A new Justice Department investigation into UnitedHealth Group Inc.’s billing practices and recent stories about Medicare Advantage cuts have investors in the healthcare industry worried about the wrong thing.
That is the opinion of Chris Meekins, an analyst at Raymond James, who pointed to those two stories and Wuhan Institute of Virology scientists’ research on a new coronavirus lineage as three issues that have caused anxiety among investors but “that we believe are not worthy of worry at this time.”
Following the Wall Street Journal’s report that the Justice Department had opened a civil investigation into UnitedHealth’s Medicare billing practices, the company’s stock (UNH) dropped 7.7% on Friday.
UnitedHealth said that the Wall Street Journal was publishing “misinformation” on the company’s Medicare Advantage plan and that it was unaware of the start of any new Justice Department initiatives.
In a response, UnitedHealth added, “Any suggestion that our practices are fraudulent is outrageous and false.”
Meekins stated that “this appears to be part of DOJ’s broader look at [UnitedHealth] and nothing new,” based on Raymond James’s checks and discussions with experts.
“It is difficult to locate a business the size of [UnitedHealth] that is not being investigated for anything. In a note sent to clients on Monday, the analyst stated, “In many of these kinds of investigations, companies settle and pay a fine creating a one-time hit.”
Regarding Medicare Advantage as a whole, headlines on Friday implied that Republicans may utilize the program to fund their proposed tax cuts, indicating that cuts of about $10 billion annually, or $100 billion over ten years, are being considered.
“Based on all of our conversations thus far in DC, there are no serious discussions about cutting MA from Republicans,” Meekins wrote in a letter.
Even though there aren’t any meaningful debates going on, the coverage that’s now available indicates that there have been conversations about a variety of subjects, he continued.
“Even if these cuts were on the table, which we do not believe they are at this point, that would amount to around a 2% cut to current MA spending,” the analyst stated.
Meekins stated that important infectious-disease specialists in the Raymond James network do not consider the discovery of a new lineage to be cause for alarm in reference to the most recent coronavirus research, which was published in the February 18 issue of the journal Cell. Second, he stated that the Wuhan Institute has conducted a great deal of study on coronaviruses like this one in the past and that, given its past work and our current understanding of coronaviruses, this discovery is not very notable. “There are no known human cases,” he concluded.
“There are plenty of things to be concerned about related to health policy, as we have extensively written about; however these three are not worthy of the attention they received, in our view,” Meekins stated.
Meekins noted staff layoffs at several health agencies, including the Food and Drug Administration, the Centers for Medicare and Medicaid Services, the National Institutes of Health, the Centers for Disease Control and Prevention, and the Administration for Strategic Preparedness and Response, in his most recent research note, which was released on February 18.
Approximately 5,200 new hires will be let go throughout the Department of Health and Human Services, according to the Associated Press, after the Trump administration decided to use its power to fire probationary government employees.
It is challenging to determine the precise roles they played and whether or not others can or will assume those tasks, therefore it is challenging to measure the impact. We believe that this will affect how these agencies operate as well as public firms that depend on these organizations to function effectively,” Meekins wrote.
While the majority of other health insurers recovered some of their Friday losses, UnitedHealth’s stock dropped another 1% on Monday. Elevance Health Inc.’s stock (ELV) was unchanged after finishing down 1.4% on Friday, while Humana Inc.’s stock (HUM) fell 0.4% after closing down 5.7% on Friday.
The stock of CVS Health Corp. (CVS) dropped 0.7%.
However, as the following graphic from data-solutions provider BondCliQ Inc. demonstrates, UnitedHealth’s bonds were being scooped up, particularly the 5.625% notes that maturity in July 2054.
The yellow oval shows that net purchase of the longer-dated bonds occurred in large volumes over the past two days.
Spreads on the company and its peers have increased by roughly 3 to 5 basis points since the Friday news.
