UnitedHealth Group Incorporated (UNH) Earnings Call Transcript & Summary

Okay. Good morning. Welcome to the continuation of day 3 of the Barclays Global Healthcare Conference. I'm Steven Valiquette, the health care services analyst here at Barclays. And our next session will feature UnitedHealth Group, and we're pleased to have a pretty full lineup from management on this call this morning, including Dirk McMahon, the CEO of UnitedHealthcare; Tim Wicks, the CFO of Optum; and also Dr. Richard Migliori, the Executive Vice President and Chief Medical Officer. We also have Brett Manderfeld from Investor Relations on the line as well. So thank you all for your flexibility around the change in our conference venue. And I think Brett may make a quick comment on cautionary statements, et cetera, and then we'll dive in.

Yes. Thanks, Steve. I'll just remind everyone that we're going to make some forward-looking statements. As a matter of policy, we don't do mid-quarter updates, so our financial commentary is as of January 15, 2020. Our forward statements are subject to risks and uncertainties, and actual results might differ. These risks and uncertainties can be found in our SEC filings and are summarized in the investor materials posted on our website. Our posted materials also contain a reconciliation of the non-GAAP financial measures related to comparable GAAP measures. With that, I'll turn it back to you, Steve. Thank you.

Okay, great. So I think everyone on this call probably agrees that UNH is one of the most diverse companies in health care with some unparalleled capabilities. So in light of this and given that coronavirus is really on top of mind for everyone, maybe you could spend a few moments just talking about how the coronavirus may directionally impact the various businesses within the overall company the way you're thinking about it currently. And perhaps you can break it down into the UHC health insurance operations and then the Optum side. And take as much time as you want to answer this question just given how topical it is.

Yes. Let me start off with talking about -- this is Dick Migliori. Start off talking about the biological aspects of this disease and how it's affecting us. We are a diverse organization, as you said, Steve, and it really does 2 things. Number one, it caused us to have to be broad scale and adaptive in terms of our responsiveness to maintain operations. But more importantly, it gives us a perspective about this disease and its prevalence, which is unique, being both a provider of the disease at multiple levels, whether it's in our primary care offices or in our urgent care centers or if it's in the nursing homes where we manage institutional special needs plans or going into the 1.7 million homes we do every year with house calls. And typically, those house calls are with people who are at the greatest risk. So having all of those data inputs has been helpful not only in helping Optum prepare but also helping UnitedHealthcare gain a perspective and a consideration both about benefit adaptations as well as its ability to stabilize the environment. A little bit about the biology of this thing. Our view on this has been shaped largely by the data that's emerging from Asia, Europe and the U.S. It is heavily influenced by public policy and our own federal government and Dr. Fauci at the NIH as well as the CDC and then our own perspectives on this thing. One of the things that's clear is just like the other 5 epidemics that have occurred over the last 15 years is that when a brand-new novel infection comes to the -- comes to society, what you see first leads to something called severity bias, which is the cases that you pay attention to are the people who are most ill, and then you depend upon your ability to diagnose what's causing it and then to test more broadly. That's been limited in this case largely because of the sophistication required to do the adequate testing. It's essentially a genomics-based assay looking at the actual RNA sequences that make up the genome of these viruses. That is a very sophisticated analysis. The test -- the materials to generate this are difficult to generate, and I think you've seen that struggle at -- even as we've -- the testing capabilities are moving to the commercial marketplace. They will come. And as they come on board, you're going to see a dramatic increase in the number of cases, some of which is because of the communicable nature of this disease, but much of it will also be driven by just getting the backlog of diagnosis completed. So if we were to look at the -- to give you a case in point on then, let's start off with countries that have done it well. In China, where this started, it looks like the number of cases have leveled off at about 80,000 cases, maybe 81,000, and it's been relatively flat for almost 2 weeks now, all right? In fact, outside of Hubei, the original province, the rest of Mainland China hasn't seen much in the way of growth at all. If you were to look, though, beyond that in Asia and you look at, let's say, South Korea where testing is readily available -- in fact, they even have drive-up testing facilities. They have done somewhere between 160,000 to 200,000 tests in this population of 52 million people. And for the -- and if -- they're at a point of about 7,800 diagnoses, which has been relatively flat, not perfectly flat but certainly not growing at its original pace in South Korea. And so with that many tests coming up with 7,000, you can see that the number of cases doesn't look like the level of widespread nature of this thing as what we've seen with other epidemics. The severity, however, is something that's important. If you look at the data from China, it looks like the mortality rate is going to hover around 1% when things are -- when everything gets sorted out. And that rate has been dropping with the newer diagnoses. So again, you see this severity bias that I've been talking about. Dr. Fauci here in the U.S. originally believes that the rate that we have now of about 2.8%, our case fatality rate, which is simply the number of deaths per known diagnosis, he thinks, because we're going to see the expansion of the group of people with very mild disease, that, that number will center about 1.0% is what he believes. Although if you look to -- again, to the South Korea experience, you can see that the number is well below that. They had 66 deaths out of the 7,800 infection. So those are the kinds of numbers that we look upon. There's one other number besides disease severity. In other words, what's the consequences of getting infections? And that other number relates to what's -- how easy is this virus spread? And that number is called an R naught or an -- R N-A-U-G-H-T. It's a R0. And what it means is a replication number. It's how many people get infected when a person with the disease walks in to a population that has no immunity and no prior experience with the disease. To give you a range of what those numbers look like with known diseases, with influenza, it typically is in the range of about 1.5 to 3. This is, for us, for this virus, the estimates based on the Chinese experience is that it's about 2 to 3 as well, centering around 2.5. So in this, relatively the same ballpark. If you were to look at a disease like measles, however, that number is 18. So this is -- it does not have that high-level contagiousness. It's plenty contagious in and of itself, but it's not wildly. There are many diseases we know like mumps, et cetera, that far exceed this, all right? So going back to the way in which we're looking at this thing, the knowns that we have are small at this very early time. The unknowns really center around those 3 factors I talked about: its transmissibility, its severity, a number we think is going to improve over time, but the real number is penetration. And that's the number that's not known. And the reason it's not known is because we don't have the simplified serologic testing that we have with influenza and the like. And as a result, that's the number to track on. If you want a ray of hope, again, look at the South Korea experience where they've done public testing. Look at the China experience where the -- clearly, the disease is on the decline, all right? In China, again, 81,000 cases out of a population of 1.4 billion people. We're still talking about a disease that really affects a small number of people within that group. And just like in China, we also anticipate this to be heavily weighted to people who are older. Now that I'm 63, that number starts at 70. The mortality rate in the 60s is about 3% so far. In the 70s, it's about 8%. And for people in their 80s, this disease mortality rate is 15% based on the Chinese experience as reported by the World Health Organization. In terms of preparation of our operations, we do see people with this disease. We've been involved in the care, either in nursing homes or in our offices, of about 17 people. That number is probably -- as the testing comes forward, will be a little higher. But we've not had a single one of our direct care staff become infected as of yet. We anticipate that can happen. But the protections that we've put in place, the protocols around screening patients previsit, about diverting cases to more established testing facilities when we can, about using isolation rooms and protective personal equipment and limited personnel, has helped us to mitigate it. On the operations side of our business, we do a variety of things. I'm going to ask Dirk to help me, but it starts with, across the organization, telling people to stay at home if they're not already working at home, to stay at home when they are sick, all right, and based on their symptomatology, when to seek medical care and advice from their own physicians. Dirk?

