Wall Street is still selling off health care stocks

https://www.axios.com/newsletters/axios-vitals-64abbaf8-c86f-4ac1-8561-525b0fd33c25.html?utm_source=newsletter&utm_medium=email&utm_campaign=newsletter_axiosvitals&stream=top

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Yesterday, UnitedHealth Group posted $3.5 billion of profit in the first quarter — its second-most profitable quarter ever — and collected more than $60 billion of revenue, Axios’ Bob Herman reports.

Yes, but: UnitedHealth’s stock price tanked by 4%, which consequently dragged down shares of the other major health insurers and hospital chains. Cigna’s stock price plummeted 8%, and Anthem and Humana were close behind. HCA tumbled 10%.

Driving the news: Wall Street remains fearful of “Medicare for All” becoming a reality, and UnitedHealth CEO Dave Wichmann tried to get ahead of the message by telling investors that single-payer would “jeopardize” people’s care.

  • Many investment bank analysts were perplexed by the sell-off, considering that UnitedHealth has more cash than it knows what to do with.
  • Steven Halper of Cantor Fitzgerald wrote to investors: “What more can you ask for? Take advantage of poor sentiment.”

The big picture: Medicare for All discussions matter far more to Wall Street right now, and that makes the industry’s Q1 financial reports a lot less important.

 

 

 

WINNERS AND LOSERS FROM HEALTHCARE’S Q4 EARNINGS SEASON

https://www.healthleadersmedia.com/finance/winners-and-losers-healthcares-q4-earnings-season

Healthcare companies have reported their earnings from the final quarter of 2018, revealing some success stories and some ongoing struggles.

Earnings season for Q4 2018 has concluded for companies across the healthcare industry, from insurers, for-profit providers, telemedicine companies, and others in between.

Given the challenging market conditions during the final quarter of last year, including the surprise federal ruling that struck down the Affordable Care Act as unconstitutional, many companies reported weaker earnings than they did earlier in 2018.

However, some were buoyed by new intitiatives and product performance that sustained a level of success they intend to carry into 2019.

Below is a list of healthcare’s winners and losers from the 2018 Q4 earnings season:

WINNERS:

UnitedHealth Group

  • The Minnetonka, Minnesota-based insurer led the pack again, ending 2018 on an upswing thanks to Optum’s record-breaking performance.
  • The PBM subsidiary recorded year-end revenues above $100 billion for the first time ever.
  • Based United expects to achieve revenues above $240 billion in 2019.

Centene Corp.

  • 2018 was a strong year for the St. Louis-based insurer, finishing with more than $60.1 billion in revenues.
  • Managed care membership reached 14 million, an increase of 15% year-over-year.
  • Centene’s net earnings for Q4 2018 were $241 million, an increase of $11 million year-over-year.

Anthem Inc.

  • IngenioRX, Anthem’s PBM slated for debut in 2020, is now expected to launch in Q2.
  • The subsidiary is expected to achieve gross annual savings north of $4 billion, including more than 20% returned to shareholders.
  • Anthem added 37,000 medical enrollment members in Q4, and saw its operating gain grow by 30% year-over-year.

 

MIDDLE:

Teladoc

  • The Purchase, New York-based telemedicine company produced revenues of $122 million and saw total visits rise by 70% while net losses fell.
  • The company still has sizable net losses to account for, posting a net loss of nearly $25 million in Q4 and $97.1 million for the full year.
  • Despite some positive financial metrics, Teladoc’s issued a tepid financial guidance for 2019.

CVS-Aetna

  • While we still wait on final federal approval for the megamerger set to drastically change the healthcare landscape, CVS Health posted its earnings report from a difficult Q4.
  • The Aetna merger played a role in rising revenues by 12.5% for CVS in the last quarter of 2018, but it also hampered some crucial metrics.
  • CVS suffered a net loss of $421 million in Q4 2018 and $596 million during the full year.
  • However, CEO Larry Merlo said he believes CVS’ acquisition of Aetna provides the company with “long-term value” in a rapidly transforming market.

Cigna Corp.

  • As with CVS, a megamerger couldn’t save Cigna from a down quarter to wrap up 2018.
  • The Philadelphia-based insurer produced $14.3 billion in total quarterly revenues and $144 million in net income, but failed to meet earnings estimates after closing its deal with Express Scripts.
  • Overall, Cigna capped off 2018 with total adjusted revenues of $48 billion, a 15% year-over-year increase, along with a net income of $3.6 billion.

