UnitedHealth Group Incorporated (UNH) Earnings Call Transcript & Summary

All right. Great. I want to thank everyone for joining us today at the BofA Virtual Healthcare Conference. It's my pleasure to kick off the conference with UnitedHealth Group. United, as you guys all know, is the largest health insurer in the world as well as a provider of health care services through OptumHealth, health care IT through OptumInsight, and pharmaceutical services through OptumRx. With us today, we have Andrew Witty, the CEO; Dirk McMahon, the President and COO; John Rex, the CFO; and Brett Manderfeld, the SVP of Investor Relations. So I'll hand over to Brett for some quick comments.

Yes. Thanks, Kevin, and thanks, everyone, for your time today. We really appreciate it. I want to take just a quick moment to remind you that today's remarks will include forward-looking statements, subject to risks and uncertainties, and actual results might differ materially. You can review the cautionary statements in our SEC filings, which are posted on our website. The posted materials also contain a reconciliation of GAAP to non-GAAP financial measures referred to in our remarks. So I'll turn it back to you, Kevin. Thanks again, everyone.

All right. Great. Maybe, Andrew, start off with you here. Obviously, you've been in the CEO role now for a couple of months, but you went away from the company on a co-bid program and now back. How are you thinking about the company? Is there anything you're sort of thinking about strategically with somewhat fresh eyes coming back to the company? Any thoughts.

Kevin, first of all, thanks so much for the opportunity today. It's great to see you, and thanks, everybody, for joining us for the next 30 minutes. Yes. So actually, it was a good chance to having been around the company for a couple of years, then spend out a year at World Health Organization, come back into the new role. I would say the headline -- that you shouldn't expect any dramatic shift left or right in terms of the strategic direction or the strategy that you've become familiar with, I think, for UnitedHealth Group. I would say, though, that the company is in probably 3 areas I'd call out, where I would say you should expect us to go deeper and to really be challenging ourselves to do more. So 1 is really exploring the appropriate synergy opportunities between UnitedHealthcare and Optum. Obviously, these 2 companies have their own multi-payer relationships, but there's also tremendous opportunity to work together to build new product, services and contribute positively to members and patients' experiences. That's an area we think we can look more in. And that's something that even in the last couple of months we started to really double down on inside the business. And you can see within the Optum portfolio of products and services, significant untapped potential, I think, in particular there. So that's one area I would call out. The second is a broader and deeper focus around bringing technology and data assets to life within the organization. So as you know, OptumInsight houses all of our technology and data capabilities, those that service UnitedHealthcare as well as Optum and, of course, our external clients. The technology capabilities there have historically been very much developed for the very large-scale providers, hospital systems, payers and others that you're very familiar with. We see significant opportunity to broaden that waterfront. There's significant potential there for the development of technology platforms. We think there's significant productivity gains. You already saw some of that flow through in the first quarter results when we announced that recently. And we also think there are further opportunities to utilize appropriately the dent that we're trusted to look after to improve decision-making across the system. And then the third area you should expect us to go deeper is consumerization. So this company has relationships with over 100 million consumers in health care across the U.S. alone. Of course, our 330 million consumers. We touch many of those consumers in different ways. Sometimes we have very deep multiservice lines relationship. Sometimes, we just have a single touch point. A significant opportunity for us to, first of all, improve the experience with consumers as they navigate health care; and secondly, to build much deeper relationships between ourselves and them. So strategy very much directionally as you've become used to. But I would guide you in those 3 areas you should expect us to do more.

All right. Well, that's great because you may know, we've been running a lot about Optum over the past few weeks. And I just want to maybe go back to that first point there. So more synergies between United and Optum. Can you talk a little bit about where exactly you see those synergies? Where you are in achieving those synergies right now?