Yes, I would say one of the key things we have as an organization is that just -- for example, in our claim and call operations, we have 13,000 people who are work-at-home generally. So they don't have an office at another cube in one of our operating facilities. So to start off, we're...

I'm so sorry, Dirk, just real quick. We're getting a lot of e-mails, et cetera, from the audience. I have a hard time hearing you guys on the UNH side. Is there any way to either get closer to a microphone or speaker or something? We're getting a lot of inbounds on that. Anything you could do would be great.

Yes. Well, does this sound better to you personally right now, can you hear me better?

It sounds a little bit better, yes.

Okay. I'm like leaning right over the phone. So yes. No, to Dick's point, let me repeat what I said. So as far as what we're doing to operate as a company, we have 13,000 people who are work-at-home as a matter of course -- so that are in claim and call facilities in our operations and a whole bunch more than that who are office-based who are personnel who would -- you'd otherwise think they would work in our office. But regardless, our -- we're kind of a work at home-biased corporation to some degree. And so from a starting point perspective, we have a good portion of our operating staff working at home.

Okay. Great. What about on the Optum side? Is there any way to talk about how it impacts things on that side?

Sure. Steve, thank you. It's Tim Wicks. Hopefully, you can hear me well, Steve? The -- when I think about Optum, I think broadly across each of the 3 businesses and the potential impacts that we might see there. Number one, as Dr. Migliori mentioned, when we see patients who are presenting, first of all, the preparedness of our people to be able to treat those individuals who present and to be able to care for them while not being infected themselves is really vital to our ability to continue to deliver care during this situation and have been successful so far by virtue of the discipline and the protocols that we're following. And as Dr. Migliori mentioned, that could change and we could have infections but so far to date have not. One of the things that you might see, if you think about this in the context of a normal flu season of mild to medium severity, one of the things we've seen historically is some impact on the risk businesses inside OptumCare if we have hospitalizations that are a little bit higher than normal by virtue of a normal flu season. But we also have a positive impact in terms of patient utilization in our fee-for-service medical practices as well as urgent care. And so those would be a few areas of potential impact we might see in OptumHealth. In OptumRx, we would characteristically see and have seen during stronger flu seasons an increase in script volume at retail and home delivery. But they're really mostly at retail largely as a consequence of flu medications and so on. And then in OptumInsight, the extent to which we would see an impact here would be potentially positive around the data and analytics and the clinical decision support, tools and capabilities to help clinicians and caregivers be best armed to be able to have real-time information and to be able to improve decision-making on behalf of those we care for. So hopefully, that gives you a good, broad view of where we think there could be impact across Optum. What I would tell you to kind of bring that to a close is that we have not seen any material impact at Optum at this point in time.

