Tag: Jeff Goldsmith

Struggling UnitedHealth Group is a Huge Smoking Black Box

Nov 18, 2025

By JEFF GOLDSMITH

In mid-April 2025, UnitedHealth Group (UNH) reported its 1Q25 operating results, including a modest shortfall in expected earnings and lowered its 2025 earnings forecast by 12%. The company blamed accelerating medical costs and federal policy changes for their most profitable service line, Medicare Advantage. Market reaction was swift and savage. UNH stock lost more than 22% in a single day. In May, United fired its CEO, Sir Andrew Witty and withdrew its earnings guidance for 2025, with the stock declining another 15%. Witty was followed out the door two months later by President and CFO John Rex, heir-apparent to longtime Chairman Stephen Hemsley.

Turns out, UNH’s market capitalization trajectory presaged the collapse in UNH’s 2025 cashflow. UNH’s projected cashflow from operations is now expected fall to be half of its 2025 forecast- a breathtaking $16 billion shortfall. In multiple investor calls, the new/old CEO Stephen Hemsley and his new crew have not come remotely close to explaining where the $16 billion went. Struggling UnitedHealth Group is one gigantic smoking black box.

2024 was a nightmare year for the company, beginning with the massive Change Healthcare cyberattack in February and concluding with the brutal killing of their senior health insurance executive, Brian Thompson, in November. It is clear in hindsight that business fundamentals for UNH’s health insurance and care delivery businesses deteriorated sharply during 2024, and its senior leadership were scrambling to repair the damage.

Health insurers across the country are experiencing record operating challenges. However, UNH’s business model enhanced their vulnerability. UNH had spent $118 billion in just five years (2019-2023) buying profitable smaller companies, almost all of which ended up inside of their enormous Optum subsidiary. These acquisitions included: multi-specialty physician groups, ambulatory surgery and urgent care, business intelligence/business process outsourcing and claims management companies.

These businesses are closely intertwined with United’s legacy health insurance business. In order to reach estimated $445 billion in total 2025 UNH revenues, one has to eliminate $165 billion in intercompany revenue flows (Examples- purchases of services by Optum Health from its consulting arm, OptumInsight, or purchase of health services from Optum Health by United Healthcare, UNH’s insurance business).

The company’s nearly fifty year old health insurance business had been a reliable 5.5-6% operating margin generator. However, in 2025, it will produce only a 3% operating margin. However, UNH’s incremental revenues and earnings growth for the past decade have not come from health insurance, but have been produced by Optum, whose revenues were growing much faster than its health insurance business.

Several pieces of Optum have also been far more profitable than United Healthcare itself. Optum Health grew into a $100 billion business (before eliminations), and used to earn an 10% operating margin. In 2025, that margin will be more like 2.5%. Optum Insight, a $19 billion business (before eliminations), which used to earn a sizzling 28% operating margin will be lucky to earn 8% in 2025. The complex interpenetration of Optum and United Healthcare’s businesses makes it impossible to gauge the seriousness of the company’s operating problems.

Optum Health appears to be a major source of the smoke, but it is impossible to tell from the skimpy disclosures where exactly the fire is.

Hospitals are Incompetent Monopolists!

Nov 11, 2025

By JEFF GOLDSMITH

The health policy community is obsessed with hospital mergers. In a recent paper which I critiqued, the operating thesis was that hospital mergers are conspiracies in restraint of trade, enabling hospitals to extract rent from helpless local employers and patients. This logic leads directly to advocacy (lavishly funded by Arnold Ventures philanthropy) of hospital rate controls as the only way of restraining this abuse of economic power.

The reality is, as you might expect, somewhat different. The following chart, courtesy of healthcare data firm Trilliant Health, shows that hospitals are truly incompetent monopolists. It shows the correlation between hospital operating margins and market concentration for 2023. The hospitals to the far right in this chart have 100% local market shares.

Source: Trilliant Healthcare Analysis of CMS HCRIS files (Hospital Cost Reports), 2023

Do you see a correlation? I sure don’t.

According to Trilliant, the average hospital operating margin in 336 CBSAs (markets) where hospital services are “controlled by a single firm” is -1.7%.This negative operating margin average does NOT include the operating losses on their physician practices, which are not reported on hospital cost reports, so the actual operating losses are likely much greater.

