UnitedHealth executives made a valiant attempt yesterday to persuade investors that they have figured out how to improve customer service and keep Congress and the incoming Trump administration from passing laws that could shrink the company’s profit margins – and maybe even the company itself – but Wall Street wasn’t buying.
During their first call with investors since the murder of UnitedHealthcare CEO Brian Thompson, the company’s top brass pointed the finger of blame for rising health care costs everywhere but at themselves – primarily at hospitals and pharmaceutical companies – and made statements that simply were not true. Investors clearly did not find their comments reassuring or credible. By the end of the day shares of UnitedHealth’s stock were down more than 6% to $510.59. That marked a continuation of a slide that began after the stock price peaked at $630.73 on November 11 – a decline of almost 20%.
In a little more than two months, the company has lost an astonishing $110 billion in market capitalization, and shareholders have lost an enormous amount of the money they invested in UnitedHealth.
Earlier yesterday morning, the company released fourth-quarter and full-year 2024 earnings, which were slightly higher on a per share basis than Wall Street financial analysts had expected: $6.81 per share in the fourth quarter compared to analysts’ consensus estimate of $6.73 for the quarter. But the company posted lower revenue during the last three months of 2024 than analysts had expected. While revenue was up 7% over the same quarter in 2023, to $100.8 billion, analysts had expected revenue to grow to $101.6 billion.
And on a full-year basis, the company’s net profits fell an eye-popping 36%, from $22.4 billion in 2023 to $14.4 billion last year.
Bottom line: the company, which until last year had grown rapidly, actually shrank in some respects, especially in the division that operates the company’s health plans. UnitedHealthcare, which Thompson led, saw its revenue increase slightly but its profits fall. The other big division, Optum, which among other things owns and operates numerous physician practices and clinics and one of the country’s largest pharmacy benefit managers (PBMs), fared much better.
While Optum’s 2024 revenue was lower than UnitedHealthcare’s ($253 billion and $298 respectively), it made far more in profits on an operating basis ($16.7 billion and $15.6 respectively).
Optum’s operating profit margin was 6.6% while UnitedHealthcare’s was 5.2%.
The company’s executives blamed higher health care utilization, especially by people enrolled in its Medicare Advantage plans, for the decline in profits.
Witty and CFO John Rex pointed the finger of blame at hospitals and drug companies for rising medical prices. And they obscured the huge amounts of money the company’s PBM, Optum Rx, extracts from the pharmacy supply chain. While the company chose not to break out exactly how much of Optum’s revenues of $298 billion came from Optum Rx, it appears that more than half of it was contributed by the PBM. The company did note that Optum Rx revenues increased 15% during 2024.
Nevertheless, Witty and Rex blamed drug makers for high prices.
They also said that they would be changing the PBM’s business practices to pass through rebate discounts from drug makers to its customers, claiming that it already passes through 98% of them and will reach 100% by 2028. That clearly was a talking point aimed at Washington, where there is significant bipartisan support for legislation that would require all PBMs to do so. Despite UnitedHealth’s claim, there is no external verification to back up that they are passing 98% of rebates back to customers.
Another claim the executives made that is not true is that the Medicare Advantage program saves taxpayers money. Numerous government reports have shown the opposite, that the federal government spends considerably more on people enrolled in Medicare Advantage plans than those enrolled in the traditional Medicare program.
Reports have estimated that UnitedHealthcare, which is the largest Medicare Advantage company, and other MA plans are overpaid between $80 billion and $140 billion a year.
There is also growing bipartisan support to reform the Medicare Advantage program to reduce both the overpayments and the excessive denials of care at UnitedHealthcare and other MA insurers.
While company executives might be hoping that their fortunes will improve during the second Trump administration, Trump recently joined some Republican members of Congress, like Rep. Buddy Carter of Georgia, who are calling for significant reforms, especially to pharmacy benefit managers.
At a news conference last month, Trump promised to “knock out” those middlemen in the pharmacy supply chain.
“We are paying far too much, because we are paying far more than other countries,” he said. “We have laws that make it impossible to reduce [drug costs] and we have a thing called a ‘middleman’ … that makes more money than the drug companies, and they don’t do anything except they’re middlemen. We are going to knock out the middleman.”
