Corporate Research Group's Weblog

Cigna CFO Hagan Exits; 2010 Profit Forecast Reaffirmed

Carl Mercurio — Thu, 02 Sep 2010 14:15:28 +0000

There are always questions when a company’s chief financial officer suddenly quits or gets fired — especially when the company is in the middle of implementing a major strategy shift. Cigna Corp. announced the departure of CFO Annmarie Hagan, naming company treasurer Thomas McCarthy as acting CFO. Cigna took the unusual step of making public its entire separation and non-disclosure agreement with Hagan. Two things stood out for me: 1. Hagan gets a lot of money — $1.4 million, plus bonus and long-term compensation payouts; 2. Neither Cigna or Hagan is admitting it violated “any law, rule, order, policy, procedure, or contract.” Separately, Cigna reaffirmed its 2010 profit forecast. The implication is clear: the company is going out of its way to show that all is well. A company spokesman told me the departure was a “mutual decision” and wasn’t related to any malfeasance or disagreement with company strategy or policy. For the most part, Wall Street seems to be buying the explanation. Shares in Cigna are down just 0.3% in morning trading in a mixed market opening.

Filed under: Managed Care

MCR Debate Gets Ugly for Managed Care

Carl Mercurio — Mon, 30 Aug 2010 18:29:38 +0000

Truthfully, I was amazed that minimum medical cost ratio (MCR) requirements ever made it into the healthcare reform law. Now that it’s in there, the definition of what does (and doesn’t) constitute a medical cost just keeps getting worse for managed care.

The big blow came earlier this month when six key Congressional Democrats including Sen. Max Baucus (D-MT) told HHS Secretary Sebelius that federal income and payroll taxes shouldn’t be excluded from premiums in calculating MCRs; instead, they say, the only exclusion should be for taxes related specifically to revenue derived from the provision of health insurance.

My friend Carl McDonald over at Citi revamped his analysis to reflect the impact of this interpretation: “Our estimate is that federal income taxes account for between 150-200 basis points of the anticipated increase in reported MLRs. In other words, instead of raising reported MLRs by 500 basis points, it is now possible that the adjusted MLRs will increase by only 300-350 basis points, increasing the rebates that plans are required to return to customers next year.”

Bottom line: even lower profits for health plans in 2011 than originally anticipated.

Of course, neither Sebelius nor the National Assn. of Insurance Commissions – which is drafting the MCR rules – is required to follow the Democrats’ interpretation of the legislation; the law simply reads that the denominator for calculating MCRs should be “the total amount of premium revenue (excluding Federal and State taxes and licensing or regulator fees).”

Naturally, insurers are lobbying hard for the broader interpretation. Extended coverage appears in the Aug. 23 issue of Carl Mercurio’s Health Plan Market Trends Letter.

Filed under: Managed Care

UnitedHealth vs. McKesson

Carl Mercurio — Thu, 26 Aug 2010 14:25:04 +0000

Solid – albeit cheerleading – take by Bloomberg on how UnitedHealth and McKesson are looking to cash in on the need among health insurers to upgrade information technology systems to meet the requirements of healthcare reform. The article quotes a Gartner analyst stating that in general the technology push could lead to acquisitions of care management companies like Click4Care and ZeOmega. I’ll agree with that. I’ll also agree that healthcare reform is creating some exciting momentum. Just remember this is not a nut cracked by simply buying a fancy, paperless care management system. Hat tip: Credit Suisse

Filed under: Healthcare Technology

This Week in Health Plan Market Trends

Carl Mercurio — Thu, 19 Aug 2010 17:46:10 +0000

Here are the headlines from Carl Mercurio’s Health Plan Market Trends Letter for August 16, 2010.

Boorady is Bullish on Managed Care Growth Prospects
Health Net Provides 0% Bridge Loans to Community Clinics
Independence Blue Cross to Sell PBM Unit to Catalyst
AHIP Board Supports Ignagni
CA HMOs Enjoy Profit Growth in 2009

Filed under: Managed Care

Quote of the Day: Charles Boorady

Carl Mercurio — Wed, 18 Aug 2010 17:45:55 +0000

Credit Suisse analyst Charles Boorady: Accountable Care Organizations could be to “today’s managed care plans what HMOs were to traditional insurers when the HMO act of 1973 was signed.”

Filed under: Healthcare Reform

UnitedHealth Still Far From Diversification Goal

Carl Mercurio — Tue, 17 Aug 2010 14:32:36 +0000

No sooner did UnitedHealth announce plans to diversify further beyond its core medical insurance business than the company agreed to acquire Executive Health Resources (Newtown Square, PA), which helps hospitals with medical necessity compliance for Medicare and Medicaid patients. EHR, with 1000 employees and more than 1100 hospital clients, will become part of United’s Ingenix division.