Jeff Goldsmith is a veteran health care futurist, President of Health Futures Inc and regular THCB Contributor. This comes from his personal substack

Bloom is Off the Rose at UnitedHealth Group

Apr 29, 2025

By JEFF GOLDSMITH

A Forty Year Growth Saga is Coming to an End

After market close Wednesday April 16, UnitedHealth Group reported its First Quarter 2025 earnings. UNH missed their expected 1Q earnings by 9 cents a share, but the firm also lowered its full year 2025 earnings estimate by 12%. On Thursday opening, investors reacted with an unbridled fury, and stripped UNH of more than a hundred billion in market capitalization in a matter of hours. In the glare of hindsight, UNH was priced for perfection at a pre-crash trailing Price Earnings ratio of 38, six points higher than Amazon and eight points higher than Microsoft, which might account for the savagery of the correction.

Definitive answers to the question–what is happening to United’s sprawling mass of businesses–are impossible because the company is an $400 billion black box. The main United businesses–health insurance, care delivery, pharmacy benefits management and business intelligence/services–are so intertwined with one another that only United CFO John Rex and a few other senior managers actually know from whence United’s earnings actually flow. What follows is some speculation on the root causes of United’s earnings problem.

First, a major driver of the last two decades of United’s earnings growth has been using a big chunk of its astonishing monthly cash flow (which was approaching $3 billion a month) buying other companies. This party might be over. United has historically spent about half their accumulated wealth on dividends and share buybacks, that is, paying off shareholders to remain shareholders.

However, a big and undisclosed contributor to UNH earnings growth has been acquisitions, which have occurred in a nearly unbroken string for forty years. From 2019 to 2023, United spent an astonishing $118 billion buying other companies, nearly all of which ended up in Optum. Thanks to great discipline by UNH Executive Chair Stephen Hemsley and CFO-now-President John Rex, United almost invariably bought profitable firms in transactions that were accretive to earnings.

United appears to be running out of accretive transactions. With the dearth of major new transactions, United’s $81+ billion horde of cash and short term investments (larger than Exxon Mobil) is likely to plump up yet more. This will cause folks to wonder why United is raising their rates to employers or shaking down providers for deeper discounts when they are sitting on a growing mountain of cash.

United cannot buy more health insurers (both CIGNA and Humana been for sale for years) because federal antitrust enforcers will stop them. There are no more accretive risk-bearing physician group deals. Hospitals presently employ more than a third of practicing physicians in the US (a very unhappy state affairs for both parties). But these hospital acquisitions have limited the universe of available physician transactions for United.

How Health Systems are Losing Contact with their Clinicians

Apr 18, 2025

By JEFF GOLDSMITH

Jeff wrote this article for Hospitals & Health Networks in the July 5, 1998 edition. He republished it this week on his substack calling it a “27th anniversary edition”. It’s an enlightening piece, but as you read it please ask yourself. What, if anything, has changed, and did anything get better?–Matthew Holt

It is hard not to be impressed by the sweep of change, both in the capabilities of the American health system and in health care organizations, over the last 20 years. In the space of a single generation, health services have evolved from a cottage industry into a substantial corporate enterprise. A breathtaking array of new technologies has been added to the hospital’s diagnostic and therapeutic capability. Hospitals have also managed-though not always gracefully-the transition to a more ambulatory and community-based model of care.

Through all these changes, the hospital has remained a central actor in the health system — and despite periodic political challenges, its economic position has significantly strengthened. But this success has come at a terrible price: the increasing alienation of professionals who are the lifeblood of health care and who bear most of the moral risk of the health care transaction.

As organizations have integrated structurally, they have disintegrated culturally. Not merely physicians, but also nurses, technicians, and social workers have seen themselves transformed into commodities and marginalized by the corporate ethos of health services. Professional discontent has intensified as physician practice has become increasingly incorporated into the hospital and as health systems have begun rationing care through captive health plans.

The gulf between managers and professionals — and even between senior and middle management — has widened into a chasm. At its peak financial strength and amid a record economic expansion, the health field has grown ripe for unionization. In fact, the labor climate among health professionals has become so hostile toward management that organizing health services could single-handedly revive the dying union movement in the United States.

