UnitedHealth Group Incorporated (UNH) Earnings Call Transcript & Summary

Okay. Good morning. Welcome to the continuation of day 2 of the Barclays Global Healthcare Conference. I'm Steven Valiquette, the Healthcare Services Analyst here at Barclays. Our next session will be with UnitedHealth Group. We're very pleased to have a strong presence from the Executive suite with us today, including a new Chief Executive Officer, Sir Andrew Witty; Chief Operating Officer, Dirk McMahon; and Chief Financial Officer, John Rex. So this will be a fireside chat format for this session. But before we dive in, maybe we will have a quick disclaimer read first. So I'll turn it to Brett, I think, for a second here to cover that. Then we'll dive right in.

Yes. Thank you, Steve, and good morning, everyone. I'd just like to quickly remind you that we will -- we may be making forward statements. We direct you to our SEC documents. And we also would just quickly remind you that we make these statements in accordance with our last quarterly earnings call as of the fourth quarter. With that, Steve, I'll turn it back to you. Thank you.

Okay. Great. Now let's start with some questions for, Sir Andrew. First, let me offer my congratulations on the new CEO role. And as you take over the CEO position, are you able to provide any high-level thoughts on any changes that you may make to the overall business strategy at UNH over the next few years, even if it is just preliminary at this stage?

Steve, thank you very much, and we very much appreciate the chance to chat this morning to you and your guests. So listen, early days, obviously, only been in the seat for the last 3 weeks or so, but obviously, also being part of the team for the last 3 years or so. First thing, I would say, don't expect any sharp rights or sharp lefts in terms of strategic direction of United. I think we have a very clear strategy of where we want to take this company. I think the foundations, which have been built and then extended over the last many years, are absolutely the right kinds of assets, giving us the right kind of connections and the right kind of networks, both on the insurance payer side as well as, obviously, on the care delivery side and then the data platforms providing fantastic value-add opportunities. So we don't expect any dramatic right, left. But I would say you should anticipate us really doubling down on 3 key dimensions. These you've heard before, but they're areas where we really want to go much deeper in our engagement. So the first is how we think about bringing to life the synergy of having Optum and UnitedHealthcare within the same organization. So these 2 organizations bring very complementary capabilities to the marketplace. And there remains significant untapped potential for us to develop further the value from having those 2 organizations within the same stable. Second, we really see tremendous future opportunity in the continued development of the data that the company is lucky enough to manage and is trusted to look after and also the way in which we connect the system of health care together to allow that data to transit much more efficiently. But I'm sure we might talk a little more about that. And then the third area is the continued consumerization of the activities of United. We see continued empowerment of consumers and patients. We see rising expectations among those individuals and families. And you'll see us continue to really assertively develop our skills in that area. So no sharp right or left, but definitely, strengthening our commitment to Consumer, definitely strengthening our engagement around the data and technology platforms and definitely focused on bringing even more synergy out from the 2 companies.

Okay. Great. Before we dive into more of the operations, maybe one other quick management structure question. When the leadership change did occur, it was announced that -- I think the 3 of you will make up the office of the CEO. So I'm curious if you can talk about what roles each of you will play and how you will work together within that construct.

Yes. No, of course, Steve. So first of all, it's important to know, United for a very long time and even prior to this change had an office of the CEO. That was a mechanism for the senior management. We've actually shrunk that a little bit just to the 3 of us, so it was slightly larger than that before. We've shrunk it a little bit. You nailed it, actually in the very -- in your question. The key to all of this is we're completely focused on how we work together. This is a huge company. It's got tremendous velocity in many of its businesses. And we wanted to really make sure that we had really strong bandwidth at the top of the house so that we're able to keep that momentum going and we're able to drive rapid accelerated decision-making in the way in which we build this business. I think when you look at the 3 of us, we have fantastically complementary experiences and skills. If you look at Dirk, one of the great operators in our industry, super well-trained in the airline industry before joining and been with us now for over a decade, well over a decade, and has got really deep knowledge of all the core operating engines of the company, both on the Optum and the UHC side. Fantastic sense of execution in John. You know John super well, extremely accomplished around not just financial management and leadership of this company, but also very much a driver of the M&A agenda of the organization. And if you look at the way in which our capital deployment has been a really positive driver of the historic growth of the company, John continues to be a really significant influence leader in that area. And so I think with John and with Dirk's skills and experiences, the 3 of us, I think, are in a great position to work together as a unit. I would say also we're very fortunate that -- honestly, we all have relatively low egos. So there's room at the top for the 3 of us to work together and to build on each other's strengths. And that's very much the commitment we have. We feel like we have a tremendous amount of scope for further building and growth in this company. And we feel like this -- it's going to require all of our efforts to really get that done. And I think all 3 of us feel good about being part of this team at the top.

