Tag: PBMs

Optum: Testing Time for an Invisible Empire


Years ago, the largest living thing in the world was thought to be the blue whale. Then someone discovered that the largest living thing in the world was actually the 106 acre, 47 thousand tree Pando aspen grove in central Utah, which genetic testing revealed to be a single organism. With its enormous network of underground roots and symbiotic relationship with a vast ecosystem of fungi, that aspen grove is a great metaphor for UnitedHealth Group. United, whose revenues amount to more than 8% of the US health system, is the largest healthcare enterprise in the world. The root system of UHG is a vast and poorly understood subsidiary called Optum.

At $226 billion annual revenues, Optum is the largest healthcare business in the US that no-one knows anything about. Optum by itself has revenues that are a little less than 5% of total US healthcare spending. An ill-starred Optum subsidiary, Change Healthcare, which suffered a catastrophic $100 billion cyberattack on February 21, 2024 that put most of the US health system on life support, put its parent company Optum in the headlines.

But Change Healthcare is a tiny (less than 2%) piece of this vast new (less than twenty years old) healthcare enterprise. If it were freestanding, Optum would be the 12th largest company in the US: identical in size to Costco and slightly larger than Microsoft. Optum’s topline revenues are almost four times larger than HCA, the nation’s largest hospital company, one third larger than the entirety of Elevance, United’s most significant health plan competitor, and more than double the size of Kaiser Permanente.

If there really were economies of scale in healthcare, they would mean that care was of demonstrably better value provided by vast enterprises like Optum/United than in more fragmented, smaller, or less integrated alternatives. It is not clear that it is. If value does not reach patients and physicians in ways that matter to them—in better, less expensive, and more responsive care, in improved health or in a less hassled and more fulfilling practice—ultimately the care system as well as United will suffer.

What is Optum?

Optum is a diversified health services, financing and business intelligence subsidiary of aptly named UnitedHealth Group. It provides health services, purchases drugs on behalf of United’s health plan, and provides consulting, logistical support (e.g. claims management and IT enablement) and business intelligence services to United’s health plan business, as well as to United’s competitors.

Of Optum’s $226 billion topline, $136.4 billion (or 60% of its total revenues) represent clinical and business services provided to United’s Health Insurance business. Corporate UnitedHealth Group, Optum included, generated $29 billion in cashflow in 23, and $118.3 billion since 2019. United channeled almost $52 billion of that cash into buying health-related businesses, nearly all of which end up housed inside Optum.

Source: 2023 UNH 10K

For most of the past decade, Optum has been driving force of incremental profit growth for United. Optum’s operating profits grew from $6.7 billion in 2017 (34% of UHG total) to $15.9 billion in 2023 (55% of total). However, the two most profitable pieces of Optum by operating margin—Optum Health and Optum Insight—have seen their operating margins fall by one third in just four years. The slowing of Optum’s profitability is a huge challenge for United.

Gaul Had Three Parts, So Does Optum

The largest and least profitable (by percent margin) piece of Optum is its giant Pharmacy Benefit Manager, Optum Rx, the third largest PBM in the US.

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Rube Goldberg Would Be Proud


Larry Levitt and Drew Altman have an op-ed in JAMA Network with the can’t-argue-with-that title Complexity in the US Health Care System Is the Enemy of Access and Affordability. It draws on a June 2023 Kaiser Family Foundation survey about consumer experiences with their health insurance. Long stories short: although – surprisingly – over 80% of insured adults rate their health insurance as “good” or “excellent,” most admit they have difficulty both understanding and using it. And the people in fair or poor health, who presumably use health care more, have more problems.

Health insurance is the target in this case, and it is a fair target, but I’d argue that you could pick almost any part of the healthcare system with similar results. Our healthcare system is perfect example of a Rube Goldberg machine, which Merriam Webster defines as “accomplishing by complex means what seemingly could be done simply.”   

Boy howdy.

Health insurance is many people’s favorite villain, one that many would like to do without (especially doctors), but let’s not stop there. Healthcare is full of third parties/intermediaries/middlemen, which have led to the Rube Goldberg structure.

CMS doesn’t pay any Medicare claims itself; it hires third parties – Medicare Administrative Contactors (formerly known as intermediaries and carriers). So do employers who are self-insured (which is the vast majority of private health insurance), hiring third party administrators (who may sometimes also be health insurers) to do network management, claims payment, eligibility and billing, and other tasks.

Even insurers or third party administrators may subcontract to other third parties for things like provider credentialing, utilization review, or care management (in its many forms). Take, for example, the universally reviled PBMs (pharmacy benefit managers), who have carved out a big niche providing services between payors, pharmacies, and drug companies while raising increasing questions about their actual value.

Physician practices have long outsourced billing services. Hospitals and doctors didn’t develop their own electronic medical records; they contracted with companies like Epic or Cerner. Health care entities had trouble sharing data, so along came H.I.E.s – health information exchanges – to help move some of that data (and HIEs are now transitioning to QHINs – Qualified Health Information Networks, due to TEFCA).