UnitedHealth Group, the largest health insurance conglomerate by far, continues to show how rewarding it is for shareholders when corporate lawyers find loopholes in well-intentioned legislation – and game the Medicare Advantage program in ways most lawmakers and regulators didn’t anticipate and certainly didn’t intend – to boost profits.
UnitedHealth announced this morning that it made $15.8 billion in operating profits between the first of January and the end of June this year. That compares to $4.6 billion it made during the same period in 2014. One way the company is able to reward its shareholders so richly these days is by steering millions of people enrolled in its health plans to the tens of thousands of doctors it now employs and to the clinics and pharmacy operations it now owns.
This is the result of the hundreds of acquisitions UnitedHealth has made over the past 10 years in health care delivery as part of its aggressive “vertical integration” strategy.
The other big way the company has become so profitable is by rigging the Medicare Advantage program in a way that enables it to get more money from the federal government in a scheme – detailed in a big investigative report by the Wall Street Journal a few days ago – in which it claims its Medicare Advantage enrollees are sicker than they really are. The WSJ calculated that Medicare Advantage insurers bilked the government out of more than $50 billion in the three years ending in 2021 by engaging in this scheme, and it said UnitedHealth has grabbed the lion’s share of those billions. In many if not most instances, those enrollees were not treated for the conditions and illnesses UnitedHealth and other insurers claimed they had. As the newspaper reported:
Insurer-driven diagnoses by UnitedHealth for diseases that no doctor treated generated $8.7 billion in 2021 payments to the company, the Journal’s analysis showed. UnitedHealth’s net income that year was about $17 billion.
By far, most of UnitedHealth’s health plan enrollment growth over the past 10 years has come from the Medicare Advantage program, and it now takes in nearly twice as much revenue from the 7.8 million people enrolled in that program as it does from the 29.6 million enrolled in its commercial insurance plans in the United States.
Since the second quarter of 2014, UnitedHealth’s commercial health plan enrollment has increased by 720,000 people. During that same time, enrollment in its Medicare Advantage plans has increased by 4.8 million.
UnitedHealth and other insurers that participate in the Medicare Advantage program know a cash cow when they see one.
As the Kaiser Family Foundation noted in a recent report, the highest gross margins among insurers come from Medicare Advantage, which, as Health Finance News reported, boasted gross margins per enrollee of $1,982 on average by the end of 2023, compared to $1,048 in the individual (commercial) market and $753 in the Medicaid managed care market.
UnitedHealth has significant enrollment in all of those areas. Enrollment in the Medicaid plans it administers in several states increased from 4.7 million at the end of the second quarter of 2014 to 7.4 million this past quarter.
In its disclosure today, UnitedHealth did not break out its health plan revenue as it has in past quarters, but you can see how public programs like Medicare Advantage and Medicaid have become so lucrative by comparing revenue reported by the company at the end of the second quarter of 2013 to the second quarter of 2023. Over that time, total revenues for commercial plans (employer and individual) increased by slightly more than $5.6 billion, from $11.1 billion in 2Q 2013 to $16.8 billion in 2Q 2023. Total revenues from Medicaid increased by $14.2 billion, from $4.5 billion to $18.7 billion, and total revenues from Medicare increased by $21.4 billion, from $11.1 billion to $32.4 billion.
Here’s another way of looking at this: At the end of 2Q 2013, UnitedHealth took in almost exactly the same revenue from its commercial business and its Medicare business ($11.053 from Medicare and $11.134 from its commercial plans.
At the end of 2Q 2023, the company took in nearly twice as much from its Medicare business ($32.4 billion from Medicare compared to $16.8 billion from its commercial plans.)
The change is even more stark when you add in Medicaid. At the end 2Q 2023, UnitedHealth’s Medicare and Medicaid (community and state) revenues totaled $51.1 billion; It’s commercial revenues, as noted, totaled $16.8 billion). It’s now getting three times as much revenue from taxpayer-supported programs as from its commercial business.
As impressive for shareholders as all of that is, growth in the company’s other big division, Optum, which encompasses its pharmacy benefit manager (Optum Rx) and the physician practices and clinics it owns) has been even more eye-popping. At the end of 2Q 2014, Optum contributed $11.7 billion to the company’s total revenues. At the end of 2Q 2024, it contributed $62.9 billion, an increase of $51.2 billion. At that rate of growth, it’s only a matter of a few quarters before Optum is both the biggest and most profitable division of the company.
