UnitedHealth Group on Thursday kicks off second quarter earnings as the first major healthcare firm to report results, setting the tone and expectations for the quarter. Wall Street analysts expect the insurance giant to post a strong showing, buoyed by its Optum business.
Volume trends, talk of "Medicare for All" on the campaign trail and emerging CMS payment models are among the topics likely to bubble up as payers begin reporting their earnings over the next few weeks.
Utilization is slowing in the second quarter, according to a June survey of 48 hospital administrators. SVB Leerink analysts noted this is a positive for payers and their medical cost trends and for hospital operators heavily invested in outpatient settings, including HCA and Tenet Healthcare with its outpatient surgical unit, USPI.
"Share of procedures in [inpatient] declined across all service lines except for spine, reinforcing the shift from [inpatient]," SVB Leerink analysts said.
Lab data is another good indicator of overall utilization and volume trends, Brian Tanquilut, an analyst with Jefferies, said. Tanquilut said he'll be watching LabCorp and Quest closely next week to get a better idea of utilization trends for the quarter.
Drug rebate reform may not be dead
The White House last week pulled its proposal to ban drugmaker rebates to pharmacy benefit managers in Medicare and Medicaid in a win for payers. Stocks for UnitedHealth, CVS and Cigna rose sharply following the announcement.
That may not be the end for the proposal, however.
"It's still alive and moving along in Congress," Tanquilut said, referencing the Lower Health Care Costs Act sponsored by Sen. Lamar Alexander, R-Tenn., which was passed out of committee and is expected to be brought to the floor soon.
That legislation is broad reaching and includes efforts to ban surprise billing and boost price transparency, other payer hotspots.
With the rebate proposal, the administration had proposed to fundamentally alter the way drugs are paid for in the U.S. But federal budget forecasters warned it would increase spending by $177 billion over the next decade, given many of those rebates are used to lower premiums for Part D beneficiaries.
PBMs, most of which are owned by major payers, have come under fire as many grow skeptical of whether rebates really drive down drug spending.
The Alexander bill includes limitations on spread pricing — which have also garnered intense criticism — and would require PBMs to pass all of the rebates back to insurance plans.
Kidney overhaul positive for most payers
One issue on payers' minds is the Trump administration's recent effort aimed at overhauling the country's approach to kidney care. The plan includes an executive order intended to incentivize home dialysis, increase prevention, make more organs available for transplant and spur development of artificial and wearable kidneys.
The Center for Medicare and Medicaid Innovation also introduced five new payment models, including one that's mandatory. The center's chief, Adam Boehler, told reporters the plan would "be broad and sweeping, impacting half the country."
Analysts at SVB Leerink called the announcement a medium-term win for payers like CVS, Humana, UnitedHealth Group and Anthem. Humana in particular has upside potential because of its focus on Medicare Advantage and with Kindred at Home, which it acquired a year ago.
Cigna stands to benefit from its investment in Cricket Health, which aims to improve early detection of high-risk kidney patients, and UnitedHealth's Optum arm continues to invest in home dialysis, analysts said.
They also noted CVS executives discussed early detection of kidney disease at the company's recent investor day, saying home hemodialysis could drive as much as $1 billion in new business through 2022 (possibly accelerated by the CMS announcement). With CVS' experience in complex patient home care and chronic disease management and the acquisition of Aetna, the company is "an ideal partner to manage chronic kidney disease."
'Medicare for All' debate continues
With the 2020 campaign heating up among Democrats, Medicare for All was a hot topic during last quarter's calls. A number of executives singled the idea out for criticism, sending payer stocks tumbling.
Since then, talk on the campaign trail of expanding government coverage has continued, although Medicare for All is just one of the ideas being discussed. This week, former Vice President Joe Biden rolled out a plan for building on the Affordable Care Act and increasing premium subsidies for people on the exchanges.
The issue will certainly resurface at the end of this month when candidates have their second primary debate.