Today (5/16/19) the Kentucky Cabinet for Health and Family Services (CHFS) and Department of Medicaid Services (DMS) released its Medicaid Managed Care re-procurement RFP. There are currently 1.22M enrollees statewide, with WCG / CVS-AET / HUM / ANTM from our coverage universe managing significant amounts of enrollment along with NFP plan Passport. With this new RFP the DMS will contract with up to 5 insurers statewide consistent with the number of current incumbents. The KY DMS will also award one of the selected MCOs to provide services in a new Foster Care program called Supporting Kentucky Youth (SKY), which we est. to be a $150M oppy. Most importantly the new contract will now require PBM pricing transparency from MCOs which will have to disclose all contracted PBM terms to the state and utilize a pass-through pricing model where plan’s drug reimbursement to PBM must = PBM’s reimbursement to pharmacy.
Search Coverage List, Models & Reports
Search Results1-10 out of 270
Today (5/16/19) after market close, CMS issued a final MA / Part D rule (final rule / fact sheet), which created a lot of confusion as to whether the rule means the agency is not implementing the proposed HHS rebate rule in 2020. Based on our conversations with consultants / MCOs, as well as our interpretation of the language in the rule, we are highly convicted that the rule does not discuss manufacturer rebates at POS but only confirms that CMS will not implement DIR (performance-based payments from pharmacies to plans) at POS in 2020 – see page 2 for the exact language from the CMS press release.
Earlier today (5/15/2019) CMS issued new guidance clarifying that Medicaid MCOs should exclude the $ retained by a PBM under spread pricing when calculating the actual claims costs used in the MLR. CMS expressed concerns that “if spread pricing is not appropriately monitored and accounted for, a PBM can profit from charging health plans an excess amount above the amount paid to the pharmacy dispensing a drug, which increases Medicaid costs for taxpayers”.
We are revising our estimates for MCO / Drug Retail coverage post 1Q19 results. We are also updating our price targets across our coverage universe to reflect 1) revised earnings est laid out in this note and 2) an incremental group discount vs. S&P given the ongoing political uncertainties. See table below, links to all updated models and new PT build-up on page 2 for further details. We continue to rate the MCO group Market Perform with top picks remaining ANTM & UNH.
CBO released a report today (5/2/19) projecting the new proposed HHS rebate rule will increase federal spending on Medicare by $170B and Medicaid by $7B over the next decade, if implemented in its current form. We note that this is slightly less than the $196B estimate by the CMS Office of the Actuary. In addition, CBO estimated that the implementation costs to create/operate chargeback systems would increase premiums by ~1% of the amount of the chargebacks. CBO does not expect the final rule to be released before mid-June “on the basis of the typical timeline for a rule to move from proposal to implementation”.
Anthem has a compelling growth story across multiple business segments which the co laid out at its Investor Day earlier this year. We had the opportunity to host meetings with CEO Gail Boudreaux and IR Chris Rigg and Paige Sheraw where the co. reiterated its confidence in both revenue and earnings targets driven by significant opportunities in Medicare / Medicaid, commercial and Ingenio. When coupled with longer-term BCBS partnership opportunities and capital deployment the fundamental story remains among the most compelling in the MCO space. In terms of the political debate, management didn’t have much to add, indicating MCOs should be viewed as part of the solution to lower costs and that single-payer / government plans have been tried before at the local level with limited success. See below for meeting takeaways + our updated model post Q1.
Per comments made on the call, 1H’19 EPS is expected to be ~55% of total, indicating 2Q’19 of ~$4.53. This is below pre-earnings consensus of $4.85 and implies ~6-7% core growth. Our conversations with mgmt. post the call indicate 2Q’18 did benefit from a risk-adj true up that isn’t expected to reoccur this year, which we estimate at about a 2% drag YoY. When coupled with Ingenio ramp up costs being a drag to 2Q as well we see 2Q results in the 9-10% adjusted. From there the back half ramp ex-Ingenio is being driven by implementation of medical management to new members in Group MA, MN Medicaid and VA Medicaid expansion. We see the seasonality pattern as reasonably adding up given accelerating member growth and the commentary on the call should hopefully get EPS #s in the right place for the rest of the year.
ANTM reported 1Q’19 adjusted EPS of $6.03, above Cons of $5.85 and ~in-line with WR of $6.05 driven primarily by lower G&A expense & tax rate, offset by slightly higher benefit expense and lower inv income vs our model. Total op rev of $24.4B (+9% y/y) was in line with both Wolfe and Cons est. as strong commercial risk growth offset lower Medicaid enrollment. EPS guidance was raised by $0.20 (vs. $0.18 beat vs. consensus) from at least $19.00 to greater than $19.20, which compares to current Wolfe/Cons $19.10 / 19.16. MLR for the quarter was 84.4% vs Wolfe/Cons of 83.8%/84.2% (more below). We expect focus on the call to be around MLR in qtr, PBM transition execution, thoughts on macro issues including politics, Part D / rebate rule and HIF return, and commentary / read-thru’s on continued Medicaid pressure.
Wolfe Research Senior Healthcare Analyst, Justin Lake, hosted a webcast to discuss Anthem earnings seasonality and where recent MCO selloff puts group valuation v. history.
Wolfe Research Senior Healthcare Analyst, Justin Lake, hosted a webcast to discuss latest thougths on ANTM/HUM post-investor days, updated CNC/WCG overlap analysis, and his review of the latest newsflow on the HHS rebate rule.
- 1 of 27
- next →