瑞信-美股-医疗保健行业-2019年Q3管理式医疗总结：2020年展望让投资者松了一口气-2019.11.11-28页.pdf

Managed Care 3Q19 Recap:A Less Messy Quarter Sequentially;Initial 2020 Outlooks Give Investors Sigh of Relief Managed Care|Quarterly All MCOs in Our Coverage Posted Q3 EPS Ahead of Expectations.MCOs posted an average EPS beat of roughly 9.4%relative to cons,ranging from a 1.0%beat for ANTM to a 42.5%beat for WCG.The beats were largely driven by strong top-lines,as MLR was mixed:CI,CVS and WCG posted better MLRs,HUM and UNH were in-line,and ANTM and CNC were worse.On a Y/Y basis,all MCOs reported an increase in consolidated MLR.The Y/Y increase in the ratio for all MCOs in our coverage was largely driven by the HIF moratorium and the extra business day(Monday)in 3Q19.Beyond these two items,ANTM pointed to improved Y/Y medical cost performance in its Medicaid business.Cigna pointed to a Y/Y increase in MLR in the individual medical business(in-line with the companys expectation).While discussing Y/Y trends in MLR,CNC highlighted a 100 bps MLR drag related to the IHSS program reconciliation,a 50 bps drag related to the HIF moratorium,a 30 bps drag related to at-risk state directed payments in California and 10 bps related to other(includes HIX normalization,the impact of Fidelis,and Iowa Medicaid).CVS Health Care Benefits segment MLR benefitted from improvement in the lower end of Middle Market business.HUMs MLR was impacted by lower favorable PPD,a Y/Y increase in Group&Specialty benefit ratio,partially offset by the benefit related to HUMs MA clinical programs,member engagement,and lower than expected medical cost trends.WCGs MLR was impacted by net organic Medicaid growth,its Illinois plans improved performance,partially offset by rate increases in certain markets and continued operational execution.Medicare Cost Trends Remained In-Line to Favorable.During their 3Q19 earnings calls,all MCOs reported commercial medical cost trends in-line to better compared to their expectations.UNH said it now sees 2019 commercial trend running in the lower half of the range it originally outlined last year.2020 Commentary Positive.ANTMs comments suggests that its comfortable at this early date with a 2020 EPS range of roughly$22.50-$22.60.Cignas comments suggest it is comfortable with a 2020 EPS range of roughly$18.00-$18.50.CNC continues to describe$4.79 as a reasonable starting point for 2020 EPS.CVS continues to expect 2020 Y/Y growth in the low single digits.HUM does not believe that$18.25-$18.75 is an unreasonable starting point for its 2020 EPS outlook.UNH expects to be closer to the low end of its 13-16%LT earnings growth target in 2020,which we believe results in UNH offering an initial 2020 EPS guidance of$16.20-$16.50.UNH,ANTM,HUM and CI are our Outperform Rated names in Managed Care.We believe UNH has strong visibility around its targeted 13-16%annual EPS growth and its initial 2020 outlook will likely prove to be conservative.Separately,for ANTM,we believe valuations do not fully reflect the significant benefit from potential positive catalysts related to its strong financial flexibility,and new PBM related savings.HUM remains the most direct way to play the attractive secular growth in Medicare Advantage.Finally,CI currently trades at a 2.5-3.0 x valuation discount to the group average.We see this gap narrowing over the next 12 months.11 November 2019 Equity Research Americas|United States DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES,ANALYST CERTIFICATIONS,LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS.US Disclosure:Credit Suisse does and seeks to do business with companies covered in its research reports.As a result,investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.Research