LOSERS:

Community Health Systems 

  • Amidst lingering divestiture activity, CHS posted a net loss of more than $325 million.
  • CHS recorded a net loss attributable to shareholders of $328 million in Q4 2018, down from a net loss of more than $2 billion during Q4 2017.
  • On one positive note, the the Franklin, Tennessee-based for-profit hospital operator did manage net operating revenues of $3.5 billion, an increase of nearly $400 million year-over-year.

Tenet Healthcare Corp.

  • Tenet experienced a net loss of $5 million in Q4 and saw its full year operating revenues decline 4.5%.
  • The Dallas-based company’s quarterly adjusted EBITDA fell 34.6% year-over-year.
  • CEO Ron Rittenmeyer praised the “significant progress” Tenet made to “create a more efficient, agile enterprise with new leadership.”

Magellan Health

  • Segment profit fell to $16 million in Q4, down 83.8% year-over-year, and only reached $228 million in 2018, a 26.7% drop.
  • Net revenues for 2018 did increase more than 25%, a lone bright spot for Magellan.
  • CEO Barry Smith remains confident despite the significant financial declines over the past year.

 

 

 

 

Health Insurers Had Their Best Quarter in Years, Despite the Flu

https://www.bloomberg.com/news/articles/2018-05-03/health-insurers-had-their-best-quarter-in-years-despite-the-flu

Here’s a look at how the margins of the largest in the quarter, based on data compiled by Bloomberg:

U.S. health insurers just posted their best financial results in years, shrugging off worries that the worst flu season in recent history would hurt profits.

Aetna Inc., for instance, posted its widest profit margin since 2004. Centene Corp. had its most profitable quarter since 2008. And Cigna Corp., which reported on Thursday, had its biggest margin in about seven years.

Analysts at Morgan Stanley, in a research note, said insurers are in the midst of a “hot streak.”

One big reason for the windfall is the tax cuts passed by Congress last year, which in some cases more than halved what the insurers owe the government. Aetna said its effective tax rate fell to 16.8 percent from 39.6 percent, for example. Many insurers also spent less on medical care than analysts had expected, even taking into account increased spending on flu treatments.

 

 

Walmart, Not Amazon, May Turn Out To Be The Real Health Care Disruptor

https://www.investors.com/news/walmart-humana-amazon-disrupt-health-care/

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Every Amazon (AMZN) flirtation toward the health care industry has sent hearts racing on Wall Street. Yet Amazon appears to be having commitment issues, and others have leapt while Jeff Bezos hesitated. Now comes a possible Walmart (WMT)-Humana (HUM) merger. A Walmart acquisition of the insurer could fundamentally reshape health care delivery in ways that Amazon may have trouble matching.

A Walmart-Humana deal could potentially transform the health care market for seniors, a demographic that is critical for both companies.

Walmart already operates about 4,500 in-store pharmacies and 2,900 vision centers, but a Humana deal would likely accelerate its efforts in developing in-store clinics. The clinics haven’t been a knockout success, but Walmart has been learning, wrote Tracy Watts, U.S. health reform leader at Mercer, in a blog post. “This partnership could foster new ways to bring people what they want and need,” she wrote, highlighting health care access in rural areas.

CVS Health (CVS), which is in the process of acquiring Aetna (AET), is planning to revamp its drugstores to provide more health services. Walmart has greater financial wherewithal to execute the strategy and its supercenters may be a more natural fit for health services.

Strategic Merits For Walmart-Humana

A Walmart-Humana tie-up has strategic merits for the retail giant, wrote Stifel analyst Mark Astrachan. He expects it would drive greater store traffic and produce health care cost savings, helping the discounter to keep investing to fend off Amazon.

Savings would come from closer ties to Humana, the largest remaining independent pharmacy benefits manager. That would help to reduce drug prices for Walmart’s 1.5 million U.S. employees, Astrachan wrote.

Humana recently purchased a major stake in the home health care business of Kindred Healthcare, a natural fit for Walmart’s home delivery business.

Still, there would be challenges. Piper Jaffray analyst Sarah James sees hurdles to staffing up clinics amid a nursing shortage that’s pushing up wages. She also questioned how attractive a merger would be for Humana. Humana has an enviable Medicare position while Walmart has a smaller store base compared to CVS Health and Walgreens Boots Alliance (WBA).

Still, Humana shares rose 4.4% on the stock market today, even as the Dow Jones, S&P 500 index and Nasdaq composite all lost about 2% or more. Meanwhile, shares of Walmart lost 3.8% and Amazon skidded 5.2%.

