UnitedHealth Group Incorporated (UNH) Earnings Call Transcript & Summary

Hi. Good morning, everyone. Welcome to our 37th Annual Strategic Decision Conference. I'm Lance Wilkes. I'm the health care services analyst for Bernstein. What I'm going to do at the front end of this discussion with United is turn it over to Brett Manderfeld, who is going to walk through the disclosures from the company, and then he's going to hand it back to me. I'll do some of the logistics, and then we'll begin our fireside chat. So with that, Brett, do you want to go through your portion?

Yes, that's fantastic. Thanks, Lance, and thanks for everyone for joining. Of course, I want to take a quick moment to remind you that today's remarks will include forward-looking statements that are 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. Our posted materials also contain a reconciliation of GAAP to non-GAAP financial measures referred to in our remarks. Thanks, Lance. Back to you.

Great. So just a couple of housekeeping items. I know we're later in the first day. So a number of people may have already been on these fireside chats. You can submit questions via Pigeonhole, which is on the page there with you. For some reason, Pigeonhole isn't working or anything, you certainly can submit those questions to me, lance.wilkes@bernstein.com, and I'll ask them as well during the session. We've got a kind of a fireside chat format that we'll be going through here, and then we'll certainly turn to your Q&A. So please submit those questions. With that, I want to welcome Andrew Witty, CEO of United. We also have John Rex, CFO; Dirk McMahon, President; obviously, Brett Manderfeld and Zack Sopcak from Investor Relations. So thanks for all of you for attending. And Andrew, what I'd like to do at the front end of this is give you the opportunity to both introduce yourself to the audience. I'm sure, all of them know you for your various roles in the past, but also to maybe give a broad perspective on the company and sort of an intro. One of the attractions of the SDC here is this is more of a generalist portfolio managers sort of event. And so -- well, I'm sure everybody knows United. If you want to frame it a little bit for us at the beginning, and then I'll start taking you through some of the more strategic questions.

Great. Lance, great to see you, and thanks so much for the opportunity. We're very pleased to be with you and your guests. So I appreciate it. Yes, so great to see you. I'm Andrew Witty. I've been with United in one form or another for about 4 years. So originally joined as a Director of the Board, then stepped off the Board to become CEO of Optum; and then latterly, President of UnitedHealth Group; took most of last year as an unpaid leave of absence to work with the World Health Organization on the COVID response, came back to United at the year-end, and then took over as CEO of UHG at the beginning of February. So still in the early days of that new role. We put together a chief executive office, which is made up of John Rex, Dirk and myself. So you have the three of us. We try to focus our energies on the big strategic choices for the company, where and how we deploy capital, how we think about developing our senior leadership team and making sure that we're focused inside the organization on the big levers of performance. That really speaks to how we can bring to life the enormous ongoing potential of both UnitedHealthcare and Optum. UnitedHealthcare, super established; insurance-based organization; very strong portfolio in the government books of business, particularly Medicare Advantage, particularly Medicaid; strong commercial business, although a marketplace which hasn't seen much growth over the last several years; international business, primarily located in Latina. And then in Optum, you've got OptumHealth, OptumInsight and OptumRx. Those businesses really separate -- the UnitedHealthcare businesses, separate primarily into insurance, financing of health care, broadly speaking. And the Optum business is broadly separating to delivery of health care. We've seen strong growth, particularly in the businesses of Medicare Advantage and OptumHealth, Optum Care. We see robust performance and recovery in our Medicaid books of business over the last couple of years, in particular, and strong growth in OptumInsight, particularly based around technology opportunities and hospital system collaborations. We see our OptumRx business going through a continued transition period, particularly as we build up our new specialty pharmacy businesses, moving further into the delivery of pharmaceuticals, specializing more in oncology and rare disease in complement to the established traditional PBM. And those -- that really lands -- captures, I think, the overall business. Just to pull out a couple of key areas for us. I think a lot of people are beginning to see the value of the risk capitation strategy that the company has been pursuing for a number of years. Clearly, the Medicare Advantage, UHC strategy has been focused in that way. And over the last several years, as Optum Care has been built out, this is our primary care, primarily primary care network of physicians, we've begun to move more and more Medicare Advantage lives to delegated responsibility for those physicians and those physician groups. We've seen excellent performance in terms of quality and cost. That trend is accelerating, and you'll see that in the very strong growth of Optum Care in particular. There is much more I could go into, Lance, but hopefully, that gives you a little bit of a thumbnail, and I'll let you take us where you wanted to go next.

