Today (08/07/19) the Louisiana Department of Health (LDH) released the scoresheet for the recent Medicaid RFP award which includes evaluation results of technical components and redacted proposal responses from bidders. The summary scoresheet of technical components – see Exhibit 1 on page 2 – shows CNC had the lowest total score at 621 vs. maximum of 1500 among bidders followed by AET at 669. AmeriHealth had the highest score of 868 followed by HUM 2nd at 819 with top score in the provider network component of 103 vs. peers’ average of 85, likely reflecting strong relationships w/ providers thru their large Medicare footprint. ANTM and UNH are in the middle of the pack with scores of 712/706 respectively. Overall the range of scores is quite wide and potentially indicative of a state which is requiring more from its managed Medicaid providers as indicated yesterday on our consultant webcast with former LA Medicaid medical director Roxane Townsend. Plans have 14 days to submit protests and we expect CNC and AET to protest these results.
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CVS reported Q2 adj EPS of $1.89 above WR/Cons of $1.70/$1.69 and above the high end of the 2Q guide range of $1.68-$1.72, primary driven by meaningful upside at Retail and PBM segments vs. our estimates offset by ~1% miss in HCB which included a higher MLR at 84.0% vs. our 83.3% partially offset by HCB SG&A of 15.6% vs. WR’s 16.1% - potentially aided by additional synergy. Total op profit of ~$4.0B was ~7%/7.5% above WR/Cons of ~$3.77B/$3.75B. FY19 EPS guidance of $6.75-$6.90 (WR/Cons at $6.89/$6.84) was raised by ~12c at the mid-point (vs. the 2Q beat of 20c) to $6.89-$7.00. Overall the qtr was strong and well ahead of relatively modest expectations and we expect the stock to react well this morning (8/7/19).
Today (8/5/19) the Louisiana Department of Health (LDH) awarded contracts to non-profit AmeriHealth Caritas, ANTM, HUM, and UNH to serve the state’s Medicaid Managed Care program. This was a re-procurement of LA’s existing Medicaid contract. Recall from the RFP document that the state planned to contract with only up to 4 insurers down from current 5 incumbents. After today’s award, there will be only 4 plans left with 2 incumbent losses (CNC & CVS) and 1 new entrant (HUM). AmeriHealth, ANTM, and UNH are retained incumbents. The biggest surprise in the results was CNC’s loss of a major contract as an incumbent which has not happened in more than a decade since CNC lost its contract in KS in 2006 (re-entered several years later). We note CNC’s LA loss follows its disappointing NC results (only won 2/5 regions w/ protest ongoing) and puts an even larger spotlight on upcoming TX awards (expected end of August) where CNC has significant EPS exposure (more below).
The first Democratic Primary Debate set the battle lines on healthcare reform and the second debate helped further clarify many of their stances. Yet again though, the structure of the debate (10 candidates/night sharing a 2-hour window) prevented any real in-depth discussion on the topic. The majority of candidates reiterated support for some type of public option with a role for private insurers while Sanders, Warren, de Blasio and Yang continued to champion elimination of private pay (see more on page 2). At the debate, Biden continued to criticize the potential costs associated with M4All - “If you noticed, there is no talk about the fact that the plan in 10 years will cost $3 trillion… My plan costs $750 billion.” - with other moderate healthcare reform candidates generally agreeing the need to raise taxes on the middle class to implement M4All.
The first Democratic Primary Debate set the battle lines on healthcare reform and night one of the second debate helped further clarify many of their stances. Yet again though, the structure of the debate (10 candidates/night sharing a 2-hour window) prevented any type of in-depth discussion on the topic. The majority of candidates reiterated support for some type of public option (see the table on page 2) but Sanders and Warren continued to champion elimination of private pay – the two Senators who lead night one in polling also combined for the most healthcare “airtime” during the debate. All eyes turn to night two where the more moderate healthcare reform candidates Biden and Harris – who clarified her stance on healthcare reform earlier this week – will likely further outline their approaches.
As we highlighted in our previous note, Biden released a 2020 health plan, which aims to protect and build on the ACA. Importantly the Biden plan would create a public option similar to Medicare – see more on page 2. Key Questions From Here would include: (1) how many more people covered beyond the 4.9M estimate for Medicaid expansion eligible population (2) how competitive is the “public” option vs. existing commercial plans (and what will they pay providers – clearly looking to leverage gov’t purchasing scale) and could it potentially be offered by private plans similar to Med Adv (3) how many existing commercial insured would potentially move to “public” option – here we see greatest competitive threat to exchange based plans with employer dumping less likely. Most of the above would allow greater insight into the potential impact to plan membership and economics as well as providers from the potential benefits of greater coverage and offsetting potential headwinds of lower payments. See our high level estimates and discussion of public option impact to MCOs on page 21-27.
As we highlighted in our previous note this morning, articles from The Washington Post (here, here, and here) that summarized the released DEA opioid data showed CVS’s 2006-2012 opioid distribution market share at 7.7%, which is meaningfully below the company’s overall prescription share of 18% during the covered time period. Our follow-up conversation with the company suggests 7.7% only includes Schedule III-V drugs as Schedule II drugs were shipped from wholesalers directly to its stores. While the co. did not share the overall opioid dispensing market share (incl. schedule II drugs) during the covered time period, Thomson Reuters Newport Premium/IMS data (see page 2) indicate Schedule II drugs accounted for ~60% of US opioid sales in 2011.
A federal judge on Monday (7/15/2019)removed some restrictions placed on the public availability of a DEA database containing detailed information about the flow of opioids through the country prior to 2013. Data from 2013+ still remains shielded from the public. Articles from The Washington Post (here, here, and here) that summarized the released data show drug companies sold 76B oxycodone and hydrocodone pain pills from 2006 to 2012 and 75% of the pills were distributed by six companies during that period (MCK-18.4%, WBA-16.5%, CAH-14.0%, ABC-11.7%, CVS-7.7%, WMT-6.9%) – see page 2. While we are not surprised at WBA’s market share of 16.5%, which is ~in-line with its overall prescription market share during the covered time period, we note CVS’s opioid distribution market share of 7.7% is meaningfully below the overall prescription share of 18% at the time – see quotes from the companies below.
This morning (07/15/19) Biden released a 2020 health plan on his campaign website, which aims to protect and build on the ACA. Importantly Biden plan will create a public option like Medicare that “will reduce costs for patients by negotiating lower prices from hospitals and other providers.” On the exchanges, the Dem frontrunner proposes 3 changes to improve affordability 1) Eliminate the 400% income cap on tax credit eligibility, 2) Lower the max limit on cost of coverage from 9.86% to 8.50%, and 3) Calculate premium tax credit based on the price of a gold plan instead of 2nd cheapest silver. On Medicaid Expansion, an est. 4.9M adults in states that haven’t expanded would receive premium-free access to the public option. Overall, we don’t see too many surprises here from previous Biden healthcare commentary and do not expect much reaction today in the HC Services stocks.