And now we’re seeing a veritable Cambrian explosion of digital health companies, each thinking it can take some part of the health care system, put it online, and perhaps make some part of the healthcare experience a little less bad. Or, viewed from another perspective, add even more complexity to the Rube Goldberg machine. 

On a recent THCB Gang podcast, we discussed HIEs. I agreed that HIEs had been developed for a good reason, and had done good work, but in this supposed era of interoperability they should be trying to put themselves out of business. 

HIEs identified a pain point and found a way to make it a little less painful. Not to fix it, just to make it less bad. The healthcare system is replete with intermediaries that have workarounds which allow our healthcare system to lumber along. But once in place, they stay in place. Healthcare doesn’t do sunsetting well.

Unlike a true Rube Goldberg machine, though, there is no real design for our healthcare system. It’s more like evolution, where there are no style points, no efficiency goals, just credit for survival. Sure, sometimes you get a cat through evolution, but other times you get a naked mole rat or a hagfish. Healthcare has a lot more hagfish than cats.

I’m impressed with the creativity of many of these workarounds, but I’m awfully tired of needing them. I’m awfully tired of accepting that complexity is inherent in our healthcare system.

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Matthew’s health care tidbits: Time to get Cynical

Each time I send out the THCB Reader, our newsletter that summarizes the best of THCB (Sign up here!) I include a brief tidbits section. Then I had the brainwave to add them to the blog. They’re short and usually not too sweet! –Matthew Holt

Plenty of reason to worry about the future of American health care this week. The biggest for-profit hospital chain–HCA–was accused of aggressively pushing patients into hospice care, sometimes in the same room, in order to make their hospitality mortality numbers look better. Most of the leading benefits consulting companies were exposed as taking payments from PBMs–yup, the same organizations their employer clients thought they were negotiating with on their behalf. And one of the biggest names in digital health, Babylon Health, tumbled into destitution, taking billions of dollars with it and leaving uncertain the fate of the medical groups in California it bought less than two years ago. Even the most successful capitalists in health care — United HealthGroup and its fellow insurers — saw their stock fall because apparently outpatient surgery volume is ticking up

On the policy front the malaise is spreading too. The end of the public health emergency (remember Covid?) is being used as an excuse by the old  confederate states to kick people off Medicaid. Georgia and Arkansas appear to be bringing back work requirements, even though I thought CMS has banned them and every study has acknowledged that they are cruel and ineffective. About 20 million people got on to Medicaid during the public health emergency and KFF estimates up to 17 million may be kicked off, while over 1.7 million already have.

Finally an article by Bob Kocher and Bob Wachter in Health Affairs Scholar remins us that big academic medical centers are nowhere near ready for value-based care (VBC). Jeff Goldsmith has been vocal on THCBGang and elsewhere about how VBC is becoming a religion more than a reality. And I remind you that Humana’s MA program is still basically a Fee-For-service program in drag (even though that’s now illegal in their home state). 

I grew up in American health care expecting that eventually a combination of universal insurance mixed with value-based purchasing would lead to a series of tech-enabled companies doing the right thing by patients and making money to boot. With the managed care revolution, the ACA and the boom in digital health all firmly in the rear view mirror, the summer of 2023 is a lesson that you can never be too cynical about health care in America.


Matthew’s health care tidbits: Health care pricing is cray-zee

Each time I send out the THCB Reader, our newsletter that summarizes the best of THCB (Sign up here!) I include a brief tidbits section. Then I had the brainwave to add them to the blog. They’re short and usually not too sweet! –Matthew Holt

It’s no secret that health care pricing has been out of whack for a very long time. This past week PBMs and pharma manufacturers were in front of congressional committees trying to defend the indefensible–how much drugs cost and why? Hospitals have been required to publish their fictional price lists (their chargemasters) for a few years now and more recently have been instructed to reveal what they actually get from health plans for specific procedures. You would assume that this would move overall pricing pressure down to the “best price” but that effect seems to not be happening. At least not yet. This week also did see the bankruptcy of PE-backed (or should that be PE-toppled) emergency staffing corporation Envision. But that was more because its business model depended on surprise billing and not being in insurer networks.

More typical is the recent dispute in which primary & urgent care chain Carbon Health went public with its fight against Elevance subsidiary Anthem Blue Cross in California. While it was in-network Carbon claims that it received less than Medicare rates from Anthem, while its large delivery system competitors were getting 2-4 times Medicare rates.

This sounds about right to me. Late last year I had two identical telemedicine visits for back pain with specialists. One in a private practice, another with a doctor from UCSF–my local academic medical center. Before you troll me, they were both offered to me last minute, I didn’t know which doctor would be available if I needed a procedure, and it’s always good to get a second opinion. Plus I had blown through my deductible by then so they were free to me!