Yes. Sure. I appreciate that. I think that's a great description for the audience. So let me start off at a high level and really kind of looking at this from your in the office in the CEO's role as well as the Board. As you look at the UnitedHealth Group today, and you've got a vision for where the company is going to be 5, 10 years down the line. Can you just describe a little of kind of what that destination looks like? And importantly, if there are particular businesses in addition to the government managed care and OptumHealth, Optum Care businesses that ought to be really viewed as the rising businesses to match up with those?

Right. Well, so a great question. So first of all, we see a lot of growth. We've had for a long time, a commitment to -- we retain a strong commitment to a 13% to 16% earnings growth rate for the company. About 1/3 of that growth comes from capital deployment, M&A, share buyback. The 2/3 comes from the core drive -- core growth of the organization. So we see that very much as a benchmark of our future performance as well as our past, first thing to say. You should absolutely continue to expect strong growth from all of the businesses I've talked about, but especially OptumHealth driven by Optum Care. We believe we're really in the foothills of the opportunity of Optum Care, particularly around the capitation strategies I've referred to already. You should expect to see us have a greater connectivity of our businesses, both within Optum, within OptumHealth, but between how we think about developing our business between Optum and UHC. It's one of the things I've talked about since I've taken over. There's opportunity for us to develop more collaboration, more synergy, more new product design between the 2 businesses. You should expect to see that. You'll see some of that benefit directly into OptumHealth. I think it will lead us to look for new innovation in marketplaces, which may have been a little bit less dynamic like commercial. So we'd look to see those sorts of opportunities. In terms of up and coming businesses, I'm going to call out OptumInsight. That's a business. We're in the process that's subject to regulatory review of looking to bring Change Healthcare alongside OptumInsight. We think that it has the potential to really create a number of new growth opportunities for us. Very complementary skill sets between the 2 organizations, Change being probably on the margin, more product orientated; OptimInsight, more service orientated. Change probably operates a slightly lower price point-sized client than OptumInsight, so very nice complementarity. The way in which the 2 organizations work to connect the system together better, make the system more easy to operate, less friction, lower cost. We think that's a big opportunity for the future. Put alongside that, our growing momentum around hospital system support from OptumInsight, really signified by our CommonSpirit collaboration, now in its eighth year, just re-upped to 2030, 18-year contract, fantastic durability. John Muir, Bassett System, Boulder, all of these recently announced, more in the pipeline. That's going to be a bigger area of growth for us. And I think that overall, you should expect to see from OptumInsight, a further click up and focus on technology innovation in health care. I call out financial payments within health care. John can absolutely speak more to that. I won't spend longer on that right now. And I would certainly call out the confidence we have in our continued growth at UHC, particularly Medicare and Medicaid. But I'm going to reiterate, our commercial business is super important to us, and we will be continuing to invest to innovate in that business as well. So we see the future being a growth environment. We're not blind to the risks. We're a very large organization. We take a lot of care to consider our environment to try and make sure we take the appropriate conservative steps in how we deploy our capital; avoid getting too caught up in the zeitgeist, which may not be permanent; have the opportunity to walk past a few opportunities recently as we've lived through some of that zeitgeist sort of valuations, but the reality is there's a ton of opportunity in this marketplace. And that's because the market's crying out for one thing really, which is they want high-quality care at more affordable prices. And that's what we're all about is trying to deliver that for patients, for providers and also for the payer.

That's really helpful. So let's go into a couple of those areas that you just enumerated. And maybe we can start off with the collaboration and integration, which has been something that I think has been brought more to the floor since you've moved into the role, and I certainly have noticed that more. Could you just talk a little bit about maybe some of the types of opportunities that present themselves in the integration? And I think an interesting thing is to also talk about the puts and takes associated with greater collaboration? Does that lessen stand-alone opportunities at all?