Okay. Very easy jump into it from a team perspective. We've known each other for many, many years. I go back with Andrew prior to when -- prior to him coming on the Board, actually. And so years and years of knowing Andrew. Many, many years, knowing Dirk, officing next to him when I first came into the organization a decade ago over at Optum. And so very easy kind of an at-ease operating relationship in terms of how we work together. Just pretty -- I think kind of the initiation of it being just super smooth and easy for us as a team and how we approach it. So it's been great.

Yes. And I would add, Steve, that I'm very focused on the day-to-day operating environment that we have. Really, a lot of focus on affordable, simple, quality supported care, our sort of long-range objectives. I have an incredible focus on our profitable growth as we go forward. A lot on the synergy, unlocking the synergies Andrew described. So yes, to the points that both John and Andrew made, we're very familiar with each other. We have very complementary skill sets. And it's been a pretty easy 3 weeks here as we sort of transitioned.

Okay. Great. And then for Sir Andrew, you mentioned no left turns, no right turns. But maybe just high level, as far as the mix of business going forward between UHC and the 3 Optum verticals, any high-level thoughts on how you may orchestrate the mix of assets going forward? Or is that just still going to forge ahead the way it was going to forge ahead the way things stand right now?

Well, so listen, it's a great question, and I certainly would love to get John to jump in as well, given his focus around our historic and forward plans on M&A. But let me just make a few kind of introductory comments if I can. First and foremost, we see all the core elements, whether they be the core businesses of UAC or the big platforms in Optum. These are all growth platforms. So we're after growth across the portfolio of our lead businesses. Number one. And it's been great to see the strength in growth within the UHC portfolio over the last year or so. We're excited to see that continue. And obviously, you're seeing very strong sustained growth coming out of the Optum businesses. As we look at the evolution of those businesses, let me call out a couple of areas. Clearly, with the pending subject to approval integration of change, that gives us a further momentum opportunity to strengthen our OptumInsight portfolio. It also gives us, in my view, significant opportunity to broaden the reach of the OptumInsight portfolio much more into the clinical and primary care side of the networks, which is an area we see as a significant opportunity and obviously, high synergy value with OptumCare, which is, as you well know, a super strong growth business within the portfolio. Second, I think you will have seen over the last year, particularly post the acquisition of naviHealth and some other investments we've been making very strong growth within OptumHealth around the Optum at Home strategy. So really bringing care to people's homes, looking after complex senior patients in a much more engaged and empathetic way. That's another area where we're seeing extremely strong commitments. So I would just pull a couple of those out. So think about data connectivity, building clinical, [ in-decision ] support capacities, those sorts of things. Think about backing that up with refined and modernized fintech capabilities in health care, think about how we're bringing care to people's homes and making that a much more accessible and, frankly, less challenging situation. Those are just 2 or 3 of the areas you should expect us to continue to invest. We'll be investing across the portfolio of these big platforms. They all have strong growth potential, and we want to continue to feed all of them. And John, you might want to add more?

Yes. No, that's kind of the construct that we'll be following. You'll continue to see us focus on care delivery as we've been focusing on it for probably 13 years now. So you should expect that to continue to be a significant focus of the organization. As you know, Steve, those kind of platform adds, they're typically smaller in scale for us. They're just -- they're not large organizations. We've been doing this for a long time now in care delivery. And we really have, I would say, the types of capabilities that we want to have across that platform, in terms of how we want to serve patients. But we'll continue to put a lot of focus into that. And that's just -- that's been a long-haul thing for us. We still got a decade-long build on that business. And then, as Andrew said, the other components should be similar where we're going to be focusing in areas. You've seen us building in areas such as our specialty pharmacy services. And really, the care services component of pharmacy has increasingly become an important aspect for us. So I'm talking care services where we are delivering care. I almost think of it more like a care delivery business than a pharmacy business in a lot of ways. And that's how our business -- that's how the business leaders approach that piece of it. And then with some of these occasional more transformative pieces, like you're seeing with the potential combination with change chairs as we move into that, and really excited about that. Joining with them, this is a really super capable organization and leadership team. And we're really excited to bring that in and kind of see that as being quite transformative for OptumInsight as we look ahead. So -- but I think it comes back to kind of no sharp left or right. You -- Steve, you were talking about kind of the organizational structure and such, right? I think was the way your first question was. I wouldn't expect any sharp changes there in terms of the organizational structure either. There can always be some tape around the edges as different businesses grow and such, but really not -- that's not top-of-mind at the moment.

