Senate Republicans’ new $1.6 trillion COVID-19 stimulus package now includes a $75B bailout for hospitals; a freeze on the 2% Medicare Sequestration cut; 20% Medicare add-on payments for COVID-19 related admissions; as well as a delay in Medicaid DSH cut – see exhibit 4-7 on pg. 5-8 and link to the bill here. The sequestration freeze would take effect on May 1 thru Dec 31, 2020 and this applies to all Medicare payments, including MCOs via Med Adv and PDP. We expect this would boost Providers’ EBITDA in the 2%-3% range for the year – see exhibit 1 on pg. 3.
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Post SC primary 3 Dem candidates Steyer, Buttigieg, and Klobuchar have dropped out of the race as Moderate Dems work to block Sanders nomination into Super Tuesday. It appears both former South Bend mayor and current MN senator are planning to endorse Biden at his rally in Dallas, TX tonight. Based on the latest RCP national polling aggregate from 02/20 to 03/01, which has only incorporated 1 poll conducted after Biden’s victory in SC over the weekend (out of 5 used in the aggregate calc.), these 3 dropouts would leave a total of 16.5% (Buttigieg 9.8% + Klobuchar 4.4% + Steyer 2.3%) of votes up for grabs. In terms of Super Tuesday states, latest RCP state polls show Sanders is leading in the 2 largest states by delegates – CA and TX which have 416 / 228 delegates or 31% / 17% of total contested tomorrow – w/ a 14.7% lead vs. Biden in the former and a 4.5% lead in the latter.
Biden won the SC primary by a much larger than expected margin of nearly 30% (vs. 15% seen in RCP polls on Sat) w/ 48.4% of total votes followed by Sanders at 19.9%, and Steyer at 11.3%. Incorporating SC results, 538’s primary model continues to forecast a brokered convention (more below) as the most likely outcome at 59% chance (+7% vs. pre-SC) while Sanders’ odds declined to 27% (-5%) and Biden’s declined to 14% (-2%). Given 34% of delegates up for grabs in 16 contests on Super Tuesday, we think the results here will go a long way toward indicating whether there is a viable path for any of the top candidates to win a majority of votes OR whether Dems are looking at a Convention battle in July. From a stock perspective, Biden’s win in SC is clearly favorable for MCOs but we expect the next major move in the group is more likely to occur post Super Tuesday.
W/ 96% of NV precincts having reported already, Sanders has won the NV caucuses by a wide margin w/ 46.8% of total county convention delegates won followed by Biden at 20.4% and Buttigieg at 13.9%. This win continues Sanders momentum post IA / NH and has made him the clear front-runner for the Democratic nomination heading into SC on February 29 and Super Tuesday on March 3.
As expected Sanders wins the NH primary with Buttigieg/Klobuchar close behind. Based on Sanders’ narrow margin of victory (<4%) 538’s model forecasts he has 48% chance of winning the majority of delegates followed by None (27%) and Biden (15%). With the field still rather spread out and Bloomberg gaining mindshare into Super Tuesday, it is increasingly possible that there is no clear winner going into the Democratic Convention in July and we expect investors to focus on this potential outcome – see convention rules here. Given results in-line with expectations we expect focus to shift to polling changes heading into NV on 02/22 and SC on 02/29 and from here we see MCOs still pricing in approximately 50/50 odds of Sanders getting the nomination vs. a more moderate candidate. See Exhibits 1 and 2 on pages 2 and 3 for current MCO group multiple and our view of sector multiple shifts depending on election outcomes.
DVA Q4’19 OI of $463M came in above WR/Cons $446M/$447M, and adj. EPS of $1.86 beat WR/Cons $1.68/$1.66 – the OI beat vs. our model was driven by lower patient care costs and EPS was further helped by a lower tax rate in the qtr of $0.14. We est. core US Dialysis OI growth came in at ~6% in 4Q vs. our est. of (1%) again driven by lower patient costs vs. our model, with lower corp/Int’l somewhat offsetting. Importantly, DVA issued updated EPS guidance of $5.75-$6.25, up $0.50 vs. previous including implied OI of $1.495B-$1.638B (more below) that bracketed Consensus’ $1.522B but was above WR’s $1.470B on higher calcimimetics earnings and benefit of AB 290 court injunction in CA. We est. this implies ~flat to slightly positive core growth in 2020 – see our OI bridge on page 2. On Med Adv in 2021 the company continues to indicate limited visibility here and expects a “gradual” ramp in penetration over time.
The Iowa Democratic Party (IDP) released the first look at results from the IA Caucuses and currently Buttigieg leads (26.9% of SDEs) trailed closely by Sanders (25.1%) with Warren (18.3%), Biden (15.6%), and Klobuchar (12.6%) rounding out what appears to be the top candidates, see exhibit 1 on page 2 for more. We note that Sanders currently leads both First and Final Alignment votes but not SDEs. Compared with polls leading up to the IA caucus Biden is underperforming, Buttigieg/Warren are outperforming, and Sanders/Klobuchar are ~in-line. While nice to get some information regarding last night, the race is too tight and too many precincts are unreported to declare a winner (38% of precincts are unreported / 36.1% of SDEs are unassigned). Complicating matters more, the IDP has not committed to a timeframe for the next data release which may further reduce the relevance of Iowa’s outcome/increase the importance of NH, especially if the IDP releases data after the NH primary on 02/11.
Biden’s national polling aggregate is basically unchanged since our last update and he remains the favorite both in polling and RCP betting average at 35% odds to win vs. Sanders at 31%. From here it is clear that Iowa will be a significant catalyst. From a polling perspective, as we discuss below, after last weekend saw Sanders with strong polling results in IA this weekend Biden bounced back leading in 2 separate IA polls. With no less an authority than Nate Silver’s 538 Politics indicating that a IA win would catapult Sanders / Warren in front of the Dem field from a probability perspective and a Biden win here could make him a near lock to win (again more below), we see Feb 3 as a meaningful marker for the HC sector in general and MCOs in particular as the fundamental backdrop remains fairly benign in the NT after a solid UNH print last week and shaping up strongly for 2021 on the back of accelerating earnings growth post HIF repeal as outlined in our 2020 Outlook.
According to Politico, the Supreme Court has rejected Democrats’ request submitted earlier this month to fast track the ongoing ACA lawsuit to the high court before election. For background, recall the 5th Circuit Court of Appeals ruled on Dec 18th, 2019 that the individual mandate was unconstitutional, but sent back the case to the lower district court to assess how much the rest of the law can stand. If correct, the process of briefing, argument, and ruling will restart at the lower court which took 291 days from the start to finish when the lawsuit was first filed. From there the Court of Appeals will have to rule again which will likely delay any Supreme Court decision until 2021 / 2022. See Exhibits 1 and 2 for more on timeline of the case & plans’ exposure to the Medicaid expansion and exchange earnings by MCO with MOH/CNC/ANTM most impacted.
The latest Monmouth University Poll released today (1/13/20) shows Biden taking the lead from Pete Buttigieg who led during the most recent poll in early November, followed by Sanders who continues to show strong momentum in IA moving up to #2 from #4 previously. Biden took the lead with 24% from previous 19% with Sanders moving to #2 at 18% from previous 13%, while Buttigieg dropping to 17% vs. previous 22%, and finally Warren dropping to #4 at 15% vs. previous 18%. Despite Biden’s lead in this poll being encouraging, it is clear that the poll reiterates Sanders momentum on the heels of the Des Moines Register Polling from Friday (more below) with Sanders in the lead and Biden 4th, weighing on MCOs today with the sector under-performing the S&P 500 by 3-4%.
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