Making sense of market moves
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A rough period for UnitedHealth, CVS Group, and Cigna got even rougher on Wednesday when a bipartisan group of senators, including Josh Hawley and Elizabeth Warren, introduced a bill that could result in the breakup of the healthcare behemoths. Shares of all three companies are down at least 10% this week through Thursday’s close.
Here’s what investors are worried about: The bill is the most aggressive legislation proposed yet to curb the power of drug provider middlemen known as pharmacy-benefit managers (PBMs). The bill would force health insurance companies, and PBMs, to divest their pharmacy businesses within three years.
- The three largest PBMs—CVS Health’s Caremark, Cigna’s Express Scripts, and UnitedHealthGroup’s OptumRx— dispense roughly 80% of prescriptions.
- While PBMs argue that they’re able to lower drug prices by negotiating with pharma companies and use their purchasing power to secure discounts, critics (including doctors, patients, and lawmakers) claim that PBMs increase costs to patients and hurt independent retail pharmacies.
“PBMs have manipulated the market to enrich themselves—hiking up drug costs, cheating employers, and driving small pharmacies out of business,” Warren said in a statement.
Healthcare is in the (harsh) spotlight
Popular resentment toward the healthcare industry isn’t new, but the widespread show of support online for the suspect who is accused of fatally shooting the CEO of United HealthCare’s insurance wing, Brian Thompson, showed just how fed up Americans really are. And that backlash could spur a push for more regulation from Washington, DC.
The diagnosis: Shares of UnitedHealth Group have jumped 1,200% over the past two decades and Cigna has leaped ~4,000% over the same time period, but life expectancy in the US has stayed flat. According to a recent Gallup poll, only 19% of Americans are satisfied with the cost of healthcare. And many feel powerless and frustrated when doctor-recommended procedures aren’t covered or claims are denied.
The big picture: While analysts are overall still optimistic about the sector’s fundamentals, this week’s bill isn’t the only regulatory threat that’s gaining momentum. President-elect Trump voiced support for curbing drug prices, and other legislation aimed at pharmacy-benefit managers includes requiring more transparency and outlawing certain pricing strategies. Plus, the nomination of RFK Jr. to head up the Dept. of Human and Health Services rocked healthcare stocks just a few weeks ago.—LB