Okay, great. Another question here for Sir Andrew. So as many of UNH's larger competitors have held analyst meetings in the last month or so, the competition is talking more and more about their own digitalization capabilities to drive medical costs lower. Can you discuss how you [ engage ] just staying ahead of the competition in this regard, whether it's from deeper use of artificial intelligence or genomics or other key factors?

Yes. No, listen, Steve, great question. And I -- before getting to maybe a click down on the detail, I actually think the key to this -- I'm absolutely in agreement, digitization and virtual engagement, communication kind of on-demand capacities, I think, are absolutely key to the future. And health care will be no different to any other walk of life where consumers and patients are looking for much more convenience, and they're looking for speed and they're looking to triangulate opinions. They're looking for a way in which they can validate the decision they're about to take by checking. And obviously, the company has done -- has got tremendous background in that through all of the digitized assets that UHC brings to market, the way in which the Rally platform has supported that and others. But I think the real key to the future isn't just digitization, it's integration and digitization. And that's where I think United is in a really, really unique position because we're able to think about not just how we can create a very cool digitized point solution on one of the pieces of the puzzle, but we can really start to work on how we bring an integrated experience, both digitally and physically or in the real world to patients. So that what they experience and what they express as a desire through digital or through virtual, we can then back up through integrated operations. And that's where when you look -- take one example, look at OptumCare, look -- well, OptumCare and OptumRX, you look at our distributed assets in a given ZIP code. How we start -- and you will see this happening more and more. How we start to bring that together so that we're able to deliver really integrated ambulatory care support, really strong primary care backed up by other ambulatory assets in a way which feels super seamless to the patient or the family, that's going to be key and then reflected within our digitized capabilities. So 100% in agreement around digitization as a direction of travel. But I actually think if the world had just ended up with another 10,000 point solutions which were digital, I don't think we've advanced the ball. I think if we use digitization as a mechanism to take the complexity out of the experience for consumers, patients, their employers, that will be a big step forward. And I think United is in a really, really excellent position to do that. And that's why of those 3 areas I touched on at the beginning, I talked about the consumer, I talked about data and technology, bring those 2 things together, that's a space that we're focused on. And then I think you back that up. We're making our first engagements around new genomic platforms. We think the maturity of some of that science is beginning to become translational -- translatable into practical reality. It's no longer just deep, high science. We think there are opportunities there. But all of that will simply become fed into the kind of environment that I'm talking about.

And Steve, let me just add a couple of things on that. So one of the key things beyond the consumer is what we're doing specifically to control costs and to sort of optimize the patient experience at point of care. We have an application, Point of Care Assist, we've talked about that in a couple of different venues. To be able to put information in the hands of all physicians, things like where to refer effectively, how to clear a prior authorization, precheck MyScript to be able to recommend the most effective generic versus the brand drug, for example. These are all things that we want to be able to gain from a physician standpoint to make, a, the patient experience and the provider experience more simple as well as drive more affordability.

Okay. Great. Okay. Maybe one more question here for Sir Andrew. I guess I'm curious with the time you spent at the World Health Organization last year, combined with your prior roles at GSK, I'm wondering has this collectively opened your eyes to any additional business opportunities outside the U.S. for the overall UnitedHealth company, either on the payer or the provider side?

That's a great question, Steve. I'll just make a couple of comments maybe. I mean first of all, having spent nearly a year working with the World Health Organization through the COVID response and the vaccine development as well as drug development, I think as I sit here today, while there could be things like extreme mutant variants, which might change the course, I think I'm more optimistic now than I have been for a very, very long time in terms of what's happening in terms of the pandemic and bringing that under control, and the 2 guys on the call have heard me say this for a long time. But in the middle of the year, I think there's no reason why the more advanced countries, which have had access to large numbers of vaccines, won't be in a position to start to bring this thing very much under control. It won't go completely. Then there's still risk of kind of a difficult surprise. But all else equal, I think we're in a much better position. And the question then becomes how quickly can, really, the broader global population get into safe harbor, and that will be important for all of us. As I look around the world, I see more and more opportunities for the Optum suite of capabilities to have utility internationally. And I think that one of the things we'll see coming off the back of the pandemic will be in many, many government-led systems, there will be increasing pressure on deficit control or the increasing pressure on trying to deliver high health care quality. The expectations of health care systems are simply going up and up and up. But there will be financial pressure. And that's where I think opportunities for change are going to come, opportunities for companies like United to be able to deploy some of its capabilities. So I do, I remain -- I think we're extremely careful about going beyond the U.S. kind of mothership space because there's such a big job to do in the U.S. and there is so much value that we can deliver for our clients as well as our shareholders. But we are definitely looking internationally. And I would hope and expect that you'd see us maybe demonstrate that over the next year or 2.

