Shares of Zimmer Biomet Holdings (ZBH) are on the rise after Citi analyst Amit Hazan upgraded the stock to Neutral as he believes the nomination of House Representative Tom Price to head the Department of Health and Human Services "significantly increases" the likelihood that the Centers for Medicare & Medicaid Services, or CMS, bundled payment programs may be reduced in size and made voluntary, if not completely eliminated.

(Click on image to enlarge)

POSSIBLE END OF BUNDLED PAYMENTS: Citi's Hazan upgraded Zimmer Biomet to Neutral from Sell, saying the selection of Tom Price to head Health and Human Services "all but ensures current bundled payment programs may be significantly diluted." The analyst told investors that this removes a major risk to the U.S. reconstruction market and to his previous Sell thesis on Zimmer Biomet. Hazan pointed out that Tom Price himself wrote to CMS just two months ago, leading a sizeable Republican effort to have the Center for Medicare and Medicaid Innovation, or CMMI, "cease all current and future planned mandatory initiatives under CMMI." These initiatives include CJR hip and knee bundled payments, the proposed cardiac bundled payment models for CABG, and the proposed Part B drug payment model, he contended. Therefore, once Price is confirmed to head up Health and Human Services, he can undo these programs immediately, with the analyst expecting him to do so. Nonetheless, Hazan pointed out that Price has been extremely vocal about his preference to "Repeal and Replace" the Affordable Care Act, adding that he believes the nominee's own published reform plan would generally increase the number of uninsured and possibly significantly increase insurance costs for the elderly population, which is a possible future negative headwind for the ortho group. Seeing a lower probability of a downside scenario, Hazan also raised his price target on Zimmer shares to $108 from $95.

STILL BEARISH ON STRYKER: Hazan, however, reiterated a Sell rating on Zimmer Biomet's peer Stryker (SYK), saying he views the positive change in bundled payment risk as partly offset by new hospital capital spending risk next year. Nonetheless, the analyst noted that he acknowledges that the situation remains fluid.

PRICE ACTION: In morning trading, shares of Zimmer Biomet have gained about 1% to $103.12.