Follow the Leader: United Health Group’s Outlook on Government Health Programs

Ralph Giacobbe at Credit Suisse is a leading health industry analyst and is doing the best work of his career.  Today he produced a fantastic recap of his discussion with United Health Group CEO Steve Hemsley and several of his top executives.  It included some fascinating insights into the market leader’s strategy for government health programs:

â–      2015 Earnings Growth: Management reiterated its focus on growing operating earnings in 2015. While Medicare rate pressures remain (-3 to -3.5%), the company is optimistic of better MA enrollment in 2015 as it does not expect the same level of market disruptions with more limited network reconfigurations…Medicaid is expected to remain a positive contributor. Additionally, UNH has $90B in medical costs and $20B in administrative costs from which to drive savings, which was stressed by management during the meetings…cost creep has backfilled previous administrative cost savings. Management is now “acutely focused” on applying more rigorous standards to general reinvestments in the organization.

â–      Medicare Star Ratings and Renewed Focus on Performance: While the management team noted that performance as a whole has been “good”, there was clearly a sentiment that performance needs to improve. Hemsley noted that too many of UnitedHealthcare’s recent issues have been “self-inflicted,” especially Medicare Stars. As a result, UNH is in the process of narrowing its networks to steer patients to high performing providers in an effort to improve quality. Additionally, a greater focus will be placed on leveraging data to stratify members in order to quickly identify and place high acuity members in appropriate care management programs. As the largest player in the market, UNH has several metrics under its control and is expected to perform at high levels. According to management, it took UHC too long to figure out that STAR ratings place significant emphasis on serving both the healthcare and social needs of members. While corrective steps are encouraging the improvement in STAR rating won’t be evident until 2017 at the earliest given the lag time in measuring criteria.

â–     Network Reconfigurations Continue: As a result of MA rate pressures, UNH significantly adjusted its networks during the 2014 annual enrollment period for which it received scrutiny. Management reiterated that network reconfigurations will continue, but will be guided by insights gained during 2014. Last year UNH narrowed its Medicare networks by 10-15% and management expects some continuation into 2015, although changes will be made more on a continuous basis vs. occurring all at once and therefore should be less disruptive. Overall, network configuration remains a significant component of managing trend and should not be underestimated as narrowing networks to higher performing facilities/providers can save on medical costs. MA rate pressures for 2015 were evident when management reiterated that the final rate came in below their expectation of flat. UNH sizes the impact in the range of -3% to -3.5%.  We would expect network reconfigurations to be an ongoing process, as management believes it is only in the 2nd or 3rd inning, but again, don’t expect big disruption like 2014.

â–      Reform Update: While UNH’s exchange participation in 2014 was limited, it is inclined to increase its involvement in 2015. UNH is currently in the process of evaluating markets, products, regulations, and first year pricing. While it continues to appear that the company is likely to increase its exchange exposure in 2015, it has until September to finalize its decisions.

â–     Medicaid: Expansion also appears to be tracking well, as management now expects Medicaid growth to exceed the high end of guidance (+350-450K lives). While the dust has yet to settle, expectations were to see 65% of expansion enrollment 1Q, followed by more moderate enrollment in the middle of the year and a reacceleration around year end. It is still early, but at this point UNH has not seen anything alarming in terms of utilization and feels comfortable about its ability to effectively manage new Medicaid members. Additionally, UNH is getting paid appropriately higher rates for Medicaid expansion members.

â–      Optum: Management’s new goals are “8 by ’16” (8% operating margins, 10 new large relationships, double digit top and bottom line growth, and doubling 2013 op earnings of $2.3B). With a backlog of $7.2B, Optum has an abundance of opportunities at its fingertips…Optum’s role as a system integrator for HealthCare.gov was an important building block in establishing its reputation. Management also conveyed a new level of confidence that scrutiny around Optum’s association with UNH has subsided, as payors and healthcare systems appear to have gained comfort that the appropriate firewalls are in place for Optum to maintain its independence from UNH.

Resources

On May 7, Gorman Health Group Executive Vice President and former regulator Steve Balcerzak joined Vice President of Provider Network Management Craig Lyon for a deep dive into CMS expectations. Attendees got their their take on what to expect and how to prepare. Access the webinar recording here >>

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