Healthways shares climb on shift in Medicare pilot rule
NEW YORK—Shares of Healthways Inc. rose more than 4 percent Wednesday after the wellness program provider said it amended its Medicare Health Support contract with the Centers for Medicare and Medicaid to allow its program to break even, rather than provide savings of 5 percent.
Healthways will therefore be able to recognize $5.2 million in Medicare revenue in the current fiscal quarter.
Shares rose $1.33, or 4.3 percent, to $32.52.
Healthways shares have fallen sharply since January, when the Centers for Medicare and Medicaid Services said that it would not renew a pilot program called Medicare Health Support because the program was not meeting its targets for saving money.
Nashville-based Healthways provides disease management and wellness programs for health plans, hospitals and small businesses, helping members with diabetes, cancer and other diseases to coordinate care, keep up with treatment and maintain healthy behaviors.
Three years ago, CMS launched the Medicare Health Support pilot program (MHS) to improve quality of care and life for people with multiple chronic conditions, and to help the Medicare program and its beneficiaries save money. Based on the results, CMS would decide whether to expand the program to a second phase.
In February, CMS notified Healthways and four other companies involved in the program that target requirements weren't being met, implying that the program may not move to Phase II. That would deal a blow to Healthways, which has spent more than $23.5 million to support the programs and would be required to reimburse CMS for the fees they have received through the program.
On Wednesday, Jefferies analyst Arthur Henderson said Healthways' recording of Medicare pilot revenue shows the company's ability to achieve the budget neutrality threshold set by CMS, and underscores its ability to generate savings for plan sponsors.
"Given our continued belief that demand for benefit cost mitigation services, particularly disease management and wellness programs, will continue to rise globally over the next several years, as well as the stock's depressed valuation, we continue to believe that HWAY shares present a compelling, long-term investment opportunity," he wrote in a note to clients.
Henderson reiterated a "Buy" rating and $50 price target on the stock.
But Goldman Sachs analyst Daryn Miller backed a "Sell" rating on Healthways, citing the company's layoff of 5 percent of its workforce due to slower-than-expected revenue growth. Miller pointed to Cigna's lower-than-expected first-quarter commercial risk enrollment and reduced full-year enrollment guidance (Cigna accounts for 20 percent of Healthways' revenue), and said Cigna's GreatWest acquisition is not likely to create a meaningful opportunity for Healthways until late calendar 2009 or 2010.