And here’s the way the company benefits from that loophole in federal law I mentioned above. The Affordable Care Act requires insurers to spend 80%-85% of health plan revenue on patient care. UnitedHealth is consistently able to meet that threshold by paying itself, as HEALTH CARE un-coveredexplained in December. The billions UnitedHealthcare (the health plan division) pays Optum every quarter are categorized as “eliminations” in its quarterly reports. In 2Q 2024, 27.7% of the company’s revenues fell into that category.
The more it is able to steer its health plan enrollees into businesses it owns on the Optum side, the more it can defy Congressional intent – and profit greatly by it.
Wall Street loves how UnitedHealth has pulled all this off. It’s stock price jumped $33.50 to $548.87 a share during today’s trading at the New York Stock Exchange, an increase of 6.5% – in one day.
UnitedHealth Group’s Optum, the largest employer of physicians in the U.S., is expanding its reach in behavioral health.
The company added 45,000 therapists, psychiatrists and behavioral health providers to its network in 2023, and it has more than 430,000 behavioral health clinicians in its network overall.
Here are five things to know about Optum’s behavioral health offerings:
The company is acquiring behavioral health clinics. Optum recently picked up Care Counseling, which employs more than 200 clinicians at 10 clinics in the Minneapolis area. In 2022, Optum acquired Refresh Mental Health, which operates more than 300 outpatient sites in 37 states.
Optum’s acquisitions of behavioral health providers have helped cut wait times for patients, Optum CEO Heather Cianfrocco said in May.
“On average it takes over 50 to 60 days to get an appointment for high-quality behavioral care,” she said. “We started acquiring our own behavioral providers to be able to reduce that access issue.”
The company is also targeting in-home behavioral care. In December 2023, Amar Desai, MD, CEO of Optum Health, said the company had integrated behavioral care into its home health offerings.
“As a practicing physician, I am particularly excited that we are becoming the practice and partner of choice in the marketplace,” Dr. Desai said of the business.
Optum also administers behavioral health benefits systems for states, though it recently lost contracts to manage programs in Maryland and Idaho.
OptumRx, a pharmaceutical benefit manager, provides medication management for behavioral health, substance use disorder and other complex drugs for more than 1 million people each year.
In the mid-1980’s, managed care advocate Dr. Paul Ellwood predicted that eventually, US healthcare would be dominated by perhaps a dozen vast national firms he called SuperMeds that would combine managed care based health insurance with care delivery systems. Ellwood was a leader of the “managed competition” movement which advocated for a private sector alternative to a federal government-run National Health Insurance system. Ellwood and colleagues believed that Kaiser Foundation Health Plans and other HMOs would be able to stabilize health costs and thus affordably extend care to the uninsured.
The US political system and market dynamics would not co-operate with Ellwood and his Jackson Hole Group’s vision. In the ensuing thirty-five years, healthcare has remained both highly fragmented and regional in focus. However, unbeknownst to most, during the past decade, as a result of a major merger and relentless smaller acquisitions, two SuperMeds were born- CVS/Aetna and UnitedHealth Group, that whose combined revenues comprise 14% of total US health spending.
CVS/Aetna is slightly larger than United, by dint of grocery sales in its drugstores and its vast Caremark pharmacy benefits management business. However, CVS’s Aetna health insurance arm is one third the size of United’s, and though CVS is rapidly scaling up its care delivery apparatus through its in-store Health Hubs, it remains is a tiny fraction of United’s care footprint. Despite being slightly smaller at the top line, United’s market capitalization is more than 3.5 times that of CVS.
United’s vast scope is difficult to comprehend because much of it is not visible to the naked eye, and the most rapidly growing businesses are partly nested inside United’s health insurance business.
United employs over 300 thousand people. At $287.6 billion total revenues in 2021, United exceeded 7% of total US health spending (though $8.3 billion are from overseas operations).
In 2021, United was $100 billion larger than the British National Health Service. It is more than three times the size of Kaiser Permanente, and five times the size of HCA, the nation’s largest hospital chain. United is both larger and richer than energy giant Exxon Mobil. United has over $70 billion in cash and investments, and is generating about $2 billion a month in operating cash flow.
