UnitedHealth Group Incorporated (UNH) Earnings Call Transcript & Summary

[Audio Gap] is largest managed care company. It'll probably take a whole 30 minutes to say what you're the largest of, but a growing services business as well. Presenting today, we have Andrew Witty, who is the CEO; John Rex, the CFO; and Heather Cianfrocco, who's the CEO of Optum Rx. I think Zack, subject from Investor Relations, I wanted to start off with a little forward-looking statement for us.

Yes. Sorry about that. I just want to remind everybody that today's presentation will include forward-looking statements that are subject to risks and uncertainties and actual results may differ materially. These risks and uncertainties can be found in the cautionary statements on UnitedHealth Group's SEC filings and are summarized in materials posted on our website. Posted materials also contain a reconciliation of the non-GAAP financial measures referred to in our remarks to the most comparable GAAP. Thank you.

All right. Great. I don't know, Andrew, do you have anything you want to start off with?

First off, thanks so much for having us here. I appreciate it. Just to remind you of the key focus areas for UnitedHealth Group between UHC and Optum, 5 big areas we're focused on. One is obviously continued development of the benefits platform, primarily UHC. Second, value-based care, really core synergy between UHC and Optum. Third, developing high technology support, both in terms of hospital systems and all the way through to things like clinical decision, support software platforms. Four is our financial service strategy. So that's bringing to life the opportunities that we believe exist within Optum Bank and across payment rails opportunities throughout the system to take friction out of payments across health care. And then fifth, most regular interaction with all of us with the health care system, of course, pharmacy, led by Heather here on my left. Really developing on the back of the PBM platform, our portfolio of pharmacy services. Those are 5 big strategic focus points for us. Core elements of our strategy, which we're building to support all 5 of those; how we develop synergy between UHC and Optum; the collaboration opportunity between the 2 companies; developing a much more forward-leaning consumer orientation for the organization; finally, developing and strengthening our technology platform more into the digital era. So with that...

All right. Excellent. So I guess a number of questions. So as we think about maybe just the health plan business to start, maybe it makes sense to kind of talk about what the cost outlook is right now. Q1 seemed pretty solid, but then we had COVID. And how are you thinking about for the rest of the year developing and how it's coming across the different business?

Yes. No, I appreciate that. I'll pass to John in a second here to give a little more detail. But as we talked a little bit on Q1, Q1 itself was really a quarter of 2 parts, right? So if you looked at what was going on in January, it was very different to what was going on by the end of the quarter in terms of COVID coming then going back again. What we've learned, and obviously, you've all seen now over many, many quarters, unfortunately, is that really COVID -- the puts and takes of COVID more or less balance out. So frankly, I think almost every one of our forecast has been wrong in how we got to the answer. But almost every one of our forecast has been right in the answer. So it's been, to some degree, some good fortune in the way in which these things counterbalance. And we saw that play through during Q1 as well. As we look at the overall performance of the system, I think nothing's really changed from what we said at the first quarter, Kevin, in terms of commercial back and a little bit ahead, probably the government books of business somewhat back but still below net-net, kind of there or thereabouts in terms of activity. No very significant volatility. John, you may want to go a little deeper.

Absolutely. So you're right, Kevin, steep variation in the Q1 in terms of how it played out. Again, over -- all in, played out essentially in line with our expectations, so in terms of where we ended up in the quarter. Seeing once again for that -- how many times now, when you get a significant increase in infection rates, how quickly utilization falls off in other components. Just so quickly, it's actually -- if you could time it to the day and hour, I feel like you could. And it's one of the things we've learned mostly during this period. Broadly at baseline, though, when we looked at exiting the quarter in terms of overall utilization, consistent with the -- our outlook for elements such as medical cost ratios that's consistent with what we laid out back at the investor conference still. So really no changes in that. And continuing to be as we have since 2020 now, ever watchful for what are we seeing in terms of acuity levels, looking across all the key areas where we expect the early diagnose disease, the stage of diagnosis, particularly with oncology, how it's coming in, where people are coming in and presenting. Are they getting their screenings, what is showing up? And while we would have expected to see some ramp in that, we just have not seen it at this point in terms of the acuity levels, in the stages that people are coming in at.

