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Healthways: I told you so

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February 26, 2008 – Comments (2) | RELATED TICKERS: TVTY

A while back, I mentioned that I did not believe Healthways would be able to effectively provide disease management services in its 16,000 person Medicare trial. The stock was then at 4 or 5 stars.

In fact, it's still at 4 stars, only it's down 36% as I write this. I don't have an active pick in HWAY, but I wish I'd picked it to underperform. It's like my ficticious Mastercard call - the one where I sell everything and go homeless to buy Mastercard at the IPO, then sell at $220, but can't do because I'm not clairvoyant.

Last month, the Centers for Medicare and Medicaid services said that HWAY and various competitors weren't delivering the results they'd promised in the disease management trials. Healthways' stock dropped like 16%. Today, HWAY announced it was cutting its 2008 forecast.

I believe HWAY will continue to be able to provide disease management services to the insured population. However, I still don't believe the disease management model is effective in the Medicare population. Medicare beneficiaries have more barriers to compliance than the working insured population, such as transport, lowered cognitive capacity, lack of support services. The working insured population, by the way, is probably the healthiest population anyway.  

 I'm in public health, but not the industry, so this is an educated guess: HWAY will exist as a going concern. It could merge with one or more of the other disease management providers. Commercial providers will continue to provide services to the working insured population, and these services will be of benefit. They may have some success with Medicare populations; Providence Health Plans has had considerable success, and they insure both working and Medicare. However, the Healthways model is going to be very hard to scale up to cater for the entire Medicare population. Providers working at the ground level will have to find additional ways to deliver health education services to seniors with chronic diseases. Seniors with multiple chronic diseases will have to be given intensive, in-person case management services; I believe that firms like Healthways are equipped to do this, but mainly operate from call centers, which is not going to help the really intensive cases much.

Best of luck to Healthways. They do provide a useful service, considering the increasing prevalence of chronic diseases even among the working insured. I just don't think their prospects are as good as their CAPS rating makes them out to be. I generally don't have a lot of confidence shorting stocks or picking them to underperform, so I might sit this one out in CAPS. 

2 Comments – Post Your Own

#1) On February 26, 2008 at 12:33 PM, LordZ wrote:

HMMM seems like mastercard and yourself should go get a room... lol...

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#2) On February 28, 2008 at 9:50 AM, plantgal2008 (< 20) wrote:

The elephant in Healthways living room is getting no coverage at all.  And that is the federal whistleblower lawsuit against Healthways and its Diabetes subsidiary.

This case is the longest running healthcare whistleblower investigation in history!  This case is stuck in the federal district court in Washington D.C. as the last remaining piece of the big Columbia/HCA puzzle (which was settled for over $1.5 billion).

One of Healthways former customers has already settled the charges against it and has sued Healthways to recover the costs of the settlement.

This case will soon be sent back to Nashville for trial(Healthways home-base).  Healthways (which has changed its name three times since this suit was filed) of course denies the allegations against it.  But doesn't everyone?

The US Department of justice has already proved damages in this case of over $100 million, not including fines.  If Healthways loses at trial, the damages will be tripled!

What will happen when this "other shoe" drops? 

 

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