Disease management company Healthways reported weak earnings yesterday and the stock dropped more than 20 percent, to about $20 per share. Forbes.com’s article on the the news relies exclusively on Jeffries Analyst Arthur Henderson as its “expert.”
He certainly speaks with confidence. Here are some quotes from him:
Unfortunately, in an environment in which medical costs continue to rise and managed care and corporate executives scrutinize expenses and minimize discretionary investments, we think Healthways’ high-priced services stand to lose ground…
The management team is unwilling to adjust to a rapid moving environment. The good products it had that were good six months ago are not necessarily good for right now…
He’s also not shy on offering advice:
Henderson recommends that the company invest in more home nurses and more face-to-face interaction to build greater trust with patients.
So I just had to laugh when I read this sentence toward the end:
[Henderson] lowered his price target on the company to $18.50 from $40.0, and downgraded the stock to “underperform” from “buy.”
So in other words last Friday this “expert” thought the company was worth more than twice as much as he thought it was worth on Monday, after the company changed its guidance? This is the kind of thing that makes analysts look like idiots.
Healthways is a good company, which peaked at almost $70 earlier this year. (I don’t have access to Henderson’s reports but I wonder what valuation he was putting on the company then.) Three years ago –when the stock was at $30 and the analysts were foaming at the mouth over it– I wrote Is the disease management business peaking? Maybe Henderson should have read it:
August 26, 2008
Leading disease management company American Healthways reported an 83% earnings increase compared to the same quarter a year ago. The company reports expanding demand from health plans and payers to help coordinate and integrate the care of chronically ill patients. Most of the company’s services are provided by nurses who interact with patients by phone.
Disease management (DM) has gained acceptance in recent years. Almost all health plans and most employers have some sort of effort in place. However, the road ahead could be bumpy:
- Most programs still address a single condition, such as CHF. Even when DM companies expand beyond one disease, they still can’t address certain co-morbidities such as mental health and cancer
- Calculating return on investment is tricky. It’s not clear that DM provides a financial payback. Meanwhile, vendors have done a disservice to themselves by over-promising returns
- There is some perceived conflict of interest as pharmaceutical companies have provided funding for a number of state initiatives. Some observers view these efforts as an attempt to sell more drugs
- Customers are rarely satisfied with their vendors, and contracts are typically re-bid at the end of the term rather than being renewed automatically
Perhaps the biggest threat to disease management vendors is that hospitals, integrated delivery networks and physician groups will begin to provide disease management services themselves. The DM companies’ current customers would rather have providers coordinate care rather than having to pay a separate vendor. To the extent the providers pick up the ball, it will hurt the DM companies.