Yes. So thanks, Kevin. And I'm going to make a couple of comments and ask Dirk to contribute to this as well. So I think the important thing to recognize is that Optum itself is almost -- nobody's had anything like Optum before in the U.S. health system. This 56,000, 60,000 physician, primary care environment, ambulatory network, now operating in multiple, multiple, multiple markets across the U.S. That creates a really very different potential for us to help improve health care, help us deliver low cost, better quality care by getting early intervention, so making sure that people don't go to the most expensive facilities if they don't need to, making sure that prevention is being managed properly. And you know that in the MA lives, that's been a real spearhead of improving quality. So thinking through how to really invest to prevent rather than to spend money to deal with the consequences of mistreatment on this diagnosis. So that existence of that primary care environment that really is the kind of core foundation of Optum is a new thing to the system. It's really only just beginning to be brought to life in terms of how that can help all the way through the system, but particularly as far as it concerns UHC in terms of the payer, how can we make sure that, that payer is able to guarantee or allow the best possible care being delivered at the most competitive rates and prices. You can see that in the accelerating rate at which, for example, MA lives have been capitated on behalf of UHC within OptumCares. You've seen that acceleration very dramatically over the last 2 or 3 years. You should expect to see that continue very dramatically. We'll learn in a ton as we go through that. You can -- you would guess -- I'm sure you'll be familiar that we have certain practices, which are much more advanced in that capability. WellMed being probably the most obvious example. A whole bunch you are then coming up behind and then those which have just joined the family are beginning on that journey. That whole trend will move much more aggressively. So you should expect to see that kind of synergy built up within the business. We believe if we do that well for UHC, it puts us in a great position to service other payers in the marketplace as well. Remember, those clinics are spending time with patients who are all being paid by all payers in the marketplace. So that skill set, we think, has real leverage beyond simply the UHC portfolio. That's really a core area, for example. If you then think through other parts of the organization, how the development or the focus of our technology platforms to empower the UHC's competitiveness in the marketplace, really make that UHC consumer experience second to none, making our responsiveness second to none. All of those rely on Optum capabilities. So just a couple of examples I'd call out. Dirk is spending a ton of time on this. I hand over to him.

Yes. Thanks, Andrew. So beyond the Medicare/OptumHealth capitated risk environment, which has paid great dividends over the years, I would also add, we were the first, Kevin, to go to the integrated pharmacy benefits in a great degree, managing across both the medical and pharmacy benefits, always produce a good amount of savings for plan sponsors. I also think about an area like OptumInsight that provides payment integrity service, taking out waste, fraud and abuse on behalf of, again, our plan sponsors and to make the net cost down for UnitedHealthcare. And then Andrew mentioned technology, and I would say another area is Rally, where one of the things that we've developed over the years is an incentive engine. So that ultimately consumers can get rewarded for the right health incentives and ultimately align the incentives within health care. So I'd say OptumRx integration, I'd say payment integrity, I'd say Rally incentives, those are some other good examples of how better together is working for Optum UnitedHealthcare.

And just the important to underscore on that, Kevin, as you know well, is what Andrew and Dirk just referred to. And it serves all payers, 90 some payers here that work with OptumCare. And that the model is ferociously multi-payer, continues to be in terms of how we face off to the market to try to deliver these better outcomes and experiences for people.

It's interesting you guys talked about how some of these capabilities are really fueling the outperformance in UHC. I mean how do you think about selling these things externally? Because it seems like some of this is potentially secret sauce versus something that you want to monetize externally. So how do you think about what to sell and what not to sell?

