President Donald Trump’s latest plan to combat high medical prices is being greeted by Wall Street as a reason to buy health care stocks. Hospital stocks and managed care stocks surged Friday. HCA Healthcare (HCA) and Dow Jones component UnitedHealth (UNH) broke out of consolidations, with several others nearing buy points.
Hospital Stocks, Health Insurers Gain
HCA stock spiked to 140.04, closing up 2.65% at 138.05. That stock just cleared a buy point at 138.04, according to a MarketSmith analysis. Tenet Healthcare (THC) gained 3.7% to 30.56, pennies below a 30.63 buy point.
UnitedHealth Group (UNH), the No. 1 insurer with its own health services empire, shot up 5.3% to 269.40. UnitedHealth stock, a Dow Jones component, cleared a 268.79 buy point from a cup base going back to July 17. Intraday, UnitedHealth stock rallied to 275.57, an 11-month high and briefly clearing a 272.59 entry.
Centene (CNC), Anthem (ANTM) and Humana (HUM) all rose more than 5%. Cigna (CI) gained 3.3%. CVS Health (CVS) climbed 1.85% to an 11-month high.
Investors may see the Trump administration rules as a positive for managed care companies, especially if they can steer members to their own low-cost networks.
Trump Takes Another Stab At Health Care Costs
“We’re requiring price transparency in health care, forcing companies to compete for your business,” Trump said Friday in announcing two proposed rules.
One rule would require hospitals, starting 2021, to reveal the negotiated rates they charge insurers for medical services and prescription drugs. The other rule would require insurers to make public their negotiated rates with in-network providers and expected payments to out-of-network providers. One goal is to keep people from being blindsided by high costs, especially from out-of-network providers. The Trump administration also thinks it will spur people to shop for lower prices.
Health Care Sector Avoids Tough Medicine
So why were investors so upbeat about the proposals? One reason may be that they feared tougher rules. Hospitals, for example, would only face a maximum $300 fine per day for failing to provide adequate transparency, noted Larry Levitt, Kaiser Family Foundation executive vice president.
“I wonder how many hospitals will just pay the fine,” Levitt tweeted.
The second rule to encourage shopping for low prices has a potential upside for insurers. Savings from encouraging use of lower-cost providers could translate to higher profitability with a tweak to government rules requiring that a minimum share of premiums be spent on benefits.
Because Trump is at odds with House Speaker Nancy Pelosi’s push to let Medicare negotiate drug prices, investors may be breathing easier about health care regulation between now and the 2020 election. In July, the White House dropped a rule to sharply limit rebates from drugmakers to prescription benefit managers, such as UnitedHealth’s OptumRx and CVS Caremark.
Author: Jed Graham