Its highly regulated health insurance business is the visible tip of a rapidly growing iceberg. Revenue from United’s core health insurance business grew at 11% in 2021, compared to 14% growth in United’s diversified Optum subsidiary. Optum generated $155.6 billion in 2021 (of which 60% were from INSIDE United’s health insurance business). You can see the relationship of Optum’s three major businesses to United’s health insurance operations in Exhibit I.
Optum is the Key to United’s Growth
Understanding the role of Optum is key to understanding United’s business. It is remarkable how few of my veteran health care colleagues have any idea what Optum is or what it does. Optum was once a sort of dumping ground for assorted United acquisitions without a seeming core purpose. A private equity colleague once derided Optum as “The Island of Lost Toys”. Now, however, Optum is driving United’s growth, and generates billions of dollars in unregulated profits both from inside the highly regulated core health insurance business and from external customers.
Optum consists of three parts:Optum Health, its care delivery enterprise ($54 billion revenues in 2021), Optum Rx, its pharmacy benefits management enterprise ($91 billion revenues in 2021) and Optum Insight, a diversified business services enterprise ($12.2 billion in 2021). Virtually all of United’s acquisitions join one of these three businesses.
Optum Health: The Third Largest Care Delivery Enterprise in the US
By itself, Optum Health is almost the size of HCA ($54 billion in 2021 vs HCA’s $58.7 billion) and consists of a vast national portfolio of care delivery entities: large physician groups, urgent care centers, surgicenters, imaging centers, and now by dint of the recently announced $5.7 billion acquisition of LHC, home health agencies. Optum Health has studiously avoided acquiring beds of any kind: hospitals, nursing homes, etc. and likely will continue to do so. Optum Health’s physician groups not only generate profits on their own, but also provide powerful leverage for United to control health costs for its own subscribers, pushing down United’s highly visible and regulated Medical Loss Ratio (MLR), and increasing health plan profits.
Optum Health began in 2007 when United acquired Nevada-based Sierra Health, and thus became the new owner of a small multispecialty physician group which Sierra owned. The group did not belong in United’s health insurance business and came to rest over in Optum. Over the past twelve years, Optum Health has acquired an impressive percentage of the major capitated medical groups in the US- Texas’ WellMed, California’s HealthCare Partners (from DaVita), as well as Monarch, AppleCare and North American Medical Management, Massachusetts’ Reliant (formerly Fallon Clinic) and Atrius in Massachusetts (pending) , Kelsey Seybold Clinic (also pending) in Houston, TX and Everett Clinic and PolyClinic in Seattle.
Optum Health claims over 60 thousand physicians, though many of these are actually independent physicians participating in “wrap around” risk contracting networks. By comparison, Kaiser Permanente’s Medical Groups employ about 23 thousand physicians. United’s management claims that Optum Health provides continuing care to about 20 million patients, of whom 3 million are covered by some form of so-called “value based” contracts. Perhaps half of this smaller number are covered by capitated (percentage of premium-PMPM) contracts.
Optum Health straddles fierce competitive relationships between United’s health insurance business and competing health plans in well more than a dozen metropolitan areas. Almost half (44%) of Optum Health’s revenues come from providing care for health plans other than United.
When Optum acquires a large physician group, it acquires those groups’ contracts with United’s health insurance competitors, some of which contracts have been in place for decades. Premium revenues from other health plans, presumably capitation or per member per month (PMPM) revenues, are one-quarter of Optum Health’s $54 billion total revenues. These “external” premium revenues have quadrupled since 2018, largely for Medicare Advantage subscribers. Optum Health contributes about $4.5 billion in operating profit to United. It is impossible to determine from United’s disclosures how much of this profit comes from Optum Health’s services provided to United’s insured lives and how much from its medical groups’ extensive contracts with competing health plans.
Optum Health’s surgicenters and urgent care centers provide affordable alternatives to using expensive hospital outpatient services and emergency departments, potentially further reducing United medical expense. This creates obvious tensions with United’s hospital networks, since Optum Health can use its large medical practices and virtual care offerings to divert patients from hospitals to its own services, or else render those services unnecessary.
Though some observers have termed Optum/United’s business model “vertical integration”-ownership of the suppliers to and distributors of a firm’s product– Optum Health has actually grown less vertical since 2018, with revenues from competing health plans growing from 36% of total revenues in 2018 to 44% in 2021. A 2018 analysis by ReCon Strategy found at best a sketchy matchup between United’s health plan enrollment by market and its Optum Health assets (https://reconstrategy.com/2018/04/uniteds-medicare-advantage-footprint-and-optumcare-network-do-not-overlap-much-so-far/.
