The real beneficiaries of lower Medicare drug costs (MRK)
Profit-margin leaders in the drug space Merck & Co. (NYSE: MRK) and Pfizer Inc. (NYSE: PFE) may draw investor’s attention today after big pharma agreed over the weekend to cut Medicare drug costs for seniors in the Medicare Part D program. It certainly may sound like a big expense for them.
But the small giveback that has drug companies picking up half the cost when seniors reach a gap under Medicaid’s prescription drug benefit isn’t likely to have a big impact on per-share earnings in the sector. The drug manufacturers anticipated the need for such a giveback, and they’ve been selectively raising prices this year.
The more meaningful news for health care investors is that today’s news is yet another potential setback for health care overhaul as proposed by the Obama Administration. The move by the drug companies bolsters the credibility of the existing Medicare program, and therefore weakens alternatives to Medicare — namely a bigger government-run health care plan that could crush the bottom lines of the hospitals.
So the drug makers’ givebacks are another potential benefit for the managed care stocks like Humana Inc (NYSE: HUM), Coventry Health Care Inc. (NYSE: CVH), Cigna corp. (NYSE: CI), United Health (NYSE: UNH), WellPoint Inc. (NYSE: WLP) and Aetna Inc (NYSE: AET).
As we saw last week, those names seem to benefit every time credible alternatives to the Administration’s health care plans are introduced.
- Mike Tarsala
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