Yes. Well, so great question, Lance. First thing, let's be clear. There are some things we don't share. And I think the company has established a phenomenal track record of being able to implement and enforce the appropriate separation between the businesses, when it comes to regulatory information on our clients and that kind of thing. So none of that changed, of course. But the reality is when you then sit down and say, okay, how can this very large, super intelligent payer help inform the way in which health care delivery is developed, then that's where the sweet spot of the collaboration sits. And I would call out maybe 2 or 3 different early things that we've identified -- or let's call them early types of opportunity. One is just straightforward acceleration. So not particularly inventing anything new, but as we work together and align ourselves to say this is really a top priority of the company, how do we then mobilize to accelerate, I'm going to call out, risk transference. So I think you've seen us move quickly in that space. As United has built that capability to move lives from -- or under UHC's guidance to Optum Care. You're going to see that accelerate very dramatically. And that's because we brought together the teams. We've made that a very clear mutual goal, and they have responded to that super well. And the opportunity is terrific as our organizations have matured into scale to really take advantage of this. That's one example of acceleration. Second example, bringing together really big new ideas. Optum at home, great example. So we talk a lot about OptumHealth, and of course, Optum Care, and Optum Care very substantially pivots around our ambulatory clinics of various types. Optum at home is all about creating opportunities for us to keep folks at home, keep them out of institutions, build on the foundations of our HouseCalls platform, which has been a long-standing mutual engine, if I can put it that way, for both companies, build on those foundations, bringing in Landmark, bringing in naviHealth, bringing in assets like Vivify. We've now been able to co-design what we believe is a really powerful supplemental strategy alongside the, let's call it, the bricks-and-mortar Optum Care. So that is very much a product of the 2 teams working together. Optum virtual, another example of that. How we then work together to stimulate the creation of digital and virtual capabilities, which can wrap around both that home and clinic environment that I've just described to you. And then as I move forward a little bit more into the future, what's on Dirk and I's kind of current desk in terms of asking the teams to focus on is how do we take now this very -- this increasingly mature and established footprint of Optum? Not business, the business is still in the nursery. It's still in kindergarten, but the footprint is becoming more mature. How can we take that footprint and help perhaps stimulate new products and services, which might, for example, be very appealing to our commercial clients as a way to reinvigorate the commercial insurance marketplace. And I'd just wrap that up maybe with a philosophical evolution for the company, Lance. I think historically, most people think of United and say, United meets their clients through the UHC insurance business, and then they connect them to the Optum business. Yes. And that will continue a lot. But alongside that, we now are much more able to meet people through Optum and introduce them to UHC. So you can either meet us as you look for financing of health care and then connecting to delivery or you can meet us through one of our delivery arms, and then look to help -- look for help in financing. So as you think about the organization, really making ourselves much more porous to connect and move with clients and customers through any of our organizations and then being able to connect the solution from wherever you started, you can end up accessing similar portfolios of opportunity. It's a very mutually rewarding strategy for our various teams in the company. We think it makes it very distinctive in the marketplace. We think it makes it very intuitive for our clients and customers, and we think that will deliver continued improved outcome and affordability.

Let me follow up on the commercial business integration with that because -- and that was, as you spoke about it earlier, it was one of the things I noted down here as an interesting topic. It would seem to me that there are a couple opportunities that even I could think of, and I'm sure there are a lot more that you guys are working on that present themselves. Maybe if you could just talk a little bit about these sorts of opportunities and maybe how investors ought to think about. In the commercial business, one of the challenges for everybody in that business is always that self-insured business, you've got obviously a smaller revenue base that you're playing off there. The opportunity to provide global capitation services that can provide better cost outcomes to that audience, obviously, would explode the revenues of any MCO in that segment relative to its historic levels. Just interested in as you look at in Optum Care, which we normally think of as really anchored around that MA growth and perhaps some of the others, are there opportunities? And how near term are the opportunities for the self-insured business or for other parts of the commercial business there?