Okay. Great. We still have a couple of minutes here. One question I want to make sure we get in is that the company's last public appearance with investors was back in mid-January with the fourth quarter earnings. There's obviously been some major changes in the shape of the pandemic since then. So I guess I'm curious, what are your latest high-level thoughts on the net impact of the vaccine success, fewer COVID cases, impact on the overall company, particularly as it relates to the medical cost trends, either from COVID-related costs specifically or non-COVID medical utilization? And some companies have commented on the first quarter, in particular. I don't know if you're in a position to talk about that or not, but just curious to get your thoughts on how the pandemic is really changing since your last public appearance.

Yes. So well, listen, I've just given you a kind of very high-level view, and I'm going to ask John in a second to start at a slightly more detailed response. But I also just want to call out, we've put a huge amount of focus and effort in making sure that the organization's capabilities are being deployed to get as many people vaccinated as possible and -- both in terms of our membership, where we're seeing a very, very good pickup and also, of course, through our clinicians where I think as of today, almost 1/3 of all of our clinicians have been vaccinated. So we're very focused on making sure that as an organization, we build robustness, that we're there for everybody when they needed. And obviously, that's a key focus. As far as the impact on utilization and those sorts of trends, let me pass to John and maybe make a few comments and then pass Dirk to finish off.

Sure. Yes. Steven, looking back at -- from January, mid-January through now and what occurred, so clearly, there were a couple of elements. COVID incidents for January and February ran higher than we would have expected. So you have the direct COVID costs running in a zone that was probably higher than that element. But more than offsetting that, you had more care deferral than we would have put into that period as a result. And so that's been a very consistent feature, I would say, over the past 12 months of this in terms of -- as that moves. So I wouldn't call it particularly surprising at all. When you start seeing that kind of incidence, you start seeing an offset in care deferral. I wouldn't call it all that material. But yes, I mean, I would think that likely, what that means is probably in terms of the first half, second half earnings mix, probably balances out a little bit more. And historically, we've kind of been at a 48-50 earnings mix in that zone. And I think that's kind of the zone I talked about back at the investor conference even also and that expectation. With that little shift and more care deferral happening, I can see that being more balanced than the historical view in 1H, 2H, mostly because of what we saw as increased care deferral. Our intent still here is to make sure that people get the care they need. That's been our intent here since all this started, to get them in, get them seen, make sure that people aren't deferring acute conditions too long and create that access. So that continues to be our -- where our efforts are placed. And we didn't -- weren't able to accomplish as much of that in the first half just because of the higher COVID incidence. So our expectation would be that would push some of that care deferral into -- or some of that unmet care need into later periods. That would be the key component. Really, I wouldn't say there's anything else just 2 months into the year. There's really not much else to update on from that period. And Dirk, I don't know if you have any other comments there?

Yes. Just a little bit -- I think, John, you covered it pretty well. I mean most of the net decline in utilization there, in the sort of the outpatient and physician direct primary care categories. The dynamics that we're seeing sort of by line of business are pretty consistent with what we've described in earlier venues. Commercial, pretty close to the baseline. Medicare, a little below baseline. And Medicaid, a little bit further and below baseline to Medicare. So that's kind of the line of business breakdown. But John described what we've seen pretty well.

Okay. That's definitely helpful. I think we're 1 minute into overtime here. So I guess as we wrap up, are there any closing remarks or comments that Sir Andrew wants to convey as the new CEO that we didn't touch on earlier in this session?

No. Listen, Steve, I think you did a great job of touch -- covering the bigger points relevant to the company. I've just got to say, as I've stepped into this role, the energy and the momentum of the company feels really good. We've got a fantastic depth of management across the top of USG. I think about people like Brian Thompson, Dan Schumacher, you think about Heather Cianfrocco in many of our key businesses. John Prince, running Rx. So those people are really super aligned with the agenda that we've just shared with you. And we look forward to continued strong delivery of our 13% to 16% long-term growth rate. That's a standard which people have expected from the company. It's one we're absolutely committed to continue. So -- but we appreciate the time this morning. And Steve, you should always just call me, Andrew, honestly.

All right. With that, I think we're out of time. So I certainly want to thank everyone from UNH for their time today, and enjoy the rest of the conference.

Thank you.

Thank you.