Amazon Threat Spurs Action

So far Amazon’s disruptive impact on health care has been all about what others are doing. Since reports last summer that Amazon might enter the retail prescription industry, the shockwaves have set in motion one deal after another. First it was CVS buying Aetna and beginning to offer same-day delivery in major markets, and next-day nationwide. Albertsons grabbed the Rite Aid (RAD) stores not bought by Walgreens. Last month, Cigna (CI) announced the purchase of Express Scripts (ESRX), the largest of the pharmacy benefit managers.

Options to enter the prescription drug business have narrowed for Amazon but haven’t been closed off entirely. One potential avenue would be acquiring Walgreens.

In January, Amazon announced a health care venture with JPMorgan Chase (JPM) and Berkshire Hathaway (BRKB). Health care stocks tumbled amid fear that Amazon would use the same formula that slayed book sellers and department stores. The scariest part: The companies say they have no intent to earn a profit from the effort. Yet they also confessed to a lack of any coherent plan for putting still-to-be-formed cost-saving ideas to work.

 

 

Global M&A activity hits record high on mega US health care deals

https://www.cnbc.com/2018/04/04/global-ma-activity-hits-record-high-on-mega-us-health-care-deals.html

A CVS Pharmacy store is seen in the Manhattan borough of New York City, New York, U.S., November 30, 2017.

 

  • In the first three months of 2018, there were 3,774 deals globally, totaling $890.7 billion.
  • So far this year, there have been $393.9 billion invested in U.S. companies.
  • Domestic activity was also particularly strong in China.

Merger and acquisition (M&A) activity across the world has hit a seventeen-year-record high in the first quarter of 2018, according to a report by research firm Mergermarket.

In the first three months of 2018, there were 3,774 deals globally, totaling $890.7 billion, it said Wednesday. This was the strongest start to the year since 2001, when Mergermarket began recording the data, and represents an 18 percent increase in value compared to the first quarter of 2017.

“The extraordinary surge in dealmaking seen at the end of 2017 has carried through into 2018,” Jonathan Klonowski, research editor at Mergermarket said in the quarterly report, citing pressure from shareholders and a search for innovation as the main drivers.

“Amazon’s move into pharmaceuticals appears to have been a catalyst for dealmaking in health care-related areas with the CVS/Aetna deal announced in December and the Cigna/Express Scripts transaction this quarter,” he added.

Amazon announced a partnership with J.P. Morgan and Berkshire Hathaway’s Warren Buffett in January to reduce health costs for U.S. employees. The move has sparked fears that the retail giant could enter and compete with traditional health care businesses. As result, the sector has consolidated to fight possible future competition from Amazon.

Cigna bought Express Scripts in a $54 billion cash-and-stock deal in early March. CVS also approved the acquisition of Aetna for about $69 billion in cash and stock last month.

Such deals have been particularly relevant in the U.S., where M&A activity during the first quarter of the year represented 44.2 percent of the total global share.

So far this year, there have been $393.9 billion invested in U.S. companies, according to the report. This represented a 26.1 percent increase from the same period a year ago. “Domestic dealmaking has been a key factor registering 952 deals worth $330.8 billion,” the report said.

But it’s not only U.S. companies that seem to be consolidating in their own market. Domestic activity was also particularly strong in China, where firms spent $68.7 billion — this was the highest first quarter on record.

“Domestic M&A accounts for 85.2 percent of Chinese acquisitions in Q1 (first quarter) 2018, a significant increase from the 61.6 percent and 71.3 percent seen during 2016 and 2017,” Mergermarket said.

Study: ‘Big five’ insurers depend heavily on Medicare, Medicaid business

https://www.fiercehealthcare.com/cms-chip/big-five-insurers-medicare-medicaid-growth-profits?mkt_tok=eyJpIjoiT0RnMFkySXdPV0psWldSaCIsInQiOiJQSllQNlpcL2RhTzBDZFwvZXh5M1ZUSDJyUU5JTGw3dnh1QTVac01rZUFcL2pNUUhhMXBaQjBxK29ScHRrOHhsT3d6aE5pcFRJUWd4Sm0rYXA4S0RYVGE2N0czN2hhc2hsXC9EZk9mSGVLR0V1UFlwVDZpQmdkcll0eTBMNDUzTHlIZDIifQ%3D%3D&mrkid=959610&utm_medium=nl&utm_source=internal

Rising Stocks

Even as they’ve retreated from the Affordable Care Act exchanges, the country’s biggest for-profit health insurers have become increasingly dependent on Medicare and Medicaid for both profits and growth.

