Healthcare Stocks Drop Amid Push for Legislative Changes to Business Models

Shares of major healthcare companies, including UnitedHealth Group, Cigna, and CVS Health, dropped by up to 5% on Wednesday as concerns mounted over new legislation and public backlash that could disrupt their business operations. These companies, which are key players in the private health insurance sector and pharmaceutical supply chain, also face increasing pressure from lawmakers and patients to change their business practices.

The decline in stock prices follows the introduction of bipartisan legislation aimed at breaking up pharmacy benefit managers (PBMs), which are companies that act as intermediaries between insurers, pharmacies, and drug manufacturers. The legislation, first reported by The Wall Street Journal, targets the growing scrutiny PBMs have faced for inflating drug prices to boost profits, a practice that has drawn the attention of both Congress and the Federal Trade Commission (FTC).

Shares of UnitedHealth Group, Cigna, and CVS Health, which also own pharmacy businesses, all closed down at least 5% following the news. This stock movement comes at a time when insurance companies are already under public scrutiny, particularly after the tragic shooting of Brian Thompson, the CEO of UnitedHealth Group’s insurance arm, last week, which had already caused a dip in healthcare stocks.

The new Senate bill, backed by Senators Elizabeth Warren (D-Mass.) and Josh Hawley (R-Mo.), proposes that companies owning both health insurers and PBMs divest their pharmacy operations within three years. According to The Wall Street Journal, a companion bill is also expected to be introduced in the House.

Warren criticized PBMs for driving up drug costs and harming small pharmacies. “My new bipartisan bill will untangle these conflicts of interest by reining in these middlemen,” she said, emphasizing the negative impact PBMs have on both patients and independent pharmacies.

The largest PBMs in the U.S., including Optum Rx (UnitedHealth), Caremark (CVS), and Express Scripts (Cigna), collectively manage around 80% of the country’s prescriptions, according to the FTC. These companies play a central role in negotiating drug prices and administering insurance formularies, creating potential conflicts of interest when they also own pharmacies.