Analysts A.J.Rice 212 325 8134 aj.ricecredit- Eduardo Ron 212 325 7491 eduardo.roncredit- Jailendra Singh 212 325 8121 jailendra.singhcredit- Caleb Harris,CPA 212 325 7458 caleb.harriscredit- Alexander Khan 212 325 7714 alexander.khancredit- 11 November 2019 Managed Care 2 Contents 3Q19 Earnings Follow-up Q&A Notes 3 Company-by-Company 3Q19 Recap 4 Anthem.4 Cigna.5 Centene.6 CVS Health.7 Humana.8 UnitedHealth Group.10 WellCare Health Plans.11 Price Performance and Valuation 13 Industry Operating Statistics 17 Commercial Enrollment.17 Commercial Fully Insured(“Risk-based”)Enrollment 17 Commercial Self-Insured(“Non-Risk/ASO based”)Enrollment 18 Managed Medicaid Enrollment.19 Medicare Advantage Enrollment.20 PDP Enrollment Trends.22 MLR/Utilization Trends.22 Consolidated MLR Trends 22 Investment Income Trends.24 Adjusted Pre-Tax Margin Trends.25 11 November 2019 Managed Care 3 3Q19 Earnings Follow-up Q&A Notes We had post conference call discussions with management teams at each of the seven MCOs(including MCOs)in our coverage universe to review 3Q19 trends and 2019/2020 expectations.Anthem:Q&A Our Way:An Improving Medicaid Trend and a Reasonable 2020 Outlook Boost Shares Cigna:Q&A Our Way:2020 Outlook Could Prove to Be a Conservative Start Centene:Q&A Our Way:CNC Discusses Its Reasons for Confidence in Q4 MLR and Its Initial 2020 Est CVS Health:Q&A Our Way:2020 Outlook Steady As Third Straight Solid Quarter Posted for This Year Humana:Q&A Our Way:HUM Offers Solid Initial Targets for 2020 EPS and MA Enrollment Growth UnitedHealth Group:How Do You Spell Relief?A Strong Q3+Positive 2020 Comments WellCare Health Plans:Q&A Our Way:WCG is Building Operating Momentum as it Approaches CNC Deal Closing 11 November 2019 Managed Care 4 Company-by-Company 3Q19 Recap In the text and figures that follow,we summarize earnings results for each company.Anthem 3Q19 Results Summary:ANTM reported 3Q19 adjusted EPS of$4.87,$0.05/$0.09 ahead of Cons/CSe.The beat relative to our estimates was driven by a better-than-expected top-line(particularly administrative fees&other)as MLR came in higher(50/40 bps higher than Cons/CSe)and SG&A was essentially in-line.MLR&SG&A Trends:3Q19 MLR of 87.2%increased 240 bps Y/Y(vs up 330 bps Y/Y in Q2 and up 290 bps Y/Y in Q1).The Y/Y increase was driven by the 2019 HIF moratorium.ANTM pointed to improved Y/Y medical cost performance in its Medicaid business.ANTM reports that its 3Q19 MLR varied less relative to its internal forecast,than the 50 bps it varied relative to consensus.The$50 mln in unfavorable reserve development was not in the internal estimates offered at the end of the second quarter.The company did well in some areas that helped offset this headwind a little bit.Medicaid reverification has also gone a little bit slower than ANTM wanted.The extra business day Y/Y had an almost 60 bps impact on 3Q19 MLR vs.3Q18.However,the extra business day was not a surprise and was included in expectations,in pricing,and in guidance The Medical Cost Trend for ANTMs large group business was said to be tracking within the companys 6.0%,plus or minus 50 bps target.However,the release also noted that medical claims reserves established at Dec 31,2018 developed in line with ANTMs expectations for the first three quarters,suggesting moderation in benefit from PPD,as development had been running ahead of expectations through 1H19.Adjusted SG&A ratio at 12.9%declined 250 bps Y/Y and was 30 bps better than Cons and in-line with CSe.Commercial&Specialty margins increased 70 bps Y/Y to 10.0%,while Government margins increased 60 bps Y/Y to 3.9%.Membership Trends:Medical enrollment totaled approximately 41.0 million members at September 