Yes. Let me make a couple of comments, then maybe ask John to add to this. I think in the DNA of the company, we see ourselves as multi-payer. And really, we see ourselves as open to provide our services, not just to payers, but to systems and I think a lot of people have this assumption that the company is very much fixated on a certain part of the delivery system. And that, for example, hospitals aren't necessarily an area where UHG sees a lot of potential. The reality couldn't be further from the truth. The hospital system is huge client base of ours. You look at the growth of OptumInsight. It's coming from the development of those arenas. So I think within the DNA of the company, we take a view of -- we often develop product, services, capabilities. We absolutely see the opportunity to tune and develop and strengthen those hard nodes, if you will, in the close collaboration between UHC and Optum. But then those products and services have broad utility across the market. And ultimately, we think we benefit. We think our clients benefit, if we see the system generally start to strengthen, not just in small pockets, but across the board. So our DNA definitely leans in that direction. And we think actually, it keeps a kind of competitive edge inside the company, Kevin, as well. It would be -- I think there is a downside risk. No matter how clever you think somebody might be or some idea might be, if you're not constantly testing it against those buyers on the outside of the business, whether it be hospital systems, whether it be other payers, whether it be other doctor groups, if you're not testing against that reality of the marketplace, I think that pathway takes you down a road of losing your competitive edge eventually. So for all sorts of good reasons, we see that. And if you look at the growth of the company, if you look at Optum's growth that drive the external growth, has been a really significant contributor to the overall performance of Optum, has grown really from nothing to be now more or less the same contributory slice as UHC and, ultimately, not far away, will be obviously the larger of the 2. John, do you want to add to that?

Yes. It makes these businesses better when they're needing to stand up to external markets. It makes them better. We refine our capabilities. We're tested real-time in these capabilities. That's what we found over time just with the entire enterprise. And then I'd go beyond that, just when I consider the value that it can create for the system. When it comes down to it, the UnitedHealthcare business is a relatively small piece of the entire system. There's so much more to serve, so much more value to drive across the system beyond that component. But we wouldn't really see that as a value-maximizing way to go to keep it an internal only focus.

Okay. That's helpful. I guess when I think about OptumHealth, I think -- or OptumCare, maybe even, in particular. But OptumHealth, we're estimating to your point, Andrew, with Optum getting the bigger and bigger part of the business, OptumHealth is going to be driving almost as much earnings we estimate as the Health Plan is over the next few years. And that $100 billion number that you guys threw out there seems aggressive, when I first heard it, but as we go through the numbers, it actually seems like you should be able to hit it. But why is it important to have such a provider presence? It seems like a lot of other managed care companies are going through and saying, we can contract. We don't need necessarily to have it or they're picking and choosing different parts of the system. So how did you focus on what you're focusing on? And why is it really important to own it versus maybe getting there through contracting in a more capital-light way?

Well, so, Kevin, a great question. And the reality is we do both. I mean we own and we contract. So if you look at our physician network, the whole bunch will be employees of the company, but not all by any means will be employees. And we absolutely expand through both pathways. Already this year, we've added about 6,000 physicians. So the rate of expansion is really dramatic. And some of that is organic. Some of that is through acquisition. Some of those is through partnering and contracting. But you're seeing continued very substantial growth in this arena, which is super positive. It's important, I think, from our perspective, as we start to think about how you take these practice -- great physician practices, terrific clinicians, well established in their geography. As we take all these group and really lift their capability to manage complex areas like full capitation, by being able to really understand the various different market segments, make sure that they're able to develop sustainable contributions and sustainable economics across the full book of their businesses, we think that requires a really sustained, long-term set of skills development, capability development, technology underpinnings. And that actually just -- it's a lot easier to do, and you can build confidence on very long-term returns, very long-term strengthening I think in the closer knit relationship and a very loose relationship. And I think we've all seen across the whole of the health care system, it's relatively easy to put together a quick contract. It's much harder to do a multi-decade journey where you really drive change. We're in that business. We're in the business of a really long-term fundamental change. And actually, again, we talk a lot about MA as a key focus point, and it clearly is right now, but this is not restricted to just MA. As we think through over the next several years, you should expect us to be developing these capabilities and strengths in our clinics, in partnership with our payer as well as other payers, across many different categories of patients. You should also start to think about how we think about ZIP Code. So within a ZIP Code, we might have 5, 6, 7 physician groups. We might have an infusion center. We might have a surgery center. We might have all sorts of different activities. Over time, because we have that kind of confidence that we have that long-term presence of those capability, we can start to knit those things together. What that means is that the patient or the family have the expectation that they know they're going to be serviced by a similar culture. They're going to be known they are not going to have to reregister every time they show up. Their physical experience should start to reflect what digital experience looks like. We think that can really drive very significant improvements in experience, in clinical outcome and in cost outcome. Dirk, do you want to add to that?