Andrew, you set the stage with some of the, I guess, the 5 things that you're thinking about, what your focus is, maybe just because we're in Vegas, go to the gambling analogy that like every year, I come into the year thinking, well, how can a $300 billion company grow EPS, 13% to 16%. That it just seems at some point, I take the under on your ability to do that. And every year, I go to your Analyst Day and I'm like, well, it's not going to be next year. So what drives that ability for a company your size to grow 13% to 16%? You all just 5 things, but think about the 1 or 2 that's really going to drive them.

No. And obviously, we're very focused on that 13% to 16% adjusted EPS growth is absolutely what we're committed to continuing to deliver over the medium, long term. Doesn't mean every single year is going to be at that level. But as you've seen, we've performed at that level, and we believe we can continue to do so. I think the key -- a couple of key elements to the question. I think sometimes people think about United as a portfolio of businesses. And kind of if you say it's a diversified portfolio business. And yes, that's true. In actual fact, what the company is, is really a series of flywheels, which are all very closely geared together. And those flywheels are all driving toward creating a kind of systemic effect around value-based care. And so what that means is that you get tremendous -- if you have the rightful -- we always connected in the right ways, the degree of lift you can get in any given part of the system is really significant. And let me just pick one really small example. It's an important example, really small example. So you know we bought a company called naviHealth a little over a year or so ago. And I think when navi joined United, it had something like 5 million lives under care. We now have more than 10 million in that system in less than 12 months. And that would be -- I could probably give you, I don't know, John, maybe 10 examples, where we've taken either an acquisition or an idea, and we've taken it from, let's call it, substantial proof-of-concept to significant scale very rapidly by essentially allowing the gearing of the whole enterprise to advantage those opportunities. So that's really how do you drive continued strong growth on something this big, you have those -- you have to make sure those flywheels are continuously being enriched, either through acquisition or organic development. And you have to be really, really fixated on how they fit together and how you get maximum lift. The minute you have one that's just sounding on its own, that probably doesn't belong inside the company, honestly, right? And we spend a lot of time making sure that we're pulling these things together. So if you go to OptumHealth, another, obviously, where navi said, for a long time, people talked about our clinics. Now we talk about clinics, we talk about in-home. We talk about virtual, we talk about in the community. Actually, all 4 of those areas are all geared together. And so what that means is that within a given geography or for a given patient, we can show up in all of those different places, and that drives tremendous leverage on total management of cost. That makes OptumHealth fantastically effective at delivering better clinical stars ratings and cost performance. That makes it more attractive to payers. That's what's driving the 600,000 lives going to risk in OptumHealth this year. So that's kind of the big picture. John, do you want to add to that?

I just add a few thoughts on that. And we do get 3 to 5 points of that growth from capital allocation activities. And the ones that Andrew is talking about, rarely are we looking at adding new capabilities, don't bridge multiple businesses, which is the flywheel effect that Andrew was talking about. These days, we would typically expect them to -- it's more than 2 businesses, those would bridge as you bring that in. And an important thing on this is it's not the capital we're laying down this year what's driving 3 to 5 basis points? That's capital we laid down several years ago that's driving that. Because as you bring those in, we don't always bring them in as contributing strongly. However, you spread them across the various businesses in the enterprise, that's where you start seeing that added growth. So when we consider 3 to 5 points that can come from that, I don't -- we don't really believe the growth aspiration we have is that should be considered that daunting when you can drive that kind of performance.

I think the only other thing I would just add as a business leader running one of the businesses, and I've been in a few now. At the business level, we're incredibly deliberate about the performance of each part of the business. And then on top of it, that ability to continue to drive value, we see that when we do put the assets or the capabilities together, but we're also learning. So another great example is even go back beyond and you think about the beginnings of our home and community base, think about HouseCalls, which we've talked about for years. I remember when HouseCalls was doing a couple of hundred thousand annual visits a year. Today, it is really the backbone of a home and community-based program that brings more value to the system, helps consumers, service people in their home, puts together capabilities that will keep driving value, and we'll continue to grow and drive value to all of our payers and clients. We did that over many years. There's so much more value. So I think when I think about it, I look at just the opportunity to make the system better, the value there is to bring to all of our stakeholders. And that's what I think you'll see us continue to be incredibly deliberate business by business, but also the amplification of the businesses together.

