IBJNews

Reform offers risk, opportunities for Lilly, WellPoint

Back to TopCommentsE-mailPrintBookmark and Share

Drugmakers like Eli Lilly and Co. and health insurers like WellPoint Inc. will gain millions of customers under legislation passed by the House Sunday night that overhauls the nation’s health care industry. But firms in the industry also will pay new fees to the government, and face stricter rules that may narrow profit margins and fuel mergers.

The bill that the House passed on a 220-211 vote Sunday night expands coverage to 32 million uninsured Americans, according to Congressional number crunchers.

The revamp will cost $940 billion over 10 years, with industry fees and taxes helping defray the cost of adding to the ranks of customers who can afford to pay their doctors, drugstores and hospitals. Because the legislation creates pressure to curb medical costs, companies may merge as a way to lower expenses, said Paul H. Keckley, executive director of the Deloitte Center for Health Solutions, a Washington-based research firm.

“You have some that are able to manage more efficiently and strategically and some that can’t,” Keckley said. “You’ll see an acceleration of acquisitions.”

Investors in health care were cautiously optimistic in trading Monday. Lilly shares were trading late morning at $36.48, up 33 cents on the day. WellPoint stock was at $65.18, up 11 cents.

“We continue to believe money will rotate back into health care stocks now that the uncertainty of ‘reform’ is lifted,” Charles Boorady, an analyst at Citigroup Inc. in New York, wrote in a report Monday.

Drugmakers, who took part early in negotiations with the Senate Finance Committee and the White House, may have the most to gain. More health-care coverage “makes a difference in demand for drug products,” said John L. Sullivan, an analyst at Leerink Swann & Co. in Boston. People won’t have to skip doses of medicines as frequently to save money, he said.

And while the industry pays $28 billion in fees over nine years to help the elderly afford drugs, it avoided requirements to have complicated pricing agreements with the government in Medicare, the program for the elderly and disabled, said Ramsey Baghdadi, a researcher at the analysis firm Prevision Policy LLC in Washington, D.C., who specializes in pharmaceutical and biotechnology policy.

For health insurers, the potential increase in customers will be tempered by subsidy cuts for custom Medicare Advantage plans offered to the elderly, and the prospect of new regulations. The industry, through its trade group America’s Health Insurance Plans, argued as recently as March 18 that the legislation won’t control costs and that people will still wait until they’re sick to buy coverage.

Lilly and other players in biotechnology won 12 years of protection from generic medicines derived from proteins. The generics industry, on the other hand, won a reprieve from a proposed ban on legal settlements where they receive payments from brand-name manufacturers to delay introduction of the cheaper copies.

“The drug industry is probably a bit better off.,” Sullivan said. “And for managed care I think it’s a function of what happens with the individual mandate and how easy or hard it is to keep healthy people in the insurance pool.”

The Standard & Poor’s index of 51 health-care stocks has risen 5.1 percent from this year’s low on Feb. 8, the day President Barack Obama announced he was inviting Democratic and Republican lawmakers to the White House to discuss ways to get the overhaul through Congress. No Republicans voted for the measure Sunday.

The legislation requires Americans to get insurance, offering government aid and new purchasing exchanges to help. WellPoint and other insurers would get millions of new policyholders, while being required to accept all customers, even with pre-existing conditions.

It won’t be easy sailing for the insurance industry, said Matthew Borsch, an analyst with Goldman Sachs Group Inc. in New York, in a research note March 18. The legislation “entails significant risks,” and the companies that sell Medicare Advantage policies face subsidy cuts. America’s Health Insurance Plans, the Washington-based trade group, says $200 billion will be carved from those plans.

Also, the 2014 date for the insurance exchanges to start “leaves three and a half years to work through, and potentially modify, provisions that might undermine successful coverage expansion,” Borsch said.

Carl McDonald at Oppenheimer & Co. in New York sees that period fraught with risk.

“Much of what is included in the health reform bill is what is referred to as enabling legislation,” meaning the Health and Human Services secretary works out the details, he said in a note dated March 17. That is Kathleen Sebelius, who has “spent much of the past month trying to prove that managed care CEOs would deny a claim from their own mothers in order to improve their quarterly financial performance.”

 

ADVERTISEMENT

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by
ADVERTISEMENT

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
 
Subscribe to IBJ
  1. The Walgreens did not get a lot of traffic. It was not located on the corner of the intersection, and not really visible from Emerson. Meanwhile the CVS there is huge and right on the corner. I am guessing a lot of people drove by a million times and never knew the Walgreens was there. Although, with the new Walmart market going in, that area could really see a lot of increase in traffic soon.

  2. You folks don't have a clue. There is a legal way to enter this country and to get aid. This left unchecked could run us to ruin quickly. I also heard that 'supporters' were getting major $$ to take them in? Who's monitoring this and guess who pays the bill? I support charitable organizations... but this is NOT the way to do it!

  3. Apparently at some time before alcohol has been served at the fair. The problem is that beer or wine used to be a common drink for people before soft drinks and was not thought to be that unusual. Since many folks now only drink to see how much they can drink or what kind of condition they can end up in it becomes more problematic. Go to Europe and its no big deal just as if you had sodas of milk to drink everyday. Its using common sense that is lacking now days.

  4. To address the epic failure of attracting race fans to both the Indy 500 and Brickyard 400 would take too much of my time to write. Bottom line Boles is clueless and obviously totally out of touch with the real paying fan base. I see nothing but death spin coming for the Brickyard, just like Indy. Get somebody in a place of power that understands what race fans want.

  5. I am a race fan through & through. It doesn't matter if it's Indy cars or Nascar. I love a great race. I go to several other tracks each year and you can see the entire track. I know Indy has tradition, but fans want to see the entire race. I sit in the Penthouse, am almost 60 years old, and would like to see a better TV screen in turn 1 so you can see the entire race. Then I think Indy needs to install an escalator so us old folks can make it up to the Penthouse and down again if we want more options to purchase food and drinks. Just a race fans opinion. Lights won't make the race any better, but you might be able to see the TV better at night. Turn 1's screen needs replaced with a better and bigger screen.

ADVERTISEMENT