Texas' STAR+PLUS contract for the states' higher acuity Medicaid members is expected to be awarded this Friday and Citi analyst Ralph Giacobbe sees Molina (MOH) and Centene (CNC) as the incumbents with the most at stake.
STAR+PLUS PROGRAM: STAR+PLUS is a Texas Medicaid managed care program for people who have disabilities or are age 65 or older. People in STAR+PLUS get Medicaid health-care and long-term services and support through a medical plan that they choose. People with complex medical needs can choose to live and receive care in a home setting instead of a nursing facility under the program.
MOLINA, CENTENE SEEN WITH MOST AT STAKE: Noting that Texas' "highly anticipated" STAR+PLUS contract for the states' higher acuity Medicaid members is expected to be awarded this Friday, June 28, Citi's Giacobbe argued that Molina and Centene have the most at stake among the incumbents, as their respective STAR+PLUS earnings contribute about 7% and 2%, respectively, of his and consensus estimates. He estimates that Anthem (ANTM), Cigna (CI) and UnitedHealth (UNH) have only 1% or less of their earnings at stake, adding that investor expectations are for the incumbents to largely retain business. Nonetheless, the analyst would expect volatility in the stocks if any outsized share shifts are announced, specifically around Humana (HUM) winning and/or Centene and Molina losing position given exposure and expectations at this point.
EXECUTIVE ORDER: Earlier this week, President Donald Trump issued an executive order designed to pressure insurers and doctors to disclose more information about their prices. The executive order will direct the Department of Health and Human services to require hospitals and insurers to disclose negotiated rates for services and provide patients with out-of-pockets costs before procedures. Publicly traded companies in the space include Anthem, CVS Health (CVS), Centene, Cigna, Health Net (HNT), Humana, Molina Healthcare, UnitedHealth, WellCare (WCG), Community Health (CYH), HCA Healthcare (HCA), LifePoint (LPNT), Tenet (THC) and Universal Health (UHS).
Commenting on the news, Citi’s Giacobbe noted that the language in the executive order on healthcare pricing transparency generally leaves discretion for agencies to decide on what insurers and hospitals will have to disclose moving forward. As such, CMS will decide whether hospitals and insurers will need to publish individual rates or whether they can keep their pricing information more general and publish only aggregate rates, he added. The analyst also pointed out that hospitals and insurers have both pushed back on disclosing negotiated rates since the release of the executive order, with the American Hospital Association and America’s Health Insurance Plans expressing that disclosing such information would reduce competition and increase prices because providers will demand the highest payments any competitor receives.
While the notion of price transparency has its merits in most industries and within selective "shoppable" healthcare categories, Giacobbe continues to believe that broader efforts are misguided and could backfire and cause prices to rise. Nevertheless, price transparency represents another headline that could create volatility for the healthcare sector when in focus, he contended.
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