Some of this tension is a by-product of the pressure to reduce the excess hospital capacity that health systems have inherited. To move from the present concentration of ownership to consolidation of excess capacity will inevitably mean workforce reductions or redeployment. The fact that little actual reduction in hospital workforce capacity has taken place so far doesn’t mean that the pressure to cut jobs and improve productivity isn’t real and tangible — or that it won’t increase in the future.

But the origin of workforce problems in hospitals and health systems runs deeper than the pressure to consolidate. In little more than a generation, management of hospitals has moved from a passive, custodial, and largely benign “administrative” tradition to an aggressive, growth-oriented entrepreneurial management framework.

“Hospital Mergers Kill”: An Economists’ Exercise in Reality Distortion

Jan 7, 2025

By JEFF GOLDSMITH

In late June, 2024, two economists, Zarek Brot-Goldberg and Zack Cooper, from the University of Chicago and Yale respectively, released an economic analysis arguing that hospital mergers damage local economies and result in an increase in deaths by suicide and drug overdoses in the markets where mergers occur. Funded by Arnold Ventures their study characterizes these mergers as “rent seeking activities” by hospitals seeking to use their economic power to extort financial gains from their communities without providing any value.

The Brot-Goldberg-Cooper analysis was a spin-off of a larger study decrying the lack of federal anti-trust enforcement regarding hospital mergers. These two studies used the same economic model. The data were derived from the Healthcare Cost Institute, a repository of commercial insurance claims information from three of the four largest commercial health insurers, United Healthcare, Humana and Aetna (a subsidiary of struggling pharmacy giant CVS) plus Blue Cross/Blue Shield. HCCI’s contributors account for 28% of the commercial health insurance market.

The authors use a complex econometric model to manipulate a huge, multifactorial data base comprising hospital merger activity, employer health benefits data, county level employment data and morbidity and mortality statistics. This data model enabled a raft of regression analyses attempting to ferret out “associations” between the various domains of these data.

Using HCCI’s data, the authors construct what they termed a “causal chain” leading from hospital mergers to community damage during their study period–2010 to 2015. It looked like this: hospital mergers raise prices for private insurers-these prices are passed on to employers–who respond by laying off workers–some of whom end up killing themselves. So, according to the logic, hospital mergers kill people. Using the same methodology, the authors argued that between 2007 and 2014, hospital price increases of all sorts killed ten thousand people.

A classic problem with correlational studies of this kind is their failure to clarify the direction of causality of data elements. The model lacked a control group–comparable communities that did not experience hospital mergers during this period–because the authors argued that mergers were so pervasive they could not locate comparable communities that did not experience them.

The model focused on a subset of 304 hospital mergers from 2010 to 2015, culled from a universe of 484 mergers nationally during the same period. The authors excluded mergers of hospitals that were further than fifty miles apart, as well as hospitals with low census. The effect of these assumptions was to exclude most rural hospitals and concentrate the mergers studied in metropolitan areas and cities. The densest cluster was in the I-95 corridor between Washington DC and Boston. See the map below:

According to the model, these mergers resulted in an average increase of 1.2% in hospital prices to commercial insurers, 91% of which were passed to their employer customers in those markets. This minuscule rate increase had a curiously focused and outsized effect–a $10,584 increase in the median employer’s health spending in the merged hospitals’ market.

According to the model, local employers “responded” to this cost increase by reducing their payrolls by a median amount of $17,900, all through layoffs–70% more than the alleged merger cost increase. This large overage was not explained by the authors. Moreover, the layoffs took place almost immediately, in the same year as the merger-induced increases, even though many health insurance contracts are multi-year affairs, and lock hospitals in to rates for that period.

At the end of the “causal chain,” 1 in 140 laid off people in those communities for whatever reason killed themselves through suicide or drug overdoses. By extrapolation, the authors accuse the perpetrators of overall hospital rate increases of killing ten thousand people in the affected communities during seven years overlapping the study period.