30,2019,an increase of 1.1 mln members,or 2.7%Y/Y.Total fully insured enrollment grew by 968 thousand lives,or 6.6 percent,and self-funded enrollment grew by 115 thousand lives,or 0.5 percent.Government Business enrollment increased by 864 thousand lives as the Company experienced growth in Medicaid and Medicare.Commercial&Specialty Business enrollment increased by 219 thousand lives driven by growth in the National and Individual businesses,partially offset by a decline in Local Group enrollment.DCP Trends:DCPs at the end of 3Q19 were 39.8 days,up 0.7 days sequentially.Share Repurchase:ANTM repurchased 2.4 mln share of its stock for$644 mln,or a weighted average price of$266.52.As of September 30,2019,ANTM had approximately$4.1 bln of Board-approved share repurchase authorization remaining.As of September 30,2019 cash and investments at the parent company totaled approximately$3.0 billion(vs.$1.4 billion as of June 30,2019).4Q19/2019 Outlook:ANTMs 2019 EPS guidance improved$0.10 to“Greater than”$19.40(CSe/Cons:$19.40/$19.35).Consol MLR&SG&A now are projected to be at 86.5-86.8%(vs 86.2-86.5%prev)and 13.0-13.3%(vs 13.2-13.5%prev),resp,for 2019.ANTMs outlook on premium rev is now$94.0-95.0 bln(vs$93.0-94.0 bln prev),operating rev is now approx.$103 bln(vs approx.$102 bln prev).Medical lives are now expected to be 41.0 mln(vs 41.0-41.3 mln prev).2020 Outlook:ANTMs comments suggest that management is comfortable at this early date with a 2020 EPS range of roughly$22.50-22.60.The starting point for 2019 guidance was$19.00 coming into the year.This figure included$0.70-0.90 in EPS benefit from IngenioRx.So,reducing the$19.00 by$0.80(the midpoint contribution for IngenioRx).So,off the ex-IngenioRx 2019 starting point of$18.20,management feels comfortable anticipating at this 11 November 2019 Managed Care 5 early date 12%growth in its core business,which is the lower end of its 12-15%long-term annual target for core business growth.This 12%Y/Y gain yields$20.38.When the full 2020 benefit of IngenioRx of$2.30 is added to this number,an initial$22.68 number is generated.ANTM seems to feel most comfortable if the resulting number is“rounded down”modestly;yielding our initial estimate of$22.60.For the full year 2019,Medicaid margins are expected to be slightly above the low-end of the companys target range.By way of background,ANTMs target margin is 2-4%(2.5-4.5%when the HIF is in place).By the end of 2020,the Medicaid business is expected to get to the midpoint of the target margin range.The company will start 2020 just slightly above the low-end of its target range.The full year 2020 margin for Medicaid will still be below the midpoint.2021 is when ANTM expects to hit the midpoint of its margin target for the full year.Cigna 3Q19 Results Summary:3Q19 adj EPS of$4.54 came in$0.18/$0.15 ahead of Cons/CSe.3Q19 adj revs were$35.8 bln,$1.4/$0.8 bln above Cons/CSe.Earnings in the Health Services segment(PBM biz)of$1.4 bln came in ahead of Cons($1.36 bln)and was essentially in-line with CSe.Cignas Health Services segment grew mid-single digit or better on an apples-to-apples basis vs down mid-single digits Y/Y in 1H19.Health Services fulfilled 312 mln adjusted scripts(vs Cons/CSe of 309.4/313 mln).In the Health Services segment,revenues came in higher while gross margin was below and SG&A above CSe.Earnings at Integrated Medical(benefits business)of$953 mln came in ahead of CSe($898 mln)but slightly below Cons($963 mln).Within Integrated Medical,the beat relative to CSe was driven by better than expected revs($162 mln),MLR(30 bps better),and SG&A(10 bps better).Segment Results:Integrated Medical EBIT came in at$953 mln,$55 mln ahead of CSe but$10 mln below of Cons.Health