Humana Inc. on Wednesday indicated that a downgrade in a key Medicare quality measure could lower its federal reimbursements, but the insurer said the poor grade wasn’t a fair indication of how its business is faring.
The company boosted its per share earnings guidance for its September quarter and current year. Still, shares in the company tumbled 5% on Thursday to close at $168.44.
Star-quality ratings, which are tied to government bonus payments, show that the percentage of Humana’s July 31 membership in 4-star plans or higher declined for the 2018 plan year to about 37%, or 1.17 million members, from about 78%, or 2.15 million members, a year ago, according to the Centers for Medicare and Medicaid Services.
The Louisville, Ky., health insurance and services company historically has performed strongly in the star ratings. Humana said its star ratings for the 2018 bonus year “do not accurately reflect the company’s actual performance under the applicable star measures.
Humana also said it was planning to take actions in the coming quarters “to mitigate any potential negative impact of these published ratings on star bonus revenues for 2018,” including seeking reconsideration of certain ratings.
The company said it believes the decline stems from a recently-ended program audit by the federal CMS.
Chris Rigg, an analyst with Susquehanna Financial Group, warned that the reduction in the quality ratings could have a “substantial impact” on Medicare rates paid to Humana, potentially creating a “5% or greater reimbursement hole that needs to be backfilled” by changing plan designs to maintain margins and membership. The situation could impact Humana’s 2018 results, he said, and could put the company at a disadvantage in enrolling new Medicare members.
For its fiscal 2016, which ends in December, the company now expects adjusted earnings of $9.50 a share, up from its previous guidance for $9.25 a share.
Humana said the expected earnings increase comes mostly from better-than-anticipated performance in its Medicare Advantage and its Healthcare Services units. For the quarter ended Sept. 30, the company raised its guidance to $3.15 a share from $2.77 a share.
The report comes amid federal resistance to Humana’s proposed merger with Aetna Inc.A federal judge is slated to begin trial proceedings on Dec. 5 in the Justice Department’s antitrust challenge to the merger.
Late Wednesday, Cigna Corp. also said it was facing “certain reductions” to its Medicare-plan quality ratings, which it said in a filing are mostly attributed to a previously disclosed audit by the Medicare regulator. It said under the newly-unveiled ratings, about 20% of its Medicare Advantage enrollees would be in a four-star plan.
Like Humana, Cigna said it didn’t believe the new ratings accurately reflect its offerings, and it said it will “work fully with [the Medicare regulator] through their process” to try to improve the findings.
The findings are the latest blow to Cigna’s Medicare business. Cigna in September disclosed that, due to ongoing Medicare sanctions, it would remain unable to sign up new beneficiaries through this fall’s open-enrollment period for the federal program.
Cigna also disclosed this week that Herb Fritch, who oversees its Medicare business, Cigna-HealthSpring, will retire effective Nov. 11. The unit’s chief operating officer will become interim president of Cigna-HealthSpring.
Anthem Inc.’s deal to acquire Cigna is now facing a Justice Department antitrust challenge, as well as internal tensions that have led both companies to accuse one another of breaching terms of their merger, according to legal filings.
Aetna, meanwhile, said it had increased its percentage of Medicare members enrolled in 4-star plans or higher to 91%, up 4 percentage points from a year ago. It said it has the highest percentage of Medicare members enrolled in 4-star plans among publicly traded companies with over 250,000 Medicare Advantage enrollees.