Managed Care History Part III: The Rise of Machine-Driven Managed Care

Dec 19, 2024

This is part 3 of Jeff Goldsmith’s history of managed care. If you missed it read Part 1 & Part 2

By JEFF GOLDSMITH

Two major changes in health insurance ensued as the US health system entered the 21^st century- a strategic shift of health cost risk from providers to patients and the emergence of machine driven managed care.

Insurers Shift Strategy from Sharing Risk with Hospitals and Doctors to Markedly Implicating their “Patients’.

After the 2008 recession, employers and their health plans shifted strategy from putting physicians and hospitals at risk through delegated risk capitation to putting patients at risk through higher patient cost sharing. In the wake of the recession, the number of patients with high deductible health plans nearly quintupled–to over sixty million lives. By 2024, 32% of the lives in employer-based plans (50% among small employers’) were in high deductible plans regardless of patient economic circumstances.

The stated intention of the High Deductible Health Plan movement was to encourage patients to “shop” for care. In real care situations, however, patients found it difficult or impossible to determine exactly what their share of the cost would be or which providers did the best job of taking care of them. For an extensive review of the literature on how healthcare “consumers” struggle to manage their financial risk, read Peter Ubel’s 2019 Sick to Debt: How Smarter Markets Lead to Better Care.

Employers and insurers, working together to “empower consumers”, rapidly shifted “self-pay” bad debts onto their provider networks. Some 60% of hospital bad debts are now from patients with insurance. Instead of “shopping for care”, consumers found themselves saddled with almost $200 billion in medical bills they could not pay, and hospitals and physicians ended up eating most of it.

This escalating “insured bad debt” problem forced providers to hire revenue cycle management (RCM) consultants to revise and strengthen their policies regarding patient financial responsibility, “revenue integrity” (meaning crossing all the “t’s” and dotting all the “I’s” in each medical claim and making sure care is coded properly) and rigorously monitoring the flow of claims to and from their major insurance carriers. As a result many providers found themselves spending 10-15% of their total operating expenses on RCM!

Medicare Advantage Enables Insurer Market Dominance

The movement from Ellwood’s vision of regionally-based provider sponsored health plans to market dominance by huge national carriers was cemented by the emergence of Medicare Advantage as the most significant and profitable health insurance market segment. In 2013, Medicare Advantage accounted for 29% of total Medicare spending. A decade later, in 2024, it was 54% (of roughly a trillion dollar program). And until a federal crackdown on MA coding and payment policies by the carriers, it was a 5% margin business, significantly more profitable than commercial insurance, ObamaCare Exchange or managed Medicaid businesses.

As Medicare Advantage emerged as the largest health insurance market, it was dominated by a cartel of large publicly traded carriers.

Managed Care History Part II- HMOs Give Way to Managed Care “Lite”

Dec 18, 2024

This is part 2 of Jeff Goldsmith’s history of managed care. If you missed it read Part 1

By JEFF GOLDSMITH

The late 1990s crash of HMOs opened the door to a major consolidation of the health insurance market controlled largely by national and super-regional health plans. While HMOs by no means disappeared post-backlash, the “movement” begun by Ellwood and Nixon fell far short of national reach. HMOs never established a meaningful presence in the most rapidly growing parts of the US- the Southwest, South and Mid-Atlantic regions, as well as the Northeast.

The exemplar, Kaiser Permanente, damaged its financial position with an ill-considered 1990’s (McKinsey-inspired) push to become a “national brand”. Today, over 80% of Kaiser’s 13 million enrollment is still in the West Coast markets where it began 80 years ago!

HMOs Go Public and Roll Up

Two little noticed developments accelerated the shift in power from providers to payers. One was the movement of provider sponsored health plans into the public markets. PacifiCare, the most significant hospital sponsored health plan owned by the Lutheran Hospital Society of Southern California, was taken public in 1995. A subsequent merger with FHP health plan destabilized the newly public company.

After PacifiCare crashed post the 1998 Balanced Budget Act cuts, and struggled to refinance its debt, it was acquired by United Healthcare in 2005, bringing with it a huge sophisticated, delegated risk contracting network. United then bought Sierra Health Plan based in Nevada in 2007, including its large captive medical group, its first medical group acquisition. Following these acquisitions, United rolled up PacifiCare’s southern California based at-risk physician groups in the late 00’s, and then capped off with its purchase of HealthCare Partners, the largest of all, 2017 from DaVita in forming the backbone of today’s $110 billion Optum Health.