Okay. Great. Yes, that's helpful. And then from a health care payer perspective, a few other managed care companies at our conference would seem to suggest that investors could potentially just think of coronavirus as an extension of a flu season, which you just kind of touched on a little bit, and that if it did proliferate into next year or next year's season, these other managed care companies could just reprice for that across some or most of their product lines. So I guess I'm curious whether you share that view conceptually or would you characterize it differently?

Yes. This is Dirk McMahon again. Thanks, Steve. What I would say is, first of all, the main thing as far as coronavirus is, as Doc described, you don't have a good feel on the penetration rate or the spread rates. So without knowing that, it's a little bit difficult to handicap. What I can tell you is during a normal flu season, we'll -- and that would be normally from the fourth quarter of 1 year to the first quarter of the next, that 6-month time frame, typically, we would have about $450 million in a normal flu spend over that 6-month period of time. And that's -- we would, of course, price for that, and we plan on that every year. But again, our ability to sort of handicap what's happening with the coronavirus versus a normal flu season, at this stage, we don't have enough data to be able to make that determination.

Okay, all right. Great. Okay. And then maybe a final question tied around coronavirus is that a lot of managed care executives did meet with the administration on Tuesday with Mike Pence and maybe some others. But to the extent that UNH was probably and likely present there, I mean I'm curious whether these discussions were just focused around insurance coverage for coronavirus or were there some other big factors that were discussed as well. Perhaps you can just give us some color on what came out of those meetings.

A lot of it was about a commitment to making sure that we remove barriers to diagnostic testing. But other areas are -- one that Dave Wichmann fired, and it's evident on the -- you can see it on the video clips that are out there online, publicly online now, is he talked about the importance of having a workforce, a health care workforce that's ready, willing and able to be on the front line to serve these patients. And it was a call for prioritization of testing for health care providers who may be sidelined as a result of having to go into isolation for a potential accidental low-risk exposure that could get right back on the line if we had testing available for them. There were a variety of other matters. But that -- for us, that's a major issue because it doesn't just affect -- we get it from the perspective we have through OptumCare, but we can also see it in the workforce who's providing care in America at 6,200 hospitals and nearly 1 million providers.

Okay. Great. Actually, one other question just to follow up, Dr. Migliori, from your comments earlier. I mean you drew a little bit of a comparison to coronavirus to other historical precedents. But as we do think about some of the ones that have happened previously, whether it's SARS or swine flu or MERS, Ebola, you name it, is there one that coronavirus most closely compares to? And also, I mean what are the learnings from these past situations that investors can sort of think about and again whether it's from a payer or a provider perspective?

I'll be quick about it. This is pretty unique. But if you put it on the spectrum of what we've seen, SARS back in 2003, the first SARS -- this is considered the second, they're all coronaviruses, had a mortality rate of about 10%. So we're likely at least 1/10, if not lower than that, all right? The second one was MERS. MERS was far more lethal but didn't spread, all right? It had a mortality rate of about 33%. MERS, like Ebola, doesn't have the opportunity to spread if -- because it has such a high lethality, all right? And the reason is that if most people die or get very sick from a disease, it's easier to isolate them, whereas in this case, with more than 81% of people having mild illness, the ability to recognize somebody walking around with an infection that just isn't very symptomatic is more difficult. And for that reason, public health strategies move to something you're hearing a lot about called mitigation, where you look about -- just as you did in your own conference, it's to make it so that we're not aggregating large groups of people, we're looking responsibly at travel and a variety of other things, and I congratulate you for doing that. If I was to look at this disease and put it on a spectrum, it's unique, but it's closer to influenza than it is to those other more lethal diseases.

Okay. Great. That's definitely helpful. Okay. So that probably exhausts most of the coronavirus-related questions. We got a few minutes left here. It's hard to prioritize which questions I ask around the UnitedHealth operations. The good news is that things are going so well, there's no burning questions. But maybe we'll just dive in on Medicare Advantage growth. That's always something investors want to hear about. And the industry individual MA growth has accelerated from, let's call it, 6% to 8% to now closer to 10% growth in 2020. And UNH has been leading the way as far as the market share gains. I guess I'm curious, from your perspective, what drove some of the accelerated growth for the industry in 2020 in particular. And also, maybe you can talk a bit more about your benefit design and how that might have contributed to your exceptional growth for this year.