That's a great question, Lance. And I think you're right on the point. And I'm going to ask Dirk to come in, in a second. I'll just make a very kind of simple point, and then Dirk can go into much more thoughtful reflection on this, I think. So the reality is, it takes quite a while to develop the skills to successfully -- I mean anybody can sign a contract. The question is, how long does it take to successfully be able to execute that relationship to the satisfaction of everybody involved, the patient, the doctor, the payer? And -- but once you've done that -- and that requires better philosophical journey for some people. It's a systems journey. It's a financial kind of economic journey for different organizations. But once you build a -- imagine what you've done then is you've really built a chassis, a skill set, which you figure out how to manage risk. Some of those people, who are amenable, who are responsive to that more sophisticated management, happen to be in MA plans. But a ton of them are elsewhere. They might be in the commercial books. And so over time, for me, the place we want to really prospect is how might we be able to leverage that chassis that we've already built. And even in -- Lance, see, and I'm sure you know this, even in our most sophisticated clinic, with the most exposure to MA capitation, we still manage fee-for-service commercial lives in the same clinic. So we're talking about a completely co-mingled world into which we are aiming to build a capability. The question is then, can we design products which allow that capability to be leveraged into those other populations you described. And I'm going to ask Dirk to pick up on that thought from there, if that's okay.

Yes, no doubt. Thanks, Andrew. And Lance, this -- it's a good question. So as Andrew described pretty well there, we have the Medicare rails. We have providers that ultimately have to get comfortable with risk. And we've always talked about sort of moving a provider up the risk continuum. Why just think of commercial capitation as sort of in the same zone? So where we've sort of got our toe in the water a little bit is we're -- we've had some provider-centric, probably call them provider-centric products out in California called Harmony, where the Optum Care entities are sort of the centerpiece for the anchor store in the mall with some of our products out there. I also think about -- you mentioned ASO. To the extent to which there is a large proportion of ASO members for a given plan sponsor in a particular area where we have providers willing to go with cap, I think we can start making some of those inroads. The capitation value proposition is really obvious. You align the incentives and you align the outcomes with the provider and the payer. That's exactly where we want to get to. I would say we're in early innings. But to Andrew's good point, the Medicare chassis is there, and we're starting to have these conversations with some of the more, what I would say, advanced MA providers to start thinking about how we can do with -- for commercial, too. Because we've talked about it before, it's in the interest of the provider to get a situation where their panel, where they can manage a capitated panel, they can make more, and it's more satisfying because they're managing the process in a more holistic manner.

I appreciate that. So let me -- I'll dive into Optum Care. There will be a couple of broader things, I'll get back to a little later in the discussion on policy and strategic capital deployment. But in talking about clients and investors, Optum Care and OptumHealth, real big area of focus from an investor perspective. Could you talk a little bit about for the growth outlook for OptumHealth and Optum Care, over the next 3 years, 3 to 5 years, is that really going to be coming from transitioning the existing business you've got that might be UHC MA over to global capitation for the portions that don't remain? Is it about migrating global capitation and other product lines or with other payers? Or is it more around expanding to other geographies? This is a business, obviously, where in the past, you've described a number of different growth initiatives, getting in those 70-plus markets, obviously, the penetration on global capitation. You obviously introduced different capabilities in there as well. So just trying to understand, for an investor, if you're looking at Optum Care over the next 3 to 5 years, what is the more important aspect of driving the levels of growth that you're looking for in that business?