Optum Rx: The Nation’s Third Largest Pharmacy Benefits Management Business
Optum’s largest business in revenues is its Optum Rx pharmaceutical benefits management (PBM) business, which generates $91 billion in revenues, and processes over a billion pharmacy claims not only for United but also many competing insurers and employer groups. Pharmaceutical costs are a rapidly growing piece of total medical expenses, and controlling them is yet another source of largely unregulated profits for United; Optum Rx generated over $4.1 billion of operating profit in 2021.
Optum Rx is the nation’s third largest PBM business after Caremark, owned by CVS/Aetna and Express Scripts, owned by CIGNA, and processes about 21% of all scripts written in the US. Pharmacy benefits management firms developed more than two decades ago to speed the conversion of patients from expensive branded drugs to generics on behalf of insurers and self-funded employers. They were given a big boost by George Bush’s 2004 Medicare Part D Prescription Drug benefit, as a “pro-competitive” private sector alternative to Medicare directly negotiating prices with pharmaceutical firms.
Reducing drug spending is one key to United’s profitability. Since generics represent almost 90% of all prescriptions written, Optum Rx now relies on fees generated by processing prescriptions and on rebates from pharmaceutical firms to promote their costly branded drugs as preferred drugs on Optum Rx’s formularies. These rebates are determined based on “list” prices for those drugs vs. the contracted price for the PBMs, and are actual cash payments from manufacturers to PBMs.
Drug rebates represent a significant fraction of operating profits for health insurers that own PBMs, particularly for their older Medicare Advantage patients that use a lot of expensive drugs. Unfortunately, PBMs have incentives to inflate the list price, because rebates are caculated based on the spread between list prices and the contract pricel Unfortunately, this increases subscribers’ cash outlays, because patient cost shares are based on list prices.
Optum Rx generates about 39% of its revenues (and an undeterminable percentage of its profits) serving other health insurers and self-funded employers. Many of those self-funded employers demand that Optum pass through the rebates directly to them (even if it means being charged higher administrative fees!).
Unlike the situation with Optum Health, the “verticality” of Optum’s PBM business-the percentage of Optum revenues derived from serving United subscribers- has increased in the last seven years, to more than 60% of Optum Rx’s total business. What happens to the billions of dollars in rebates generated by Optum Rx is impossible to determine from United’s disclosures. However, our best guess is that pharmaceutical rebates represent as much as a quarter of United’s total corporate profits.
Optum Insight: “Intelligent” Business Solutions
The fastest growing and by far the most profitable Optum business is its business intelligence/business services/consulting subsidiary. Optum Insight was generated $12.2 billion in revenues in 2021, but a 27.9% operating margin, five times that of United’s health insurance business. Optum Insight is strategically vital to enhancing the profitability of United’s health insurance activities, but also generates outside revenues selling services to United’s health insurance competitors and hospital networks.
The core of Optum Insight is a business intelligence enterprise formerly known as Ingenix, which provided “big data” to United and other insurers about hospital and pricing behavior and utilization-crucial both for benefits design and administration. In 2009, Ingenix was accused by New York State of under reporting prices for out of network health services for itself and its clients, which had the effect of reducing its own medical reimbursements, and increasing patient cost shares. United signed a consent decree to alter Ingenix business practices and settled a raft of lawsuits filed on behalf of patients, physicians and employers. Its name was subsequently changed to Optum Insight.
By dint of aggressive acquisitions, Optum Insight has dramatically increased its medical claims management business, consulting services and business process outsourcing activities. . Most of United’s investment in artificial intelligence can be found inside Optum Insight. Big data plays a crucial role in United’s overall strategy. Optum Insight’s claims management software uses vast medical claims data bases and artificial intelligence/machine learning software to spot and deny medical claims for which documentation is inadequate or where services are either “inappropriate” or else not covered by an individual’s health plan. Providers also claim that the same software rejects as many as 20% of their claims, often for problems as tiny as a mis-spelled word or a missing data field.