When you think about like the M&A backlog, because one of the questions I get a lot for you guys is can you still be doing M&A that moves the needle? It sounds like we're kind of hitting on your answer with some of these answers, but you obviously DMG took a while to get done. And then you've got another one still kind of in litigation. So how should we think about your ability to actually buy things that move the needle?

Vast majority of what we have done over history and what we'll continue to do is actually quite small in terms of the size. And mostly because the parts of health care that we're addressing aren't really formed. We think of it as more greenfield actually. They're not organized the way we think they should be organized, how we would see them organized ultimately. And so we're doing a lot of that. So most of the activity that goes on is always going to be on the smaller size because that's -- because there aren't assets out there to assemble. There are occasional ones out here that we -- and we'll continue to pursue those as they make sense for the company. But I wouldn't -- there's nothing in the current environment that our view is changing our outlook or feeling different than it has.

But -- that's totally right. But in a way, each thing that we acquire, we look at almost as a component to then blow through as many different aspects of the organization as possible or to feed one of the big agendas like value-based care. And then you can get -- as you add those together, again, digital. We've built over the last couple of years, we think, a very nice digital platform, virtual care platform, very much orientated around being able to see your physician complementing your primary care physician if you have one, being able to bring in specialty support. We're -- I think we've just opened up to 14 million people. So to go from 0 to 14 million access in 12 months is another good, I think, proof point of the way the model works inside the company. And then we step back and you say, okay, well, actually, that virtual thing sits alongside your risk-bearing entities in the clinics, your risk-bearing entities in home and community you pull all that together, you start to see how it works. And obviously, over the years, thanks to a lot of very small M&A, we've got very nice positions in a lot of geography, right? So we have a lot of geography where we've got some aggregation of assets and then if you lay around what I've just described, things like the infusion centers, things like behavioral clinics, things like the surgical centers, there's a lot of ways in which those apparently independent businesses are all hooked together.

And we really diligence them that way. So we really look at the effect of in our hands can we bring more value, not just of the businesses, but again, to the clients by pulling those together. And a great example is you look at some of the additional fulsome little bit on home community, but when you think across that span together between not just starting with annual visits and then we move into post acute, and we've got -- we serve complex care and we can do capitated wrap around and capitated support, and then we can do home health and then home infusion. So it really spans across multiple segments of the enterprise.

Yes. I thought like the LHCG deal was an interesting deal because it was a deal of decent size and a completely new business for you. I know you guys have some capabilities, but it's a different capability to bring into the home. Like how many more of that is -- because we've written, I forget, like 160 pages on you guys doing your -- our primary series on each one of your businesses. And it feels like you have everything, but you kind of get surprised once in a while there is a whole new business that you're not in. I mean, how do you think about that opportunity set? Like where are you in the evolution of OptumCare or Optum generally?

I don't know John, how you thought. I still feel like it still feels -- I mean it's obviously scaled -- it still feels super early days. So when you look at our forward expectations, particularly for OptumHealth, I would say, but certainly for some of the other big platforms, it feels very much like its best days are in front of it in terms of we're -- I would say we're only just really beginning to bring together all of what we've just described. So what I've just described you is real, but it's not 10 years old, it's a year or 2 years old in terms of the way it's coming together. Our leading geographies are some way ahead of our dragging geographies. So we have some significant opportunity to continue to improve across. And then the LHC thing is a really good example of identifying a gap or an opportunity within the portfolio -- within the service delivery, where we can plug and we can say, okay, that so -- we could take that business. We can potentially evolve it towards more of a value-based orientation. We can connect it in with all of our other value-based orientations, and we can make that thing a lot more impactful even than it is today, and it's a great business today. So those are -- I think there's going to be plenty more of those sorts of opportunities. And then if you wrap -- just randomly pick financial services and you say, okay, -- now imagine the world we've just spent 10 minutes talking about, Kevin. And now can we -- what can we do to make payments simpler? What could we do to make it more consumer-orientated environment? What might a future Optum credit card environment look like wrapped around all of this. You could start to see how that can play into all sorts of other levels. So whether you start from care and clinics, where you end up and what you can attach to that model. I would say there's still a lot of scope for growth there, right?