Yes. I would say -- actually, Kevin, on one thing, the risk transfer and having one of our OptumCare primary care entities be able to accept risk, it's not just a paper exercise. I mean you have to ready and there's a certain technology, and there's a certain skill set that has to be developed over time, as Andrew said. They're sort of the value-based care journey. So I think about things like putting in patient portals, medical management systems. So that ultimately, when risk is taken, it's successful. And as Andrew said, common patient experience is what we want to get to. So what does that mean? Little common look and feel from a patient portal perspective. Those are the kind of things that we do from a continual investment standpoint, to, a, take costs down; b, make the patient experience be better.

Okay. That's helpful. I guess when we think about this growth within OptumHealth and OptumCare, in particular, there's been a lot of companies, these Medicare disruptors, so-called in the space raising a lot of money doing what you're doing. How do you think about the competitive environment for that growth, given all the money that's being thrown at some of these companies and their expectations for growing 30%, 40%, 50% per year?

So first off -- and John, I'm going to invite you in, in a second on this one as well. But first off, Kevin, I think it's great that this is attracting competition and innovation. I mean, that's good for everybody. It's good to keep us sharp and everybody else is already in the marketplace, and it's good for patients in the system. So very -- that's super positive. And obviously, at different times, we acquire some of those emerging type of technologies and ideas that help strengthen us, and our growth comes a lot through organic and is turbocharged by our deployment of capital, in particular, through M&A in important areas. Having said all of that, nobody has anything that looks like Optum. So when people talk about these super rapid growth rates that are of microscopic basis compared to the Optum network that exists. That scale and that -- and if you think about, as I've already alluded to, that scale itself is only really just now being kind of built out into its full capacity and capability. So it has tremendous growth embedded in it. And we continue to expand it. We're not standing still though, either. So if you look at one of the key drivers of growth within Optum this year, within OptumHealth this year, is Optum at home. So we spent most of the time so far today talking about that kind of clinic environment. We see a huge opportunity to continue to develop the same methodologies, the same ideas, the same underpinnings for people who want to be managed at home. So how do we avoid people ending up in long-term care institutions and the like? So if you look at the businesses that Patrick Conway is building up within our Optum at home portfolio, deeply complementary to the clinic environment, connected to the clinic environment, connected to the building political environment that Dirk referred to. We see all of that being the next wave and the next wave and the next wave of Optum growth, but very much at very large scale. So we're looking at national solutions, we're looking at comprehensive solutions, and we're looking at solutions where we can deliver not just for narrow subsets of the population, but for increasingly broad swathes of the population. John?

Yes. So more -- and more than a decade into building out OptumCare now and having -- Kevin, as you know, well, we've tried a lot of different models out there over the past 12-plus years as we developed OptumCare. So most importantly, in terms of how we feel about is coming into great because it helps demonstrate the value of these kind of delivery mechanisms. Ultimately, it's about sustainability, right? If we can -- if we and others can drive better outcomes for the people we serve, ultimately drive lower costs in the U.S., in particular, U.S. health care system, it's about sustainability of the model, long-term sustainability of solutions in health care that achieve what the country is really looking to achieve. So it's a very, very large market. So I'd expect it to -- and the response and the outcomes that we've had so far have been very positive. So I'd actually totally expect others to be coming and participating in the market. I think that's good for the underpinning of the sustainability, and the outcomes and kind of the pacing of that as we see this impact in the country.

All right. That's great. I specifically wanted to spend most of the time talking about Optum because I think you're still somewhat under -- misunderstood and not focused on enough, but I probably should ask a few questions that investors are expected to ask. Such as the guidance, $1.80 per share headwind from COVID is still in here. I mean how are you thinking about that $1.80 and the pace of when that might reverse?

