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Radar On Market Access: Health Insurers May See Earnings Hit From COVID Vaccine Reimbursement Hike

Posted by Leslie Small on Mar 25, 2021


CMS has significantly boosted the amount that Medicare will pay for administering COVID-19 vaccines, a move that appears to be a positive development for health care providers and retail pharmacies but a potential headwind for commercial health insurers, AIS Health reported.

Previously, the national average Medicare payment rate for administering single-dose vaccines was $28, but CMS on March 15 increased that to $40. For two-dose vaccines, the rate rose from $45 to $80.

Since the federal government has already purchased large quantities of the three FDA-authorized COVID-19 vaccines and distributed them free of charge to providers, neither public nor private health plans will have to absorb the cost of the vaccines themselves. But federal rules require non-grandfathered individual and group plans to pay both in and out-of-network providers a "reasonable rate" for administering the vaccines that references Medicare's reimbursement rate as a guideline.

Given the increased Medicare payment rates for COVID vaccine administration, "CMS will expect commercial carriers to continue to ensure that their rates are reasonable in comparison to prevailing market rates," the agency said in its March 15 press release.

In a March 16 note to investors, Credit Suisse analyst A.J. Rice deemed the heightened Medicare reimbursement rate for administering COVID vaccines a "modest headwind for commercial health plans." He predicted a larger negative impact on "more heavily concentrated commercial plans" such as Anthem, Inc. and Centene Corp., and a smaller hit for government-focused insurers like Humana Inc. and for diversified firms including Cigna Corp., CVS Health Corp. (which owns Aetna) and UnitedHealth Group.

Health care providers, on the other hand, welcomed CMS's move. In a statement, American Medical Association President Susan R. Bailey, M.D., wrote that "this has been a trying time for physician practices, and we thank the administration for acknowledging the challenges of practicing medicine during a pandemic."

Companies with significant retail pharmacy holdings also stand to gain from CMS's move. Citi analyst Ralph Giacobbe estimated in a March 16 research note that Medicare's reimbursement increase could boost CVS Health's earnings per share by approximately 39 cents and Walgreens Boots Alliance's by about 52 cents.

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Topics: Industry Trends, Data & Analytics, Payer