Pharmacy benefit managers (PBMs) could face a major overhaul as bipartisan legislation targeting PBMs was introduced in the House and Senate. This could lead to significant cuts in CVS Health’s operating earnings, potentially reducing them by half, according to Deutsche Bank analyst George Hill.
The new legislation, known as the Patients Before Monopolies (PBM) Act, would require health insurers to divest their pharmacy businesses within three years. Companion legislation was introduced in the House and Senate, with lawmakers from both parties backing the measure.
Support for PBM reform is widespread, with analysts noting that it has “clearly been widely supported by both Democrats and Republicans.” However, uncertainties about the bill’s legality remain a concern.
The recent rout in managed-care stocks began after UnitedHealthcare CEO Brian Thompson’s assassination led to online criticism of the health insurance industry. Sentiment shifted rapidly, as investors initially saw lighter regulation for the group following the Republican electoral sweep but now face multiple regulatory headwinds.
CVS stock has been particularly hard hit, with a 2.1% drop on Friday and a 6.15% slide on Wednesday. The company’s operating earnings could be reduced by over 50%, according to Hill’s estimate. Cigna and UnitedHealth are also facing significant risks, with potential losses of up to 40% and less than $200 million in operating earnings, respectively.
The bill’s impact on the industry is still uncertain, but PBM reform has clearly gained traction among lawmakers.
Source: https://www.investors.com/news/cvs-stock-warren-pbm-legislation-unitedhealth-cigna