Tag: United HealthGroup

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.

What would a rational DOG(gi)E do(o)?

Feb 27, 2025

By MATTHEW HOLT

DOGE, or Doggie as Kara Swisher has been calling it, has gone from being a meme about Shiba Inus to a crypto scam to a group tearing the Federal government apart.So I thought I would use the title of this piece to make a joke. Like Musk’s humor it’s puerile and not funny. What’s also not funny is what Musk’s team has done to small government agencies, like USAID & CFPB that really help people, not to mention the irrational firing of thousands of government employees that appear to be screwing up the NIH, the National Parks, the FAA and much more. But it’s all got me thinking, what in health care should an effort to quickly rationalize government spending do?

Now I’m not proposing that there’s anything OK with the way Musk and his team have been blundering around the Federal government, telling lies about what it does and indiscriminately firing the people who have the most important responsibilities and then desperately trying to get them to come back. This has been pure ignorance theater, and it would be hilarious if it wasn’t so damaging. Equally importantly the places DOG(gi)E has started are stupid because they don’t spend much money. But the government spends a lot on health care –between two and three trillion dollars, depending on how you count it.

So if you wanted to save some money and potentially change the system, what would you do? First you’d take a deep breath and get some real data, and improve your understanding about what is actually happening. There are some areas in health care where the issues are well understood and the data is clear and there are others where it’s less obvious.

Let’s start with a relatively small one–spending on Federal Employees health benefits. Chris Deacon’s Linkedin posts are a constant source of fun and games, and she has been highlighting screwups in the FEHBP administration for a long time. Essentially the government via the OPM pays lots of different insurance companies to manage Federal employees’ health care. There is very poor oversight of what happens in those programs and when the OPM’s OIG points that out, not much happens. The plans (including Horizon Blues in NJ and BCBSNC and many others) have been caught being sloppy or fraudulent but not much has happened. All DOG(gi)E needs to do is read the report on the audits, or look at what GOA said about $1bn being spent on ineligible members in 2022 and apply their recommendations.

Next let’s get into something that requires a little more investigation. In America we buy (and sell) drugs in a mind-bogglingly complex way.

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.

Convention Invisibility Teaches A Crucial Health Policy Lesson

Sep 3, 2024

By MICHAEL MILLENSON

It’s close to an iron rule: Politics drives policy. In that context, the health policy issues that were largely invisible at the Republican and Democratic conventions taught a crucial political lesson.

Start with access. According to KFF (formerly the Kaiser Family Foundation), more than 25 million Americans have been disenrolled from Medicaid as of Aug. 23. Ten states, all dominated by Republican legislatures and/or governors, have declined to expand the program, leaving 2.8 million Americans unnecessarily uninsured.

Yet if you were looking to either convention to find protestors telling heart-rending personal stories to humanize those statistics, you’d search in vain. There were none.

The Poor People’s Army, a group advocating for economic justice, did invite reporters covering both conventions to focus on one of the most urgent issues facing the poor and near-poor – not medical care access, but the lack of basic housing.

Homelessness set a record in 2023, according to the National Alliance to End Homelessness, affecting one in 500 Americans, while the number of renters forced to pay more than 50 percent of their income has surged since 2015. The former is apparent on the streets of every big city, while the latter is felt by millions in every paycheck.

The political lesson is clear. While support for Medicaid expansion was buried deep in the Democratic platform, at the grassroots level there’s no sign of the kind of passionate involvement that could drive votes in a close election. Medicare, of course, is a separate issue, with both parties promising to protect the program dear to the hearts of the nation’s elderly, who have the highest percentage voting turnout of any age group.

Of course, even those with good health insurance often have to worry about medical costs, with KFF polling finding that a shocking 41% of U.S. adults have medical debt. However, although the phrase, “It’s the prices, stupid!” has become a bipartisan policy refrain, there are no swing state votes to be swung by harping on the alleged cupidity of the local hospital. So while denouncing “medical debt,” no one did.

On the other hand, Democrats spoke repeatedly about the depredations of “Big Pharma.” The GOP platform satisfied itself with a vague promise to “expand access to new…prescription drug options” to address prescription drug costs that “are out of control.” The responsibility for those prices was unspecified.

As for health insurers, articles about questionable denials of medical claims by giant insurers like United Healthcare and Humana have garnered headlines and expressions of outrage. Once again, however, the grassroots reaction is the key. There has been no outpouring of public indignation remotely comparable to the HMO backlash of the 1990s. As a result, health insurers have largely vacated the role of politically visible corporate villain.

Optum: Testing Time for an Invisible Empire

Apr 2, 2024

By JEFF GOLDSMITH

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 12^th 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.

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.

Fee-For-Service: Predominant, Winning & Stupid

Mar 4, 2024

By MATTHEW HOLT

In recent days and weeks, there have been three stories that have really brought home to me the inanity of how we run our health care system. Spoiler alert, they have the commonality that they all are made problematic by payment per individual transaction—better known as fee-for-service.

First, several health insurers who sold their reputation to Wall Street as being wizards at understanding how doctors and patients behave had the curtain pulled back to reveal the man pulling the levers was missing a dashboard or dial or three. It happened to United, Humana and more, but I’ll focus on Agilon because of this lovely quote:

“During 2023, agilon health experienced an increase in medical expenses attributable to higher-than-expected specialist visits, Part B drugs, outpatient surgeries, and supplemental benefits, partially offset by lower hospital medical admissions. While a number of programs have been launched to improve visibility, balance risk-sharing and enhance predictability of results, management has assumed higher costs will continue into 2024,” the company said in a statement

Translation: we pay our providers after the fact on a per transaction basis and we have no real idea what the patients we cover are going to get. You may have thought that these sharp as tacks Medicare Advantage plans had pushed all the risk of increased utilization down to their provider groups, but as I’ve be saying for a long time, even the most advanced only have about 30% of their lives in capitation or full risk groups, and the rest of the time they are whistling it in. They don’t really know much about what is happening out in fee-for-service land. Yet it is what they have decided to deal with.