My insurer paid $795 to UCSF and $219 to the private doctor. So for exactly the same thing one provider got more than 3&½ times what the other did.

There’s still lots of chatter about the growth of value-based care, but even within Medicare Advantage there’s lots of fee-for-service, and it even pops up in places it’s supposed to be dead-–like Geisinger. We are nearly 20 years on from the Bush Administration talking about transparency as the solution to health care costs yet the opacity and confusion around pricing is as bad as it’s ever been. Yes, we know some of the numbers, but the US is a long way from seeing the invisible hand working its magic and making the same thing cost the same amount across health care. The only place where that happens is under the neo-Stalinist central pricing of Medicare. Not that that seems to work well either. 

There’ll be a couple more years while the “new” transparent plays out in the market, but don’t expect too much of a revolution. Then likely we’ll try something else.

Getting Sick and Going Broke – CVS, Credit Cards, and Crippling Medical Debt


The Medical-Industrial Complex is swarming with grifters. This is to be expected when you build a purposefully complex system designed to advance profitability for small and large players alike. The $4T operation payrolling 1 in 5 American workers is, in large part, a hidden economy, one built by professional tricksters, designed by Fortune 100 firms with mountains of lobbyists, but reinforced as well by friendly doctors and hospitals engaged in petty and small scale swindling who justify their predatory actions as entrepreneurial, innovative, and purposeful means of necessary financial survival.

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Health in 2 Point 00, Episode 133 | PBMs galore, Genome Medical, & the FCC’s Rural Health Program

Episode 133 of Health in 2 Point 00 is brought to you by the letter P — that’s P for PBMs, of course. In this episode, Jess and I talk about Genome Medical extending their series B and getting another $14 million on top of the $23 million they already raised for their remote genetic counseling services, the FCC adding another $198 million to their rural health program, bringing the funding to a whopping total of $802 million, Anthem’s PBM IngenioRx acquiring pharmacy startup Zipdrug, and Capital Rx, a startup PBM, announced a deal with Walmart. —Matthew Holt

Health in 2 point 00, Episode 10

Jessica DaMassa asks me about PBMs, Amazon Prime for Medicaid, Patents and more–all in 2 minutes — Oh, and if you want to sponsor this and reach a bunch of people here & on Linkedin, let us know! — Matthew Holt

What’s the next way PBMs will make money?

Yesterday Medco offered itself up to smaller competitor Express Scripts, creating an entity with more than 50% of the PBM market. PBMs originated as specialized claims processors that supposedly were able to reduce drug costs. But in the 1990s  drug costs soared. Somehow PBMs didn’t lose employer clients, further confirming that employers are dumb about how they buy health care. Most employers didn’t understand that PBMs made much of their profits on rebates they were paid by drug companies to keep particular drugs on formulary. Almost none of that money went back to the employer. After that game ended, PBMs replaced almost all those profits by making huge margins on generics until Walmart showed that it could make a profit by charging only $4 a fill. Now it looks like extracting a bigger piece of the pie from pharmacies and charging more to employers may be the only game left for PBMs. And that’s probably the driver behind the merger.

Technology should promote patient involvement not replace it

This post came as a comment by SR to Dr. Kibbe’s piece on electronic medical records. It’s a great consumer perspective and worth reprinting in full. — THCB Staff

Health Care consumers and patients have a wide range of interests,
needs and values that vary across our lifespans and circumstances and
hopefully there will be many different tools, products and services
provided to both providers and users of health care.

For example, my 70-year-old retired father is the head of a neighborhood
wellness program with over 3,000 people and maintained a family blog
during my mom’s cancer treatment but doesn’t own a cell phone and would
rarely change physicians despite differences in quality. I am rarely
ill, and yet expect SMS alerts if a lab test is done and want my
clinical records to link with my Nike tracker in my shoe as well as
apps on my Iphone.

I envision a system similar to the financial sector (bad example
right now perhaps) where you are able to move your information from
clinician to clinician (online bank statements = EMR) supplement that
with information gathered via other ancillary providers (investment
account at E-trade) take all of that information into my PHR (without
entering most of the data so it is similar to downloading into
Quicken) adding in some personal data (from my nike+ sensor and mobile
apps that track my diet and yoga classes) and generate reports (like
turbo tax) to share with some of my providers

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Peeling The Healthcare Onion, By George Van Antwerp

George Van Antwerp is a Vice President at Silverlink Communications where he focuses on developing healthcare communication solutions across the industry with a focus on the pharmacy space. He and I have been conversing back and forth by email for a couple of years (since before he joined Silverlink who are—FD—sponsors of THCB & Health 2.0). He blogs regularly on both topics at Patient Centric Healthcare and today is his first post on THCB

I think an onion is the right analogy for healthcare for three reasons: (1) it can make you cry; (2) every time you pull off a layer you learn more; and (3) what you see from the outside is a lot different than what you see from the inside.

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