A new
service-fee transparency law should be an easy hurdle to jump for America's
largest healthcare providers.
Cory Renauer (TMFang4apples) Dec 7, 2019 at
8:51AM
Cory is a long-term
minded analyst focused on the Healthcare Sector. He genuinely enjoys cutting
through the complexity to help everyday investors make better decisions.
What happened
Shares of
America's largest healthcare providers UnitedHealth Group (NYSE:UNH), Humana (NYSE:HUM),
and Cigna (NYSE:CI) rose at least 10% in
November, according to data from S&P Global Market
Intelligence. The finalization of a non-compliance fee that's hardly
significant for any of these companies provided the lift that raised shares of
UnitedHealth, Humana, and Cigna 10.8%, 16%, and 12%, respectively.
So what
On Nov.
3, 2019, the Trump administration delayed implementing rules that require
hospitals to disclose the fees they receive, in order to also include health
insurers. The Trump administration's new service-fee disclosure
rules were expected to be a big problem for insurers and hospitals, which like
to keep the discounts they negotiate secret.
Shares of
the insurers rose sharply after the Department of Health and Human Services
(HHS) finalized the rule. That's because the maximum civil monetary penalty
that HHS is allowed to impose for non-compliance is a measly $300 per day per
hospital. Even with the delay of implementation in order to include
UnitedHealth, Cigna, Humana, and their peers in the new rules, it doesn't look
like there will be any monetary consequences for insurers that refuse to
comply.
Now what
In 2017,
a patient who went from one hospital in the metro-Los Angeles area to another
for a hip replacement could save end payers more than $60,000. While there may
be some providers that are willing to compete on pricing if the transparency
law succeeds, the vast majority would lose heaps of revenue.
Hospitals
have until Jan. 1, 2021 to begin displaying price information for services, but
the chances are very slim that we'll all get to make informed decisions about
where to take our business. In December, hospital groups sued to block the
Trump administration from implementing the new transparency rules, citing first
amendment rights.
If
hospital group lawsuits don't win immediately, the appeal process will almost
certainly push the implementation deadline further down the road. That means
the impressive earnings growth that has been pushing shares of UnitedHealth and
its peers higher and higher in recent quarters will most
likely continue in the years ahead.
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Cory Renauer has no position in any of the
stocks mentioned. The Motley Fool recommends UnitedHealth Group. The Motley
Fool has a disclosure policy.
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