MIZUHO SECURITIES USA INC. | US EQUITY RESEARCH
The UC Irvine HC Forecast Conference is usually a must-attend event for us, but this year even more so: With Price as Secretary of HHS and Trump as President, we wanted the DC dish from the Washington panel more than ever this year to try to quantify the Price of Trump. We learned a lot, but only recap the key takeaways below. Inside, there's more on tenor and tone, strategy, tax reform and numbers. We weave in the recent leak of the GOP replacement plan that repeals the 'Caid expansion in 2020 and moves to per capita spending limits, the worst of all worlds for GOP governors, not to mention the governed, in our view. The bottom line: We make no change to our thesis, i.e., that the ACA issue is still a potential negative for the hospitals, as chaos still reigns in our nation's capital.
It will likely be the House, not just the Senate, that could have problems passing Repeal/Replace/Whatever – and the issue will be the Medicaid Expansion. There’s the Freedom Caucus on one side and the Tuesday Group on the other, both with about 50 votes, which means that Ryan needs both to agree with each other and they don’t. But if it passes, it will almost certainly have to pass with changes to the Medicaid program, including either per capita limits or block grants. While that's bad for hospitals and Medicaid MCOs, they'd each see cuts/taxes repealed as well.
The debt ceiling issue is a looming crisis – something has to be done by 3/15/17 – and the structural deficit issue has only intensified in the context of ACA repeal, given the impact that ACA cuts and value-based programs have had on reducing per capita spending on Medicare/Caid. The number of ‘capitas’ just keeps growing too fast. Tax reform and ACA issues could materially increase the deficit: will that matter to Congress and the White House?
Value-based care is working and permeating much of the private sector as health plans refocus on primary care physicians, enabling them with analytics and best practices that drive better outcomes at lower costs. That’s not good for post-acute facilities, particularly skilled nursing (which has been our thesis all along), not great for hospitals (avoidance of the ER was a big theme, again part of our thesis) and it’s good for those who can provide higher quality and specialized home based services. But it’s best for the health plans and other organizations focused on patient-centered care, particularly primary care practices. That’s UNH and may be others now that they are refocusing their efforts on the business rather than mergers, at least in the case of two of the bigger ones.
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