So again, let me just make a few introductory comments and then pass to John to give you maybe a click down in detail. So Kevin, first off, we very much remain super committed to our long-term 13% to 16% growth rate that you've heard us talk about in the past. That remains very much the guideline of how we think about developing the longer-term momentum of the business. Obviously, in the last 18 months, the whole system has been a little distorted by the COVID situation inevitably. As we look through though into 2022, obviously, it's too early to be super predictive, Kevin. And you can't rule out some surprise in terms of a kind of sharp left or right for COVID itself. But as we stand today, with the trends that you look at today, I would have expected, by the time we're into '22, the bulk of that $1.80 is behind us, right, in terms of no longer being a significant headwind on the business. Now exactly what the bulk means? It's probably a little early to be super descriptive around. But definitely, directionally, we see that. And so as we think about how we're managing our business, we're certainly working on -- at least our plan A, if I can put it that way, assumption is the COVID impact start to recede quiet significantly in '22 versus what we saw last year and so far this year. And therefore, it's very much on to the front foot in terms of pushing forward on the strategic direction we've been talking about today. But John, you might want to go into a bit more detail on the $1.80.

Sure. Let me kind of reframe what comprises the $1.80 here also. So first, it's about 2/3 UnitedHealthcare in terms of impact, and then 3 main components that really drive it. It's the direct testing and treatment costs offset by care deferral is 1 component. It's the impact of the 2020 care deferrals on businesses -- our ability to close gaps in care. So that rolls through in '21. And then it's the potential for what we've been talking to, what we really haven't seen evidence yet of higher -- potentially higher acuity as people come back into the system, and let's handle that. So you can take each of those 3 major components. You can see a little assessment from what Andrew just went through in terms of how that might roll through and what would -- what, if any, would come back in 2022. So one of the elements that we're facing, I mentioned kind of that second one. How are we doing in terms of closing gaps in care? Are seniors, in particular, getting back into the system and seeing their doctors? Certainly, I would tell you, one of the components we noted on the first quarter call was we are having dramatically more success, maybe no surprise, in terms of having our nurses into seniors' homes this year. The HouseCalls program pacing, obviously, dramatically better than last year in terms of seniors comfort with having a nurse into their home. So all those elements will ultimately impact kind of that view and what pulls through to 2022, but that's a general sense right now. And Andrew commented on kind of the expectation there. That's going to continue to get refined as we pace throughout the year, and particularly as we see these elements such as people getting the care they need this year.

Okay. Okay. And I realize that we're far away in 2022. But just to make sure I understand your comments, Andrew. You're saying 13% to 16% is what you expect to do long term. And then on top of that, the bulk of this $1.80 comes back. Is that still the right way to think about it? Or are you just saying that this is no longer a headwind? That we should think about 13% to 16% off of where we are today?

No. So what I'm saying is that as you think about the company over a multiyear horizon, the 13% to 16% remains the kind of range that we aspire to deliver. We're not giving you any specific guidance for 2022. But as we stand today, we wouldn't expect -- as of today, we wouldn't expect there to be very much at the $1.80 left in terms of headwind on the business in '22. As we get to our normal cycle through Q4, we'll obviously update you on what we specifically look for, for next year. But I would say, those are 2 different conversations. One is we remain super committed to the multiyear 13% to 16% kind of aspiration of the company for next year when we'll update you at it. As we look at it today, we wouldn't anticipate there being a very substantial headwind from COVID in the way that we've seen this year. But we'll obviously confirm on definitively as we get towards the end of the year when we'll have more facts.

Maybe because this conference is usually in Vegas, I've got the gambling term in my mind. But just to tell you, every time I go into your Analyst Day, I wonder how long can a company with $300 billion of revenue keep growing 13% to 16%. And at some point, I'd have to take the under on that. But every year, I go into your Analyst Day, and I'm like, okay, well, it's not going to be next year. You guys still have a lot of growth in front of you. So can you just maybe help us kind of reorient what's driving that 13% to 16%? And how comfortable are you, I guess, one of the key things we should be watching to make sure that we have visibility in the 13% to 16%?