Services EBIT at$1.4 bln mln came in$39 mln ahead of Cons and$9 mln below CSe.International EBIT at$194 mln was$2 mln ahead of CSe,while Group Disability EBIT at$143 mln came in$8 mln below CSe.MLR Trends:The segment MLR at 80.5%,up 220 bps Y/Y,was 30 bps better than CSe/Cons.CI attributed the Y/Y increase in MLR to the inclusion of the HIF suspension,a higher MLR Y/Y in the individual medical business,and the effect on medical costs from an additional business day in 3Q19.The elevated MLR for the Individual book was in-line with CIs expectations.CI sees the lower 2H vs 1H PDP being a push on consolidated numbers and not a significant driver of MLR.CI realized fav pre-tax PYD of$8 mln in 3Q19,vs$28 mln in 2Q19 and$18 mln in 1Q19.Cigna reaffirmed its 2019 medical cost trend at 3.5-4.5%.Membership Trends:Cignas medical customer base at the end of 3Q19 was 17.071 mln,an organic increase of 110K members YTD and 212K over 3Q18,driven by growth in the Select and Middle Market segments,partially offset by a decline in National Accounts.DCP Trends:Integrated Medical DCPs were 41.6 days,up 1.5 days seq and down 2.1 days Y/Y.Share Repurchase:In Q3,CI accelerated its share repurchase,buying$676 mln in the quarter.Through Oct 30,CI has repurchased$1.8 bln in stock.The companys 2019 outlook assumes roughly$2 bln of share repurchase.4Q19/2019 Outlook:Relative to 4Q19,Cignas Health Services outlook for pre-tax adj income represents the typical sequential growth in earnings it would expect.CI would expect a further sequential pick-up in synergy benefit in 4Q19.CI expects the stranded costs associated with the ANTM PBM transition to be fully eliminated by year end 2020.The stranded costs built throughout the yearnone in 1Q19,some in 2Q19 and it builds in 2H19.CI expects stranded costs to be highest in 1Q20 but to ramp down over time.By the end of 2020,stranded cost will be eliminated.For the full year,stranded cost is expected to neither be a headwind nor tailwind for 2020 compared to 2019.Further,CI is on track to deliver$60 mln in Health Services 11 November 2019 Managed Care 6 synergies.CI highlighted on its earnings call that on an apples-to-apples basis,to think of its 2H19 earnings as up mid-to-high single digits.2019 adjusted revs raised by$1.5 bln to approx.$138 bln.Pre-tax adj income for the Integrated Medical segment is now$3.8-3.85 bln(up$0-20 mln vs prior outlook)and$5.075-5.175 bln(midpoint unchanged as range narrowed by$25 mln on each end)for its Health Services segment.2019 MLR outlook is now 80.8-81.2%(vs 80.5-81.5%previously).CI now expects its 2019 adjusted pharmacy claims expectations to be 1.22 bln(vs 1.21-1.23 bln previously).CI continues to expect global medical customer growth of approx.200K.CI reaffirmed its 2019 OpEx ratio of less than 10%,and lowered its tax rate outlook to approx.23%(from 23-24%in prior outlook).Cignas adjusted income from operations is now expected to be in the range of$6.38-6.46 bln(vs$6.34-6.46 bln prior outlook).Health Services projected 2020 retention rate for the 2019 selling season for pharmacy services is now 97%vs(97-98%previously),an decrease of 50 bps from the midpoint of the companys previous expectations.2020 Outlook:CIs comments suggest management is comfortable at this early date with a 2020 EPS range of roughly$18.00-$18.50.Cigna talked about taking the$16.90(midpoint of its$16.80-$17.00 2019 EPS outlook)and removing the prior year reserve development,the absence of the tax matter resolved in Q2,and the return of the HIF.All told,those three items amount to$0.50 bringing the 2019 baseline to$16.40.CI expects to grow 10-13%(6-8%organic and 4-5%from capital deployment capturing synergies and effects of deleveragi