Optum Insight software plays a crucial role in helping United’s health insurance plans manage their medical expense. Traditional health plan profitability is generated by reducing medical expense relative to collected premiums to increase underwriting profit. These profits are regulated, with highly variable degrees of rigor by state health insurance commissioners, and also by provisions of ObamaCare enacted in 2010.
Though its acquisition of Equian in 2019 and the proposed $13 billion acquisition of health information technology conglomerate Change Healthcare in 2021, United came within an eyelash of a near monopoly on “intelligent” medical claims processing software. The Justice Department challenged this latter acquisition and United may agree to divest Change’s claims processing software business as a condition of closing the deal. Even without the Change acquisition, Optum Insight processes hundreds of millions of medical claims annually not only for United’s health insurance business but for many of United’s competitors.
However, Optum Insight’s claims management system can also be used to increase MLR if medical expense unexpectedly declines, exposing the firm to federal requirement that it rebate excessive ‘savings’ to subscribers. This happened in 2020, when the COVID pandemic dramatically and unexpectedly added billions to United’s earnings due to hospitals suspending elective care. The chart below shows United’s 2Q2020 earnings per share almost doubling due to the precipitous drop in its medical claims expenses!
Hospital finance colleagues reported an immediate and substantial drop in medical claims denials from United and other carriers in the summer and fall of 2020. United’s quarterly profits dutifully and steeply declined in the subsequent two quarters, because its medical expenses sharply rebounded. The rise in
United’s medical expenses helped the firm avoid premium rebates to patients required by provisions of the ObamaCare legislation passed in 2010. The firm did voluntarily rebate about $1.5 billion to many of its customers in June, 2020.
However the most rapidly growing part of Optum Insight is its Optum 360 business process outsourcing business, which helps hospitals manage their billing and collections revenue cycle, as well as information technology operations, supply chain (purchasing and materials management) and other services. Through Optum 360, Optum Insight has signed five long term master contracts in the past two years’ worth many billions of dollars with care providers in California, Missouri and other states to provide a broad range of business services.
With all these different businesses, it is theoretically possible for one piece of Optum to be reducing a hospital’s cash flow by denying medical claims for United subscribers, while United’s health insurance network managers bargain aggressively to reduce the hospital’s reimbursement rates while yet another piece of Optum runs the billing and collection services for the same hospital and its employed physicians, while yet another piece of Optum competes with the hospital’s physicians and ambulatory services, diverting patients from its ERs and clinics, reducing the hospital’s revenues.
It is not difficult to imagine a future in which Optum/United offers hospital systems an Optum 360 outsourcing contract that run most of the business operations of a hospital system in exchange for preferred United health plan rates, an AI-enabled EZ pass on its medical claims denials and inpatient referrals from Optum physician groups and urgent care centers, at the expense of competing hospitals.
Managing these potential conflicts will be an increasing challenge as these various businesses grow, placing intense pressure on United’s leadership to get the various pieces of United to work together. To many anxious hospital executives, United resembles nothing so much as the Kraken, rising up out of the sea, surrounding and engulfing them- a powerful friend perhaps or a fearsome foe. As you might expect, United’s growing market power and growth has generated a fierce backlash in the hospital management community.
What Business is United Healthcare In?
United Healthcare is the most successful business in the history of American healthcare. The rapid growth of Optum and continued health insurance enrollment growth from government programs like Medicaid and Medicare has created a cash engine which generates nearly $2 billion a month in free cash flow. Optum’s portfolio has given United an impressive array of tools, unequalled in the industry, to improve its profitability and to reach into every corner of the US health system. United Healthcare is managed care on steroids.
United’s diversified portfolio of businesses gives the firm what a finance-savvy colleague termed “optionality”- the ability to redirect capital and management attention to areas of growth and away from areas that have ceased to grow, in the US or overseas. With its substantial investable capital, it will have the pick of the litter of the 11 thousand digital health companies as the overextended digital health market consolidates. United will be able to use its vast resources to build state-of-the-art digital infrastructure to reach and retain patients and manage their care.
United’s main short term business risks seem to be running out of accretive transactions effectively to deploy its growing horde of capital and managing the firm’s rising political exposure. United has had tremendous business discipline and has shied away from speculative acquisitions that are not immediately accretive to earnings. If its earnings growth falters, however, it will also encounter pressure from the investment community to increase dividends (presently about 1.2%) or share buybacks to bolster its share price, or else divest some or all of Optum in order to “maximize shareholder value”.
