3% in April / May / early-June – see exhibit 1 on page 2. Chronic scripts (refills), that typically account for ~70% of total scripts, increased 2.2% y/y for the week ending June 19th, likely driven by a second wave of 90-day refills following the first wave in mid-March, while acute scripts (non-refills) that account for the remaining ~30% of total scripts declined 8.2% y/y vs. -10.5% in the prior week and the avg. decline of 18.3% in May.
According to the guidance released by the Trump administration yesterday, insurers are not required to cover potentially repeated COVID-19 screening tests that employers may mandate as they bring employees back to work. Initial CMS guidance has indicated testing should be covered by insurers when medically appropriate but there was some uncertainty around whether repeated surveillance testing would fall into that category. Our conversations with industry participants indicated a concern here given significant potential costs of surveillance testing, with a study conducted by AHIP / Wakely Consulting Group finding testing could cost between $6B-$25B annually, and antibody testing could cost $5B-$19B – we note that the estimates include costs for medical necessary tests, public health tests, as well as occupation health tests. The new guidance clarified that screening for general workplace health and safety will not be considered medically necessary and insurers will not be required to cover the costs – see exhibit 1 on page 2 for exact verbiage. Beyond the obvious cost concerns, we would read this as positive for MCOs in terms of a reasonable regulatory environment around COVID-19 in general as this is clearly going to be a area of focus for some time to come.
Yesterday CA Governor Newsom and lawmakers announced they reached an agreement on the FY20-21 state budget. According to this budget scorecard from Health Access California (a consumer advocacy coalition), all 3 proposals from Governor Newsom that would reduce reimbursement rates for Medicaid MCOs were adopted in the final budget deal: 1) 1.5% rate cut for the period 07/01/19 thru 12/31/20, 2) implementation of new managed care efficiency adjustments, and 3) reduction of underwriting margin from 2.0% to 1.5% in 2021 rating period. See exhibit 1 on page 2 for the scorecard.
Since 05/11, Strata Decision Technology, a healthcare focused financial analysis & analytics enterprise software provider, has published a report that tracks volumes at 243 hospitals across the country. Strata recently changed their report to a bi-weekly (every second week) schedule to allow more data to accumulate in their reported trends. The latest report shows a continued rebound in outpatient volume thru the middle of June with the last 14-day volume, as of June 13th, up YoY by 7.6% and the past 30-days up 2.5% compared to 2019 levels.
- 1 of 46
- next →