Healthcare Market Worries: Are Investors Focusing on the Wrong Issues?
Recent Headlines Spook Healthcare Investors
Investors in the healthcare sector have recently found themselves in a state of distress, driven primarily by two major stories: potential cuts to Medicare Advantage and a new investigation by the Justice Department into the billing practices of UnitedHealth Group Inc. (UNH). However, Raymond James analyst Chris Meekins argues that these concerns may be misplaced, suggesting that there are more pressing issues at hand affecting the healthcare landscape.
UnitedHealth’s Investigation Is Not What It Seems
On Friday, UnitedHealth’s stock saw a steep decline, plummeting 7.7% after reports surfaced that the Justice Department initiated a civil investigation focused on the company’s Medicare billing practices. UnitedHealth quickly refuted these allegations, issuing a statement that termed the assertions of fraudulent practices as “outrageous and false.” They emphasized that they were not aware of any ongoing investigations by the Justice Department.
According to Meekins, discussions with industry experts suggest that this investigation is merely part of a broader inquiry into UnitedHealth and not a unique event. He stated, “One would be hard-pressed to find a company the size of [UnitedHealth] that is not under investigation for something,” pointing out that settlements and one-time fines are common in such scenarios.
Potential Cuts to Medicare Advantage: Reality Check
Another source of anxiety among healthcare investors pertains to proposed cuts to Medicare Advantage (MA). Some recent headlines suggested that cuts totaling about $10 billion annually—a cumulative $100 billion over the next decade—might be considered to finance Republican tax cuts. However, Meekins asserts that there are no serious discussions currently taking place in Washington regarding cuts to MA.
He elaborated, noting, “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.” Thus, the alarms sounded by the media might be more sensational than indicative of any substantive policy changes.
Coronovirus Concerns Are Overblown
A third area of concern revolves around a recent report concerning a new lineage of coronavirus studied by scientists at the Wuhan Institute of Virology. Published in the journal *Cell* on February 18, this report raised alarms among some investors about potential impacts on public health. However, Meekins sought to reassure investors, highlighting that experts in the Raymond James network do not view the report as significant enough to warrant concern.
He pointed out that the Wuhan Institute has been extensively involved in coronavirus research and that this discovery does not hold particular significance in the broader context of what is already known about coronaviruses. Moreover, there are currently no known human cases associated with this new lineage, suggesting that the threat level remains low.
Real Issues Remain in Health Policy
While Meekins advises that these three stories should not evoke panic, he does acknowledge that there are indeed valid issues within healthcare that investors should keep an eye on. He emphasized in an earlier note how staff layoffs across key health agencies, including the FDA and Centers for Medicare and Medicaid Services, could negatively affect the operations of these institutions.
According to reports from the Associated Press, up to 5,200 employees in the Department of Health and Human Services may face termination following a policy change from the Trump administration that allows the dismissal of probationary federal employees. Meekins warns that these layoffs could have cascading effects on the functioning of health agencies and could consequently impact public companies reliant on these entities for efficient operation.
The Market Response
Despite the concerns raised in the media, UnitedHealth’s stock fell only another 1% on Monday, while other health insurers saw a partial recovery from their Friday losses. For instance, Humana Inc. (HUM) experienced a modest decline of 0.4%, while Elevance Health Inc. (ELV) remained flat after its prior losses. CVS Health Corp. (CVS) saw a slight decrease of 0.7%.
Intriguingly, UnitedHealth bonds have been gaining traction, particularly the 5.625% notes set to mature in July 2054, as investors seized the opportunity to capitalize on this yield amidst the turbulent stock performance.
Conclusion: A Call for Perspective
In an environment where headlines often dictate investor sentiment, it becomes crucial for stakeholders in the healthcare sector to maintain a level-headed perspective. As Meekins indicated, while there are legitimate health policy concerns, the current noise surrounding Medicare Advantage and UnitedHealth should not overshadow more pressing challenges that merit attention. By discerning fact from sensationalism, investors can better navigate these turbulent waters and make informed decisions moving forward.