Answering the question, “What Business is United In” is simple: just about everything in health but hospitals and nursing homes.
Answering the questions- who are its customers and what do they want? — is a great deal harder. The customers United serves are in a sort of cold war with one another. United’s original business was protecting employers from health cost growth , and tempering the influence of hospitals and doctors by reducing their rates and utilization. By fostering so-called Consumer Directed Health Plans that expose many of their subscribers to very high front-end copayments, United and its health insurance brethren, have also increased their out-of-pocket costs, whether they have the savings to pay them or not.
There are also some ironies in United’s development. Optum Insight’s suite of hospital business services are designed to reduce administrative costs created in major part by United and other insurers’ medical claims data requirements. Its PBM business, originally intended to reduce drug spending by bargaining aggressively with pharmaceutical manufacturers has ended up pushing up drug list prices and consumer cost shares.
While presumably everybody benefits if United can somehow help patients become and remain healthy, it is still far from obvious how to do this. Managing all these markedly divergent customer needs will be a tremendous management challenge for whoever succeeds United’s reclusive (and very effective) 70 year old Chairman Stephen Hemsley.
What Does Society Get from this Vast Enterprise?
However, as Peter Drucker told a different generation of business giants, businesses are not entities unto themselves, accountable only to shareholders and customers. They are organs of society, and are expected to create social value. Americans are suspicious of vast enterprises, as businesses from Standard Oil, US Steel and ATT to Microsoft and Facebook have learned. As businesses grow and become more successful, public suspicion grows.
Private health insurers already face strident opposition from progressive Democrats, who believe that health coverage ought to be a public good, a right of citizenship provided publicly; in other words, that private health insurers have no business being in business. And large insurers like United also face intense opposition from hospitals and many physicians because they reduce their incomes and impose major administrative burdens upon them.
In the age of Twitter and TikTok, United is highly vulnerable to “event risks” that confirm the hostile narratives of the firm’s detractors that United is mainly about maximizing its own profits, not about improving the health of its subscribers or the communities it serves. It is not clear how many the tens of millions of United subscribers have warm and fuzzy feelings about their giant health insurer. Memories of the HMO backlash of the 1990’s reside in the firm’s corporate memory.
United has grown to its present immense scale largely without public knowledge. United has within its reach the capability of constraining overall health cost growth across dozens of metropolitan areas and regions, not merely cost growth for its own beneficiaries (roughly one in seven US citizens already get their health insurance through United). With its expanding digital health operations, it can deploy state of the art tools for helping United’s 50 million subscribers avoid illness and live healthier lives.
United also has the ability to damage the financial operations of beloved local hospitals and deny coverage to families, raising their out of pocket expenses. How United frames and defends its social mission and how it manages all the delicate and increasingly fraught customer relationships will determine its future, and in important ways, ours as well.
UnitedHealth Group expects Optum to see a long-term double-digit revenue growth rate and bring in a range between $212 billion to $214 billion in 2023 revenues.
The Minnetonka, Minn.-based healthcare giant shared Nov. 29 it projects growth margins of over 20 percent for technology products and low- to mid-single-digit growth for pharmacy care services.
2023 projections:
Optum Health Revenues: $91 billion to $92 billion Earnings: $7.4 billion to $7.6 billion
Optum Insight Revenues: $18.6 billion to $19.3 billion Earnings: $4.4 billion to $4.5 billion
OptumRx Revenues: $105.5 billion to $106.5 billion Earnings: $4.8 billion to $4.9 billion
UnitedHealth Group expects 2023 revenues of $357 billion to $360 billion, net earnings of $23.15 to $23.65 per share, and adjusted net earnings of $24.40 to $24.90 per share. Cash flows from operations are expected to be $27 billion to $28 billion.
UnitedHealthcareexpects 2023 revenues to range from $274 billion to $276 billion. By the end of this year, the payer’s revenues are expected to hit $249.2 billion, up from $222.9 billion in 2021.
UnitedHealth Group’s Optum announced plans to acquire publicly traded, postacute care behemoth LHC Group for $5.4B. The Lafayette, LA-based company, which had $2.2B in revenue last year, operates more than 550 home health locations, 170 hospice sites, and 12 long-term acute care hospitals across 37 states, reaching 60 percent of the country’s Medicare-eligible seniors. LHC also has more than 430 hospital joint venture partners.
