Bill Alpert

Late Monday, the agency overseeing Medicare and Medicaid proposed $4.5 billion of spending cuts for home healthcare, and new economies on diabetes devices.

The spending cuts are another problem for the $3.3 billion acquisition of home health provider Amedisys that UnitedHealth Group's Optum unit has been working to close for two years. It's also unwelcome news for insulin pump maker Insulet, and glucose-monitor suppliers DexCom and Abbott Laboratories.

With the market up a hair on Tuesday morning, shares of Amedisys were down 1.75%, to $96.67. Insulet stock was down 4.2%, Abbott was off 0.3%, but DexCom was up 1.1%.

The cuts are part of calendar year 2026 spending plans published Monday by the Centers for Medicare and Medicaid Services. The reduction in spending for home healthcare adds up to a 6.4% cut for those services.

"The 6.4% rate cut is quite jarring," wrote TD Cowen late Monday. It expects industry lobbyists will push back, but predicts that the final rate impact will be flat to down 1%, at best, instead of the 2.4% increase that had been on the books. A 6.4% rate cut would trim Amedisys cash flows by a high-teens percentage rate, warns analyst Ryan Langston.

At Raymond James, John Ransom wonders if the CMS rate update is the "death knell" for the Amedisys-UnitedHealth deal. It would take 19% off the operating cash flow he predicted for 2026, Ransom wrote in a Monday note, and raise the price UnitedHealth is paying to about 14-times next year's cash earnings.

The U.S. Department of Justice sued to block the merger on antitrust grounds, since UnitedHealth already owns Amedisys rival LHC Group, which it acquired for $5.4 billion in 2023.

"We wonder if this could mean the [Amedisys-UnitedHealth] deal is off given it has faced a two-year legal battle with the Department of Justice, and the deal is currently set to go to mediation in August," Ransom wrote.

Both brokers rate Amedisys stock at Hold. Amedisys and UnitedHealth didn't respond to Barron's questions about the rate cut's implications for their merger.

Another part of Monday's CMS proposal would phase-in competitive bidding for diabetes devices, and change the program's payments for insulin pumps to a monthly rental plan, instead of a purchase. In its proposed rule, the agency said that a rental plan will make pumps more affordable for patients, and allow them to keep up with the latest technology, instead of being locked in for five years.

Raymond James analyst Jayson Bedford wrote Tuesday morning, that two suppliers lead in glucose monitoring: DexCom and Abbott. Medtronic is a distant third, and partnered with Abbott on some products. So he's unsure how competitive bidding will impact that market.

"Abbott, as the lower cost player, is better positioned than DexCom in a competitive bidding world," Bedford wrote. Still, he expects that medical equipment distributors will shoulder a good portion of any price erosion that results from competitive bidding.

DexCom tells Barron's that it is already paid monthly for its glucose monitors, so a monthly rental arrangement would change little. "We continue to feel good about our current pricing, and the balance of economics between us and the durable-medical-equipment distributors," said investor-relations chief Sean Christensen.

Abbott and Insulet didn't immediately respond to our queries.

Bedford rates DexCom stock at Strong Buy, and both Insulet and Abbott stock at Outperform.

Write to Bill Alpert at william.alpert@barrons.com

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July 01, 2025 14:41 ET (18:41 GMT)

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