How far does the EHR transaction move the needle for United – which believes non-health insurance lines could eventually account for 30% to 40% of company operating earnings, up from 20% today? “We have quiet some distance to travel to get up into that range. One or two transactions won’t do it,” says Jon Penshorn, senior vice president of investor relations.

Extended coverage appears in the Aug. 9 issue of Carl Mercurio’s Health Plan Market Trends Letter.

Filed under: Managed Care

Boorady is Bullish on Managed Care

Carl Mercurio — Mon, 16 Aug 2010 20:32:14 +0000

Somebody likes managed care stocks. Charles Boorady of Credit Suisse has initiated coverage of the managed care sector with an “overweight” or “buy” rating. He says investors should buy Coventry, Humana, UnitedHealth and WellPoint, with United being his top pick. He rates as “hold” Amerigroup, Centene, Cigna, Health Net, Molina and Triple-S. He has no “sell” ratings. Notes Boorady, “Winners and losers will emerge in managed care. Winners will have access to public equity capital and invest strategically to offset margin compression by taking market share from 1,200 insurers that may not survive, low-cost to compete on price through exchanges, M&A track record; Medicare, Medicaid & HMO experience; and real-time HCIT capabilities to coordinate with physicians implementing electronic health records and ACOs.”

Filed under: Managed Care

This Week in Health Plan Market Trends

Carl Mercurio — Thu, 05 Aug 2010 21:06:38 +0000

Here are the headlines from Carl Mercurio’s Health Plan Market Trends Letter for August 2, 2010.

Evaluating the Aetna, CVS Caremark PBM Deal
2Q10 Health Plan Profits Soar 28%
Medco Downgraded; CVS Caremark Sees Improvement
A Tale of 2 Medical Homes Initiatives

Filed under: Managed Care

Evaluating the Aetna, CVS Caremark PBM Deal

Carl Mercurio — Tue, 03 Aug 2010 20:07:59 +0000

I’m going to give Aetna the benefit of the doubt on its decision to hang onto its pharmacy benefit management unit while handing CVS Caremark a 12-year deal to administer drug benefits for 9.7 Aetna PBM members. The goals: lower drug costs, lower overall medical costs through enhanced integration of medical and pharmacy programs, and ultimately more competitive premium rates.

But I don’t blame investors for being spooked at least initially, pushing Aetna shares down 3% on the announcement, while shares in CVS rose 3%. (Aetna shares subsequently bounced back amidst a broad market rally).

First, the arrangement is complex. Aetna will continue to negotiate and retain rebates for drugs on its formulary. CVS will handle fulfillment of mail order and specialty drugs from its own inventory, taking advantage of its bulk purchasing efficiencies. CVS is also providing Aetna with pricing guarantees.

Aetna continues to own its PBM and both its mail-order and specialty pharmacies. Aetna will also continue to handle clinical program development, sales and account management, pricing and underwriting, formulary management and clinical protocols. CVS – in addition to mail order procurement and fulfillment – will handle network contracting, claims processing, customer service and member engagement. Aetna will transfer 800 of its 1800 PBM employees to CVS.

How complex is the arrangement? Aetna will take up to $50 million to $60 million in pretax charges — reflecting the cost of structuring a transaction in which it didn’t sell its PBM unit.

Extended coverage appears in the Aug. 2 issue of Carl Mercurio’s Health Plan Market Trends Letter.

Filed under: Managed Care

UnitedHealth Hopes to Grow Non-Health Insurance Business

Carl Mercurio — Mon, 26 Jul 2010 13:36:49 +0000

Yet another major health plan hopes to grow revenues and profits through a new mix of products and services beyond the core medical insurance business.

UnitedHealth Group (Minnetonka, MN) said it hopes to expand its healthcare services businesses – adding that these non-health insurance lines could eventually account for 30% to 40% of company operating earnings, up from 20% today.

United also announced the formation of an “emerging businesses group” led by Rick Jelinek, most recently CEO of United’s Medicaid business. Jack Larsen takes over Medicaid, while Tom Paul becomes CEO of United’s Medicare business.

I have to admit, Jelinek has landed a cool job — pulling together new product ideas from across the enterprise, identifying new business opportunities resulting from reform, and leading a kind-of entrepreneurial research and development arm.

Extended coverage appears in the July 26 issue of Carl Mercurio’s Health Plan Market Trends Letter.

Filed under: Managed Care