Yes. And the interesting thing to me -- so I've been -- a privilege being with the company about 10 years now. And when I came in, it seemed early days on all these things. And I didn't think I could be here in a position 10 years later and it feels as early, at least, as early as it did back then to me, who knew. And that's just because I think the scope of the opportunity, we look at it differently because of maybe what's been built and such and where we can reach and how we can touch people. Feels very different in terms of that potential than it did back then.

I think the other thing I'd say, and it touched a little bit on what Heather was saying, she might want to add a little bit to this as well. We spent a lot of time talking about scale and the strategic kind of framework, which gives us confidence we can grow. The way we run the business is a lot of very small business units with super deep accountability. So what you don't have in United is a kind of some brain trust at the top of the corporates trying to micromanage every detail of the company. There are some really key strands that have to be managed very carefully, and there are some really key elements of the strategic framework. But then when you really boil it down, it's like, okay, in that ZIP code, these people are responsible for the performance of this business and very clear accountabilities. And Heather, you run one of those big businesses? And you maybe talk to that?

Yes. I think the thing that that really creates isn't just, again, incredible diligence and accountability for business unit performance and service and growth. But it's also about staying incredibly connected to the challenges in the health care system where it's fragmented into how to fix it and connect it. So sort of the example that Andrew gave, where we talked a little bit about, well, then how can financial services help to serve. It's again, starting from we're trying to solve a problem in the system. We're establishing the capabilities, growing them, acquiring them, integrating them. And then as we do that, we identify another opportunity to really address friction or where the system isn't fragmented, and we coordinate it. So I think about -- again, I'll give an example. One of the ones I really like to talk about a lot because it was a great acquisition for us, was our community pharmacies Genoa. In Genoa, when we talk about it as a pharmacy, but it really is a capability that integrates the system at a very local level, across 638 sites today. But what's most important about it is we identified an opportunity across behavioral, health individuals with extreme mental health and medical costs, our clients needed something different in the community. We acquired, built, put together those capabilities. It's very accountable at the service level, very accountable at the individual business level, but yet the capabilities that those community pharmacies can bring are benefiting OptumCare, OptumHealth, our largest client UnitedHealthcare, other payers because we're bringing those capabilities forward. So I think it keeps us really grounded in the needs of our clients in the community and how we solve them organically and through acquisitions.

One of the things that I think about with United is that you seem to be investing in something 3 to 5 to 10 years before everyone else does. And the latest example of that is a capitated physician business. You've seen a lot of companies go public over the last few years. We've seen some of your competitors say we got to own physician practices now. Everyone's building out, every managed care company to some degree is building out their services business more aggressively. How do you think about competition? I think specifically on the capitated physician side, it feels like every time someone grows, the first opportunity set you do is probably the ideal one. And then the next 100 practices you add have to be a little bit worse, but still good. And then the next 100 have to be a little bit worse you would have bought them already. So like can you keep replicating the success you have every round as you go deeper and deeper into this?

I suspect you can. Now, I don't know whether you can do that literally in an annual quarterly cycle. So it depends what you mean by every time you go through. But if you look at where we're at, I mean, so we would certainly subscribe to view that probably at least 1/3, maybe more than 1/3 of all medical activity is unnecessary. I would say, almost none of that has been tackled so far in the value-based care approaches because it's super hard to get to. You need to have great systems, you need to have great information at the hands of physicians, all of that to make that -- to get traction on that. But you can imagine, that's -- it's probably a $1 trillion-plus sat there as a fundamental inefficiency of the system that hasn't yet been tapped. So you look at that and you say, well, yes, I think we should be striving to get us why -- it's why, for example, we're spending so much time trying to build much more impactful clinical decision support platforms for our physicians and the like. That exists. Now you step back and you say, okay, even before then, going through, let's say, generation 1. Let's call that generation 5 or 6. Generation 1, 2, 3, much more basic way. So things like making sure that people aren't staying unnecessarily for treatment in an expensive institution versus a low-cost institutions. It's actually a much more simple proposition. That drives a lot of the current kind of economics of the model, really understanding risk, being capable of actually underwriting the risk appropriately for your population. That's kind of where people are at today, figuring out who the 6 in 100 patients who are really problematic and are driving truly the cost. That's kind of where we are. Now all of that is ongoing. I'd say we're -- I have no clue. But we're probably halfway through those first 2 or 3 generations of I would call relatively simple, not trivial, but simple conceptual things to deal with, difficult to execute. And then you've got this potentially huge opportunity to get traction on. So I think the scope for value-based care is very, very substantial multiyear. When you look at competition, we've been at this for -- in excess of a decade. And I think we've learned a lot. I think the company has learned what works, what doesn't work. We've learned how to scale. We've learned how to bring, organize clinics into our networks with very little bump in the road in terms of transition. We've learned how to take people from fee-for-service through. But we still have a lot to continue to get right. A lot of our orientation is towards the MA risk platform. Obviously, everybody that's where real fix is. But that isn't where risk is going to stop. It's not where value-based care is going to stop. And all of that evolution is work underway to go. So I would say, again, there's still -- it just feels to me like there's more scope in the future than behind us. I don't worry about the competition. I think it's good. The more people who are talking about value-based care, the more people who are trying to get best practice. The more the capital has been attracted to come up with clever ways to enhance the skill sets of people who are delivering value-based care. I know that's good for us. Will continue to invest, acquire a partner with those sorts of capabilities. I think it's good for physicians. I think they have a more enjoyable time. They get to spend more time with fewer patients. They have a big impact. It's good for payers and it's good for patients. They get better clinic time, it costs them less.

