Humana shares plunged more than 5 percent Wednesday after the company said that it would receive less money from the federal government because the feds had lowered their quality rating of the insurer’s Medicare health plans.

Humana said the lower ratings did not reflect the company’s actual performance and that it would take actions to mitigate any potential negative impact on revenue from the rating adjustment.

The Centers for Medicare and Medicaid Services uses a Five-Star Quality Rating System to assess health plans on whether they provide care at the right time and in the right way to assure best results.

Humana said Wednesday morning that the share of its customers in plans that are rated with four stars or higher had fallen by 45 percent, to 1.17 million this year, from 2.15 million last year.

After the announcement, Humana’s shares fell 5 percent in about 10 minutes. The stock recovered slightly before falling further, and in the early afternoon was down more than 7 percent before recovering. Shares closed at $168.44, down 5.12 percent. Broader indices changed little.

Screenshot from bloomberg.com.
Screenshot from bloomberg.com.

Humana said that it believes its ratings suffered in part because of a $3 million penalty CMS imposed late last year. That penalty, Humana said, automatically downgraded one of the measures that contribute to the star rating. CMS issued the penalty for Medicare violations.

While the company acknowledged Wednesday that it would receive less money from the government in 2018 as a result of the lower ratings, it would not tell IL how much of a cut it expects. The company also declined to tell IL how much of a bonus payment it received this year.

A JP Morgan analyst told Reuters that the lower rating could cut Humana’s revenues by $1 billion. In the second quarter, the company generated revenues of $14 billion.

The company also said it believes it will receive lower bonus payments from the federal government only for one year. The insurer said that CMS told the company that it had demonstrated “that the company had substantially remediated the issues identified in the audit,” Humana said in a press release.

Humana also said that it will ask that CMS reconsider some of the ratings.

Some of Humana’s competitors fared much better in the ratings, which were released today. Rival Aetna, which is trying to buy Humana, said its share of customers that have signed up for plans rated four stars or higher has risen to 91 percent, up 4 percentage points from last year.

Aetna has the highest percentage of Medicare members enrolled in plans rated 4.0 overall stars among publicly traded companies” with more than 250,000 Medicare Advantage customers, the Hartford, Conn.-based insurer said.

Aetna’s shares fell 1.52 percent. The company released its ratings information late in the trading day.

Humana also said in its release Wednesday that it expects to earn $8.80 per share this year, more than previously expected, in part because of better results in its Medicare Advantage business.

Boris Ladwig

Boris Ladwig

Boris Ladwig is a reporter with more than 20 years of experience and has won awards from multiple journalism organizations in Indiana and Kentucky for feature series, news, First Amendment/community affairs, nondeadline news, criminal justice, business and investigative reporting. As part of The (Columbus, Indiana) Republic’s staff, he also won the Kent Cooper award, the top honor given by the Associated Press Managing Editors for the best overall news writing in the state. A graduate of Indiana State University, he is a soccer aficionado (Borussia Dortmund and 1. FC Köln), singer and travel enthusiast who has visited countries on five continents. He speaks fluent German, rudimentary French and bits of Spanish, Italian, Khmer and Mandarin.


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