United’s buying BOTH sides of the delegated risk networks-plan and docs-in high penetration managed care markets is not fully appreciated by most analysts even today.

It has meant that as much as 40% of Optum Health’s revenues, including almost $24 billion in capitated health insurance premiums, come from competitors of United’s health insurance business.

However, of greater strategic significance was Humana’s decision in 1993 to exit the hospital business by spinning its 90 hospitals off as Galen.

Managed Care History: From HMOs to AI Assisted Claims Management Part 1

Dec 17, 2024

By JEFF GOLDSMITH

Healthcare payment in the US has evolved in decades-long sweeps over the past fifty years, as both public programs and employers attempted to contain the rise in health costs. Managed care in the United States has gone through three distinct phases in that time- from physician- and hospital-led HMOs to PPOs and “shadow” capitation via virtual networks like ACOs to machine-governed payment systems, where intelligent agents (AI) using machine learning are managing the flow of healthcare dollars. This series will explore the evolution of managed care in 3 phases.

Phase I- Health Maintenance Organizations and Delegated Risk Capitation

In response to a long run of double-digit health cost inflation following the passage of Medicare in 1965, the Nixon administration launched a bold health policy initiative- the HMO Act of 1973- to attempt to tame health costs. The Nixon Administration intended this Act to provide an alternative to nationalizing healthcare provision under a single payer system, as supported by Senator Ted Kennedy and other Democrats.

The goal of this legislation was to restructure healthcare financing in the US into risk-bearing entities modeled on the Kaiser Foundation Health plans- a successful group-model “pre-paid” health plan founded in the 1940s and based on the Pacific Coast. These plans would accept and manage fixed payments for a defined population of subscribers, and offer an alternative to what was perceived as an inflationary, open-ended fee for service payment system. In varying forms, this has been the central objective of “progressive” health policy for the succeeding fifty years.

The HMO Act of 1973 provided federal start-up loans and grants for HMOs, much of which went to community-based healthcare organizations and multi-hospital systems. It also compelled employers to offer HMOs as an alternative to Blue Cross and indemnity insurance. While a few HMOs either employed physicians directly on salary (staff models like the Group Health Co-Operatives), or contracted on an exclusive basis with an affiliated physician group (like Kaiser’s Permanente Medical Groups), many more delegated capitated risk to special purpose physician networks- Independent Practice Associations (IPAs)- whose physicians continued in private medical practice.

By 1996, according to the Kaiser/HRET Employee Benefits Survey, HMOs covered 31% of the employer market (roughly 160 million employees and dependents), and the federal government had begun experimenting with opening the Medicare program to HMO coverage. The impact of HMO growth on overall US health spending remains uncertain, because health spending as a percentage of US GDP continued growing aggressively during the next fifteen years, before levelling off during the mid-1990’s around the Clinton Health Reform debate.

Two things brought the HMO movement to a crashing halt in the late 1990’s.

THCB Gang Episode 147, Thursday December 5

Dec 5, 2024

Joining Matthew Holt (@boltyboy) on #THCBGang on Thursday December 5 at 1pm PST 4pm EST are patient safety expert Michael Millenson, patient advocate & entrepreneur Robin Farmanfarmaian; futurist Jeff Goldsmith; and employer & care consultant Brian Klepper.

You can see the video below live (and later archived) & if you’d rather listen than watch, the audio is preserved as a weekly podcast available on our iTunes & Spotify channels.

THCB Gang Episode 142, Thursday October 31

Oct 31, 2024

Joining Matthew Holt (@boltyboy) on #THCBGang on Thursday October 31 at 1pm PST 4pm EST are patient advocate Robin Farmanfarmaian (@Robinff3); health economist Jane Sarasohn-Kahn (@healthythinker); futurist Jeff Goldsmith: and digital health guru Fard Johnmar (@fardj). Yes, it’s the pre-election special on Halloween!

You can see the video below live (and later archived) & if you’d rather listen than watch, the audio is preserved as a weekly podcast available on our iTunes & Spotify channels.