Yes. Great question. So let me start, and then I'd love to hear from Dirk and John on this as well. It's super important to hear their voices also. So clearly, continued strength and development of Optum, OptumHealth, OptumCare, in particular, we talked about a lot today. That gives us the basis on which we can feel very confident around long-term, highly effective risk management, whether that be owned by UHC or capitated or delegated to Optum. We think that then gives us continued energy for external growth. We've touched on a bunch of those things today. The area we haven't really talked about today at all is growth potentially in OptumInsight. So as you step back and you say, okay, how might you think about where new growth potential comes on? Think about fintech, think about the development nodes, our payment strategy, those sorts of arenas, think about other technology platforms, think about our government work that's been strengthened very much during the last 18 months through OptumServe. Those remain very significant growth drivers for us. Those areas remain very significant. Our specialist pharmacy portfolio of businesses, significant transition going on in the PBM marketplace, traditional PBMs beginning to give way to a very different shape of pharmacy service. But you know that the company has been investing significantly. Now if you look at where the future of the pharma profit pool is going, that's exactly where our businesses are focused, to try and ensure that we're delivering really best procurement and best service delivery for people who are receiving specialty, oncology and rare-disease type drugs, which is going to be the majority of the future. So those are -- all those areas remain really substantial growth opportunities for us. On the UHC side, that really demonstrated track record across particularly the Medicare books of business. Of course, really strong performance you've seen in the Medicaid, CNS portfolio and really continued robust you saw continued or beginning of some recovery in E&I, in our commercial book this year. So across all of those, we see strength and opportunity. At the end of the day, it's all about execution for us. I think we have a lot of opportunities, making sure that we are allocating capital to the right growth opportunity, making sure we're building the right synergy points between our businesses to get the best possible return, making sure we remain multi-payer because that's what keeps us sharp. It keeps us focused on what's really needed in the marketplace. Dirk?

Yes. I'd say, let me start off by saying on the UnitedHealthcare business platform, Kevin, I would say that Medicare continues to be the thoroughbread to stick with the gambling analogy a little bit here. It runs through the floor. I would say the stable benefits, the technology that we deploy, the customer service, our stars performance over the years, all of those indicate -- and clearly, the demographics are still there. The Medicare business side continue to be very bullish on. And I like what Andrew said. Don't go to sleep on OptumInsight. OptumInsight -- I think there's a ton of opportunity. One thing that we've been working on a little bit lately has been providing decision-making at point-of-care for physicians. It's sort of an effort that we sort of developed at UnitedHealthcare. We sort of moved and been working on some of the technology with OptumInsight, providing next best action from a provider of information perspective to be able to have the providers make the right action to minimize the cost and optimize the outcome, make it administratively easier with things like prior authorization and quick hold lookups and prior authorization. So I think I hold out good hope for OptumInsight to make a lot of progress as we continue to do things like provide better decision-making capability across the entire health care spectrum, not just with providers. So those are the 2 businesses that, I would say, give you a little bit more than what Andrew gave. And Andrew did a pretty good tour there of what we're thinking about.

And Kevin, realizing we're a little bit out of time here, but just always keep in mind, and I know you are well cognizant of this. 3 to 5 points of our growth over time is driven -- of the 13% to 16% is driven by capital allocation. And the important thing to keep in mind there. It's not -- that's not a -- coming necessarily from $1 of capital we deployed this year. It may be coming from $1 of capital we deployed 2 or 3 years ago. Because a lot of the models we get into are so new and developmental that it takes a little bit of time to come through. So that's a very important point of the model and putting the context around what 13% to 16% really means in a space, in a sector that's as large as the one that we serve.

All right. Yes. Unfortunately, that is all the time we have. But I appreciate you all taking the time today. And hopefully, we can do this again next year in Vegas.

Thank you, Kevin. See you.

Thank you.

Thanks, Kevin.