JPMorgan says too early to gauge impact from CMS Medicare audits

JPMorgan says that after the close Wednesday, the Centers for Medicare and Medicaid Services announced an expansion of its risk adjustment data validation audits for Medicare Advantage plans. While it is difficult to size the full headwind from potential expanded audits, the news could be an incremental headwind to managed care companies, with the largest large-cap exposures coming from Humana (HUM), CVS Health (CVS), and UnitedHealth (UNH), the analyst tells investors in a research note. “We see several moving parts, but this continues the current CMS search for fraud, waste, and abuse,” says JPMorgan. The firm believes that since this is the beginning of the process, it expects the company will respond to this change in policy. JPMorgan cautions against “simply haircutting earnings at this early stage.” The firm notes that Alignment Healthcare (ALHC) and Humana generate the largest portion of their revenue from Medicare Advantage.