Lance, thanks so much. And I probably would say yes to all of those. So -- but let me try and drill, and then I'm going to pass to John to maybe dimension a little bit because I think John has a nice way of thinking about where we are on that journey in terms of dimensioning. So listen, I think, first off, you've got to think about Optum Care as a -- let's think about it as a portfolio of clinics, which are all at different stages of their own maturation towards being able to take risk, and actually, a very small fraction of what I would regard as fully mature on that journey. So you've got a significant growth of capability coming on stream. That then opens the gateway, if you will, for United to be able to start to transfer. Now actually, if you look at where the growth of capitated lives comes from within Optum, it comes from 3 places: transfer from UHC, growth of populations that they already have managed in previous years and acquisition of lives from outside of the UHC portfolio. I would expect and what we want to see happen is that last couple, particularly the last one will accelerate. So the stronger and larger we get, the more we think we can succeed on that external growth as well. But that is definitely going to be a big driver of what you see. I think things like Optum home and community offers a second opportunity, particularly perhaps with external payers to further accelerate capitation, or at least, partial capitation of some part of the risk. So I think that's an important source of growth within OptumHealth as well. Third area I would call out is behavioral health, Lance, actually. So I think we often fly past that one, but if you step back and look at the fundamentals of the market, that's the big growing unmet need. And you see in our -- in the way we brought together our behavioral financing organization with our behavioral delivery, our recent acquisition of AbleTo, Sanvello, we're building greater and greater capabilities, trying to bring together the virtual with the physical, which is a bit of a theme of Optum. So we love virtual, but we love virtual integrated more than we love virtual stand-alone. And I think you'll see that more and more in the way we think about this. So I would encourage you to think about growth in terms of maturation of our current capability, acceleration of external and organic growth, continued expansion of the footprint. But obviously, typically, as we expand the footprint, as they enter, they aren't necessarily the most productive so that takes a while to feed through. Let me ask John to kind of add to that and maybe dimension that for you a little bit.

Sure. So first place I'd start off, Lance, is one of the core metrics that we focus on ourselves is how are we doing in terms of revenue growth per consumer served within OptumHealth. It's an important metrics for us. And it's really the metrics that underpins this view in terms of the strong growth that we expect to see out of this business over the next decade. And when I say strong growth, I mean, strong double digit, 20% plus year-over-year growth in that metric. The vast majority of that will be organic. And the vast majority of that is driven by conversion to capitated arrangements as that moves in. That is really the driver of that component. So that's key. Importantly, when we bring in or affiliate with a new physician group, most of those are coming in without any kind of risk-based business in them. So really, the growth in terms of getting to a meaningful -- being a meaningful contributor to us is growing that component. They typically are coming in not really earning either. They're typically breakeven businesses, partnerships with all the -- any retained earnings distributed out to the physician partners every year. So we grow that organically as we move into capitated arrangements. One of the measures that we'd like to think about when we think about -- so what's the capacity of your existing business to do this. So I look at the 2 million fully capitated members that we have in Optum Care right now, and I put that against the 50,000 employed and affiliated physicians that we have. So let's say, maybe 2/3 roughly of those physicians are primary care docs. That's a very low panel size. When you take 2 million over that -- in terms of the capacity of those physicians to take capitated risk. That helps maybe dimension a little bit kind of what the opportunity is there against that existing base as that grows. You would expect a fully paneled, capitated -- doctor could handle 2,000, 2,500 members versus the numbers we're talking about here. And then Andrew's point here, and then we continue to grow the physician base also. We expect the physician base to grow by at least 10,000 this year over where we were last year. So it is a bit all of the above, as Andrew started with it. But I think those core metrics in terms of what's the capacity of your existing business to grow is really important when you think about organic growth potential for this business.

That's really helpful. Well, one bit of clarification. We've been getting a lot of questions from investors, and one of the things we've been publishing a lot about is kind of the sub-models of value-based care. And we've constructed a little way of thinking of sort of a build it and they will come versus buying or owning and then changing the dynamics of existing practices that service a variety of members. And then maybe more of an enabling or just MSO sort of strategy for companies that go in and provide services to physicians they don't employ or don't have a level of control over. And so the way you've described yours, I probably tended to categorize you guys as the original and as the biggest player in what we call the own and change. But obviously, that's at a very high level in from outside. Can you guys maybe just talk a little bit about the model and the diversity within your model? Is it -- obviously, you're opening up locations with your existing practices, but if you could just maybe help us to understand, for this, is it more of a clinic-based, practice-based, broad variety of patients that then you're migrating over? Or are there subsets of it where you are enabling other physicians to take and manage risk or subsets that are -- or maybe you're only looking at seniors and building practices?