Market Update: Managed Care Stocks Rebound

Investing.com — Shares of UnitedHealth Group (NYSE: UNH), CVS Health (NYSE: CVS), and Cigna Corp. (NYSE: CI) climbed in today's trading session, registering increases of 3%, 5.5%, and 5% respectively. The upward movement comes as investors reassess the impact of new healthcare provisions included in a continuing resolution agreed upon by Congressional leaders.

Mizuho (NYSE: MFG) analyst Ann Hynes highlighted that the provisions, which target pharmacy benefit managers (PBMs), are less stringent than feared and do not take effect until 2028, providing ample time for the industry to adjust.

Key Provisions

The legislative provisions focus on:
– Eliminating Medicaid spread pricing
– Mandating full rebate pass-through
– Adding reporting transparency requirements

While the language could affect PBM contracts in the commercial market, it is viewed as manageable. Notably, the legislation does not call for the total elimination of rebates.

Since December 8, when concerns about President-Elect Trump's focus on the PBM industry caused a sell-off, managed care companies have seen significant declines in their stock prices compared to broader market indices. However, the stocks are now trading at an average of 10.8x 2025 estimated adjusted EPS, down from 12.8x before the initial commentary on the sector.

Impact on the PBM Industry

The provisions are set to increase transparency and accountability within the PBM industry, with measures such as banning spread pricing in Medicaid and empowering Part D plan sponsors with new audit rights. These changes are expected to introduce more administrative tasks rather than significantly alter the current business models of PBMs.

Hynes noted, "We believe the sell-off in the managed care companies since December 12/8, when it became clear that President-Elect Trump would target the PBM industry, appears overdone." This sentiment has likely contributed to the rebound in stock prices as the market digests the potential long-term effects of the legislation.

The reassessment of the initial reaction to the legislative news has provided a boost to the shares of UnitedHealth, CVS Health, and Cigna Corp., as investors recognize that the impact of the provisions may not be as detrimental to the companies' futures as previously thought. With time to renegotiate and restructure contracts, these managed care organizations appear to be on steadier ground than their recent stock performance suggested.

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