Equity Analysts Underscore Solid MCO Fundamentals

by Judy Packer-Tursman

At the 23rd Annual Wall Street Comes to Washington Health Policy Roundtable, Wall Street analysts posited that managed care organizations must enhance their work with large employers and expect MCOs will continue to focus on Medicare — and also on Medicaid managed care, well beyond the program's potential expansion opportunities.

Leerink Partners' Ana Gupte, Ph.D., noted she is "very bullish" on managed care. Investors buy managed care stock "because the fundamentals are good," she said. "On the provider side, it's survival of the fittest." Yet Gupte stressed the need for MCOs to keep pace in a dynamic environment, describing the joint venture of Amazon, Berkshire Hathaway and J.P. Morgan Chase & Co. in forming an independent health care company as "a massive wake-up call to plans" about the need to do more on national employer group accounts.

Amazon and Walmart, Inc. both "seem to want to carve a position for themselves in employer health care, beyond their own populations," Gupte said. She expects that Amazon and its joint venture partners will use their combined workforce of 1.2 million "as a testing ground."

"Walmart has been underestimated as well. They're putting retail clinics in their parking lot, negotiating better rates and contracts for their own workers," Gupte said. "They definitely seem like they have a broader aspiration to health care than their own workforce."

The panelists also discussed acquisition of medical practices by MCOs. Some MCOs say they tried to make such acquisitions years ago and won't pursue that policy again, "but UnitedHealth has been very acquisitive on the other end," Matthew Borsch of BMO Capital Markets said. A move by plans to make such acquisitions is also defensive — "to keep hospitals from having every practice in the market," he added.

Borsch said that it's important to recognize that the lion's share of acquisitions has been driven by UnitedHealth, "the industry's largest MCO with huge cash flow." Ultimately, the question is whether an MCO is better off owning or contracting with urgent care centers, for example, he said. Even with UnitedHealth, providers acquired by the MCO cover only about 15% of insured medical expense, he added.

From Health Plan Weekly