Yes. Thanks, Steve. Dirk McMahon again. So yes, we're very encouraged with what we're seeing regarding the industry growth and for Medicare Advantage, and we continue to see a number of different factors driving that, just industry-wide. Clearly, the demographics, I think there's a greater propensity to choose Medicare Advantage. I think we see greater federal support promoting MA. And that's driving better education, awareness of all the program's benefits. And there's continued flexibility in product designs, and those to -- just to name a few as to why I think MA is just performing well and growing as, in general, an industry. With regard to our performance, you asked, we believe we have a strong offering in the marketplace. And I think the thing that's been most consistent about us is our stable to improving benefits for seniors over time as what we've had even in -- for example, despite the return of the health insurance tax for 2020. So our commitment to benefit stability, to running quality, our STARS performance has always been good, and our distinctive member experience are really the things that I think have created the share gains for us. So -- and we also try to expand our footprint in MA as well. So I think, I would say, stable benefits, good quality, distinctive member experience would be the unique things from UnitedHealthcare, which have spurred our growth.

Okay. And then just quickly, as we think about your cost trend, notwithstanding COVID-19, sits around 6% today. You have goals to bring that in line with general inflation, something much lower. Maybe you can spend a minute or 2 just talking about your latest thoughts on consumer and client experience in health care and how that can play a role in driving cost trend lower and what UNH is doing in relation to that.

Well, I think if I would say, yes, we're very focused on our cost agenda overall, I mean let me take it more broadly. Clearly, we're working very hard from -- and first of all, affordability is it drives access. The more affordable, the more access. But clearly, the number of things on our affordability agenda, number one, continued negotiation with hospitals on rates. 2/3 of the trend is related to unit cost, so that's crucial. I've talked about our site of service agenda, and I think that's where the consumer end of this comes into it. Having people go to more effective, quality, high -- moving from higher-cost sites of service to lower-cost sites of service has been a key thing as well. And then I think the customers who do best for us are those that adopt a number of our wellness programs. And I think one of the key things from a consumer standpoint is our Rally offerings engaging people in good health and wellness earlier and sort of having them go through that continuum of care effectively with us. And that ranges from everything from their experience that -- on prevention all the way to their inpatient experiences and how we manage people as they get out of the hospital with our post-acute techniques. So we do have a full-court press on everything that's associated with affordability. And as I said before, the more robust people pick up our offerings, the better their trend has been.

Okay. Excellent. If I can sneak in one final question here. So OptumCare is clearly a focus area for growth. If you can provide a little more color on the evolution of growth in this subsegment. And what is the biggest focus area for expansion right now?

Sure. Thanks, Steve. It's Tim Wicks. Two things I would focus on. One is the geographies in which we operate and the completion and filling out the continuum of care in those geographies. So I think about that, we call it local care ecosystems. And effectively, what we're after is, in key geographies, really being able to fill out the full spectrum of care that we offer to the patients in that geography, so everything from primary care to urgent care, ambulatory care, really being able to -- full-stop care for that patient in the -- in that particular geography. That's number one, and that's very important. And as we fill out those key geographies where we are taking a very focused view of filling out that continuum, then continuing on to other geographies with that same ambition. So that's number one. The second piece is, as we look at the growth of poly-chronic conditions across the United States, it's very clear that we have the best ability to impact the cost of care by really focusing on the conditions that are driving the cost as well as improving outcomes by focusing on delivering better care for those specific conditions. And that goes broadly across the United States. So that utilizes much more of the tools all across Optum. Whether it's data and analytics, clinical decision support from OptumInsight, pharmacy care services from OptumRx, it really uses the full suite of services and capabilities across all of Optum to really go after very specific conditions, so whether it's oncology, immunology, musculoskeletal, really being able to provide a better experience for patients suffering from those conditions. Those are really the key areas of focus as we think about OptumCare and the opportunity to move forward. And as you heard in the way I described it, it really focuses on bringing together the breadth of all of the capabilities of Optum in a way others can't to be able to provide an experience in care that really works great for the provider, having tools and capabilities available to them, as well as for the patient and really being able to deliver a better outcome that has a demonstrated improvement in terms of the total cost of care.

Okay. Great. All right, well, with that, I think we're out of time. So I'd like to thank everyone from UnitedHealth Group for your time today. And everyone, enjoy the rest of the conference.

Appreciate your time. Thanks very much, Steve, and everyone who's joined us.