The Gist: This deal will greatly expand Optum’s ability toprovide home-based and long-term care, with the goal of moving more care for the insurer’s Medicare Advantage enrollees to lower-cost settings. The acquisition puts Optum’s home healthcare portfolio on par with competitor Humana, which has been the leader in amassing home-based and postacute care assets, and recently moved to take full control of home health provider Kindred at Home. LHC will be part of a growing portfolio of care assets managed by Optum Health, which also includes the company’s owned physician assets.
Success in lowering cost of care will require Optum to integrate referrals and care management across a rapidly expanding portfolio—and ensure its physician base has confidence in these new models of care.
Optum spent the last decade investing in significant growth, adding thousands of physicians to its network and purchasing ASC company Surgical Care Affiliates in 2017. Now the company is focusing more on its primary care network, data offerings and $115 billion pharmacy and medical care business line.
Optum Health, the healthcare provider division which includes physician groups and ambulatory surgery centers
Optum Insight, which houses the data analytics platforms designed to connect clinical, administrative and financial data
Optum Rx, a pharmacy benefits and care services business
Each division has a unique growth strategy focused on the patient and provider experience.
Provider growth Optum Health now has 60,000 employed or aligned physicians and partners with 100 payers. Optum as a whole now works with 80 percent of health plans and 90 percent of hospitals and 90 percent of Fortune 100 companies.
Wyatt Decker, CEO of Optum Health, said in the 2021 earnings call in January that Optum Health is still a growth platform and the company will make investments to more deeply penetrate established markets. He expects Optum Health to deliver 8 percent to 10 percent margins annually going forward.
“Our approach strengthens the critical provider-patient relationship by empowering our primary care physicians with the latest information, insights and best practices to help them efficiently coordinate all patient care, manage referrals and identify higher-quality, lower-cost options,” the company said in its 2021 yearend highlights report.
ASCs certainly fit the high quality, low-cost care description, but Optum’s executives fell shy of mentioning whether the company would focus on growth in that sector during the 2021 earnings call.
Optum is also expanding its virtual care capabilities, focused on chronic care patients, and its behavioral health services. The company said it needs to add physicians, clinicians and technology to support patient care in those areas. Optum said it has its sights set on providing more whole-person, value-based care, scaling in new markets and having the key data insights to do it better than anyone else.
Value-based care Last year, Optum and UnitedHealth Group’s health insurance business, UnitedHealthcare, worked together with external partners to grow in commercial and government payer markets, innovate and add 500,000 patients to their value-based contracts. Optum served 100 million patients, and 2 million of the patients were under fully accountable arrangements. Both companies also had a sharpened focus on the consumer experience.
“Taken together, these efforts helped us add more than $30 billion in revenue for the year, about $10 billion above our initial outlook,” said Andrew Witty, CEO of UnitedHealth Group, during the earnings call, as transcribed by The Motley Fool. “And you should expect similar growth in the year ahead. We see an even greater demand for integration to bring together the fragmented pieces of the health system, to harness the tremendous innovation occurring in the marketplace, to help better align the incentives for providers, payers and consumers, and to organize the system around value.”
Data and information Optum Insights aims to continue growing by acquiring Change Healthcare, a healthcare data and technology company.
“The combination will advance our ability to create products and services that improve the delivery of healthcare and reduce the high costs and inefficiencies that plague the health system,” Optum claimed on its fact sheet about the transaction. “We will share these innovations broadly to benefit those who engage with the health system today and well into the future.”
The acquisition could make the episode of care more seamless for patients and reduce administrative burden for providers, as well as give payers a comprehensive view of the patient’s health outcomes with the potential to reduce cost. But it could also give Optum and UnitedHealth Group an unfair advantage over competitors, the Justice Department argued in a lawsuit filed in February.
“Across Optum, we operate with the highest ethical standards in protecting confidential data and information of our clients and adhere to the safeguards we have had in place for more than a decade to ensure data is accessed and used only for permissible purposes,” according to a statement on Optum’s website responding to the Justice Department’s lawsuit. “We will not be distracted by the DOJ’s complaint and will continue to honorably serve our clients and consumers and those that engage in the health system.”
HENRY KOTULA 