- UnitedHealth Group expects its planned $13 billion acquisition of data analytics firm Change Healthcare that's been held up by DOJ review to close "in the first part of 2022," COO Dirk McMahon told investors on a Thursday morning call.
- The news is likely to anger hospital groups, which have raised concerns — some direct to regulators — that the deal could lower health IT competition and give its payer arm UnitedHealthcare an unfair advantage in contract negotiations.
- The news comes as the diversified healthcare behemoth beat Wall Street expectations on both earnings and revenue in the third quarter, with a topline of $72.3 billion, up 11% year over year, due to double-digit percentage growth in both UnitedHealthcare and health services business Optum. Profit was $4.2 billion, up 29% compared to the third quarter last year. As a result, Minnetonka, Minnesota-based UnitedHealth bumped its full-year guidance.
Thanks in part to its diversified portfolio, UnitedHealth had a strong financial showing last year even as the volatility of COVID-19 slammed other healthcare operators. The company posted historic income in 2020, as many private payers profited from patients delaying care.
Some analysts warned the trend might come back to bite insurers, if patients flocked back to providers in droves to treat deferred medical needs, increasing claims. It seems now those fears may have been overblown, as payers reported in the first half of the year stabilizing patient utilization not superceding normal levels.
For its part, UnitedHealth saw a slight year-over-year profit dip in the second quarter as volumes inched towards normal levels. However, income remained largely stable over the first and second quarters, due to similar utilization trends over the first half of 2021.
In July's earnings call, management noted they expected both utilization and service acuity to trend up progressively in the back half of the year.
Now in the third quarter, UnitedHealth — often looked to as a bellweather for the industry's financial performance given an earlier earnings release date than its peers — has roughly 5,000 members currently admitted to hospitals for COVID-19 treatment, CFO John Rex told investors. That's about half the inpatient numbers seen during the third-quarter peak.
UnitedHealth continues to see commercial members more actively consuming elective care over government program beneficiaries.
"It's similar broad trends to what we observed in Q2, just shifting because of the COVID prevalence. So [outpatient] downshifting a bit in terms of COVID prevalence, but then really fully offset by COVID [volume]," the CFO told investors.
UnitedHealthcare CEO Brian Thompson noted elective care is running close to baseline for a non-COVID-19 year.
"What we've seen is a pretty steady return to normal," Thompson said.
The payer saw a medical loss ratio of 83% in the quarter, slightly lower than the 83.6% expected by analysts but up significantly from 81.9% same time last year amid the widespread care deferrals.
UnitedHealth hiked its 2021 guidance following the results. The company now expects earnings per share between $17.70 and $17.95, up from previous guidance of $17.35 to $17.85, though UnitedHealth reiterated it expects COVID-19 to drag down its EPS by about $1.80.
The stabilizing volume trends led the payer to forecast a slightly less unfavorable COVID-19 impact in 2022 than what the industry experienced this year, "but the current situation is without precedent," Rex noted. UnitedHealth plans to give a more detailed 2022 outlook at its November investor day.
In the quarter, payer arm UnitedHealthcare's revenues grew by 11% year over year to $55.9 billion. UnitedHealthcare saw strong risk-based Medicaid membership growth and solid commercial membership growth as well, analysts said, with 1.5% sequential growth in its commercial risk book and 1.1% growth in its commercial ASO membership.
"This represents a positive development and a reversal in trend," SVB Leerink analyst Whit Mayo said, while Medicaid membership continued to improve with a 5.3% sequential increase.
The lucrative Medicare Advantage program is also a key area of investment for the payer, management reiterated. UnitedHealthcare is on pace to grow by more than 900,000 additional people in the privately run Medicare plans this year.
Meanwhile Optum, a growth segment for UnitedHealth, saw revenues in the quarter of $39.8 billion, up almost 14% year over year. Optum is comprised of physician business OptumHealth, data analytics segment OptumInsight and pharmacy benefit manager OptumRx.
Each of the three businesses contributed to earnings growth in the quarter, led by OptumHealth, leadership said.
Optum, which has been building out its relationships with hospitals, inked another data and revenue cycle management contract just last week. The decade-long deal with nonprofit SSM Health — Optum's biggest partner so far — will see Optum supporting some of SSM's administrative functions, including inpatient care management, revenue cycle management and other digital needs.
Previously announced hospital partners include nonprofit giant Dignity Health (now operating as CommonSpirit), John Muir in California's Bay Area, Bassett Healthcare Network in central New York and Boulder Community Health in Colorado.
Along with building out its technology and data science platform and focusing on consumer experience, one of UnitedHealth's core strategies is developing more joint products from UnitedHealthcare and Optum. That's raised the eyebrows of regulators and the hackles of hospital groups concerned the overlap between the largest private payer in the U.S. and a health services business with a lengthy hospital client list could create troublesome financial incentives down the line.
The Department of Justice has been investigating UnitedHealth's $13 billion acquisition of data analytics company Change Healthcare, after hospital groups argued the buy could lower competition for health IT and revenue cycle management services, and give UnitedHealthcare an unfair edge in contract negotiations with providers.
But despite anticompetitive concerns, UnitedHealth now expects the transaction to close early 2022.
"We continue to work dilligently to satisfy regulatory requests," McMahon said.
UnitedHealth's stock, which has surged 15% year to date, ticked up almost 5% in morning trading Thursday on the results.
The company expects to bring in between $16.9 billion and $17.15 billion in profit in 2021.