In fact, Medicare and Medicaid accounted for 59% of the revenues of the “big five” U.S. commercial health insurers—UnitedHealthcare, Anthem, Aetna, Cigna and Humana—in 2016, according to a new Health Affairs study.

From 2010 to 2016, the combined Medicare and Medicaid revenue from those insurers ballooned from $92.5 billion to $213.1 billion. The companies’ Medicare and Medicaid business also grew faster than other segments, doubling from 12.8 million to 25.5 million members during that time.

All these positive trends, the study noted, helped offset the financial losses that drove the firms to reduce their presence in the individual marketplaces. Indeed, the big five insurers’ pretax profits either increased or held steady during the first three years of the ACA’s individual market reforms (2013-2016). Their profit margins did decline during those three years, but stabilized between 2014 and 2016.

Not only do these findings demonstrate the “growing mutual dependence between public programs and private insurers,” the study authors said, but they also suggest a useful policy lever. The authors argued that in order to help stabilize the ACA exchanges, federal and state laws could require any insurer participating in Medicare or state Medicaid programs to also offer individual market plans in those areas.

Nevada has already done something similar: It offered an advantage in Medicaid managed care contract billing for insurers that promised to participate in the state’s ACA exchange. The state credited that policy with its ability to coax Centene to step in and cover counties that otherwise would have lacked an exchange carrier in 2018.

It’s far less certain, though, whether such a concept will ever be embraced at the federal level during the Trump administration, since its focus has been on unwinding the ACA rather than propping it up.

Either way, recent events underscore the study’s findings about how lucrative government business has become for major insurers. One of the main goals of CVS’ proposed acquisition of Aetna is to improve care for Medicare patients, which would help the combined company “be more competitive in this fast-growing segment of the market,” CVS CEO Larry Merlo said on a call this week.

Aetna CEO Mark Bertolini added that the transaction has “incredible potential” for Medicare and Medicaid members, as the goal is to provide the type of high-touch interaction and care coordination they need to navigate the healthcare system.

 

Cigna latest major payer to post strong Q2

http://www.healthcaredive.com/news/cigna-latest-major-payer-to-post-strong-q2/448675/

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Dive Brief:

  • Cigna reported strong second-quarter earnings Friday, which included a 4% increase in total revenues compared to a year ago to $10.3 billion.
  • In announcing its earnings, Cigna also raised its 2017 earnings forecastfrom between $9.35 and $9.85 to between $9.75 and $10.05 per share. Experts had predicted $9.77.
  • With Cigna’s announcement, six major health insurers have beaten Wall Street expectations in the second quarter, despite the healthcare debate in Washington and uneasiness in the Affordable Care Act exchanges.

Dive Insight:

Cigna’s positive results are yet another second-quarter success for payers. In recent days, Aetna raised its outlook after a strong quarter, Humana beat its earnings predictions, Anthem posted strong results and UnitedHealth announced that its revenue grew 8% from last year.

For Cigna, the payer’s adjusted income from operations increased to $750 million compared to $515 million last year, which Cigna said “reflects significantly increased earnings contributions from each of our business segments.”

Premiums and fees increased 3% compared to a year ago, which was “driven by customer growth and specialty contributions in our commercial business.” Cigna reported that its financial results for its commercial insurance projects more than offset a drop in revenue from government products because of lower enrollments in those programs.

Cigna’s positive second-quarter numbers may lead to M&A activity, especially regarding Medicare Advantage (MA). Cigna Chief Executive David Cordani said in June the payer has between $7 billion and $14 billion that it may use on mergers and acquisitions this year. That money may go to expanding its MA offerings. Corandi declined to say in June whether Cigna is looking to buy Humana, which is the second-largest MA payer, or whether it may acquire or merge with other companies.

Regardless, you can expect Cigna to grow its MA market in the coming months after the CMS lifted Cigna’s suspension to sell MA and Medicare Part D plans in June. The suspension came after CMS found issues with Cigna’s appeals and grievances processes, Part D, formulary and benefits administration. The CMS restricted Cigna for 18 months, which the company said cost them at least $500 million.

Also, earlier this year, a proposed $54 billion merger proposal with Anthem  failed. Despite the failed merger, Humana reported $1.1 billion net income in the first quarter compared to $254 million last year. At the time, Humana officials pointed to the failed merger with Anthem as a major reason for the net income increase and Bruce D. Broussard, Humana’s president and chief executive officer, especially highlighted MA as a positive.

After the merger failed, Cigna filed a lawsuit against Anthem that seeks more than $13 billion in damages and a $1.85 billion contractual breakup fee. Anthem is protesting both payments.