The second story is a particularly unpleasant tale of provider greed and bad behavior, which I was alerted to by the wonderful sleuthing of former New Jersey state assistant director of heath benefits Chris Deacon, who is one of the best follows there is on Linkedin.

The bad actor is quasi-state owned UCHealth, a big Colorado “non-profit” health system. They have managed to hide their 990s very well so it’s a little hard to decipher how much money they have or how many of their employees make millions a year, but it made an operating profit last year of $350m, it has $5 BILLION in its hedge fund, and its CEO (I think) made $8m. It hasn’t filed a 990 for years as far as I can tell. Which is probably illegal. The only one on Propublica is from a teeny subsidiary with $5m in revenue.

So what have they been doing? Some excellent reporting from John Ingold and Chris Vanderveen at the Colorado Sun revealed that UC has been getting collection agencies to sue patients who owe them trivial amounts of money, and hiding the fact that UC is the actor behind the suit. So they are transparent on how much very poor people allegedly owe them, and come after them very aggressively, but not too transparent on how their “charity care” works. The tales here are awful. Little old ladies being forced to sell their engagement rings, and uninsured immigrants being taken to the ER against their will and given a total runaround on costs until they end up in court. Plenty more stories like it in a Reddit group reacting to the article.

What’s the end story here? UC Health gets a measly $5m (or a share of it) a year from all these lawsuits which is less than the CEO makes (according to a Reddit group—with no 990 it’s a little hard to tell).

Yes, all these patients are being billed or misbilled for individual procedures and visits. It makes people terrified of going to the doctor or hospital, and no rational health services researcher thinks that charging people a fee to use health care encourages appropriate use of care. Last month Jeff Goldsmith had an excellent article on THCB explaining why not.

Of course it goes without saying that if these patients were covered by some kind of a capitation, subscription or annual payment none of this cruelty or waste motion would be happening.

The final example is still going on.

What Can We Learn from the Envision Bankruptcy?

May 24, 2023

By JEFF GOLDSMITH

Envision, a $10 billion physician and ambulatory surgery firm owned by private equity giant Kohlberg Kravis Roberts, filed Chapter 11 bankruptcy on May 15. It was the largest healthcare bankruptcy in US history. Envision claimed to employ 25 thousand clinicians- emergency physicians, anesthesiologists, hospitalists, intensivists, and advanced practice nurses and contracted with 780 hospitals. Envision’s ER physicians delivered 12 million visits in 2021, not quite 10% of the US total hospital ED visits.

The Envision bankruptcy eclipsed by nearly four-fold in current dollars the Allegheny Health Education and Research Foundation (AHERF) bankruptcy in the late 1990’s. KKR has written off $3.5 billion in equity in Envision. Envision’s most valuable asset, AmSurg and its 257 ambulatory surgical facilities, was separated from the company with a sustainable debt structure. And at least $5.6 billion of the remaining Envision debt will be converted to equity at the barrel of a gun, at dimes on the dollar of face value.

KKR took Envision private in 2018 when Envision generated $1 billion in profit, in luminous retrospect the peak of the company’s good fortune. Envision’s core business was physician staffing of hospital emergency departments and operating suites. In 2016, then publicly traded, Envision merged with then publicly traded ambulatory surgical operator AmSurg. This merger seemed at the time to be a sensible diversification of Envision’s “hospital contractor” business risk.

Indeed, Envision’s bonus acquisition of anesthesia staffing provider Sheridan, acquired by AMSURG in 2014, helped broaden its portfolio away from the Medicaid intensive core emergency room staffing business (EmCare), which required extensive cost-shifting (and out of network billing) to cover losses from treating Medicaid and uninsured patients. It is clear from hindsight that where you start, e.g. your core business, limits your capacity to spread or effectively manage your business risk, an issue to which we will return.

The COVID hospital cataclysm can certainly be seen as a proximate cause of Envision’s demise.

The interruptions of elective care and the flooding of emergency departments with elderly COVID patients, which kept non-COVID emergencies away, damaged Envision’s core business as well as nuking ambulatory surgery. By the spring of 2020, Envision was exploring a bankruptcy filing. An estimated $275 million in CARES Act relief and draining a $300 million emergency credit line from troubled European banker Credit Suisse temporarily staunched the bleeding. But the pan-healthcare post-COVID labor cost surge also raised nursing expenses and led to selective further shutdowns in elective care and further cash flow challenges.

While one cannot fault KKR’s due diligence team for missing a global infectious disease pandemic, with hindsight’s radiant clarity, there were other issues simmering on the back burner by the time of the 2018 deal that should have raised concerns. Two large struggling investor owned hospital chains, Tenet and Community Health Systems, began divesting marginal properties in earnest in 2018, placing a lot of Envision’s contracts in the pivotal states of Florida and Texas at risk.

More importantly, there were escalating contract issues with UnitedHealth, one of Envision’s biggest payers, as well as increasing political agitation about out-of-network billing, which provided Envision vital incremental cash flow. These problems culminated in a United decision in January 2021 to terminate insurance coverage with Envision, making its entire vast physician group “out of network”.