Tag: United HealthGroup

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”.