Heather, since you're here, a couple of pharmacy questions for you. Getting a lot more interest in the biosimilar wave that's coming. How do you think about that as a business opportunity for the company? I mean we all looked at what happened with generics and how that impacted -- is this going to be the same thing? Is it going to be better or worse for some reason because of transparent business models or interchangeability. And when should we start to see it? If it is going to be a meaningful driver, when should we start to see it?

Yes. So I guess for biosimilars specifically, I think somewhat -- I think we can learn some things from generics of the past, et cetera. But the way we're really thinking -- think about first the PBM side of the business, which is really where PBM, this is what PBMs were built for, evaluation of optionality across drug classes for clients. And so that's really how we're thinking about the biosimilars. We're looking across all classes what's coming on the pipeline, I think, $50 billion of biosimilar over the next several years, we'll bring incredible optionality, competition and value for our clients and our patients. We sort of look at it in a couple of different ways. I think your traditional PBM tools that are very valuable to our clients. Number one, we look at the clinical efficacy, look at observational and clinical data of these agents as they come. And we're looking at the product attributes. We also look at manufacturer support and supply and opportunity to support patients in a change. You mentioned kind of interchangeability. Some of these biosimilars will come with interchangeability, some will not. So we'll need incredible patients for it. And then we look at the economics to our clients. We look at that really across populations, across classes. And our job as a PBM, if we do it well on the PBM side of the business is we will bring value from these offerings into the market to our clients. They will be able to bring that to their populations and bring better value. As a result, we'll grow as a result of their trust in us and us doing our job. We're stewards of their dollars. And then I think the only other thing I would add to that is our pharmacy services business is going to be incredibly important. Don't forget we've got over 7,500 pharmacists that treat people every day with 24/7 support, virtual telephonic support through our specialty pharmacies. And they will be on hand across all of these offerings over the next several years. And they'll be making sure that patients can navigate the process, the agents and the opportunities. So I think we're really ramping for that, making sure that our PBM tools and processes and client engagement are ready to serve our clients, but that our pharmacy services are there to support the patients.

I think the one thing I would emphasize and Heather inferred it, things have moved on over the last -- from the previous big generic waves to biosimilars in terms of the pass-through and transparency declines. And so -- and that's super important because the PBM is there to service clients. And I think it's important that people keep up with the evolution of that business model. PBM has become much more of a transparent good. That's a good thing. It's a super important service it delivers, but it should pass through and it does pass through back to its client base.

So when you think about that long-term growth of the PBM business, like a mid-single-digit type upper income growth. Like is this incorporated in that because you figure something like this happens every few years? Or is this in addition to that, how should we think about that?

The way I would think about that is, again, value of the performance of Benefit Manager, as Andrew said, is bring value -- pass the value through to the clients and the consumers. And that's the job. We use best clinical tools, the best product support, the best analytics and client value to do that. That will again -- and we've seen strong growth in our PBM last year again. We will expect to see that again this year. That service, the offerings, things like our specialty management tools, programs and solutions supported by OptumInsight and Health will drive better solutions for the clients. The value of all that -- of all those services drive to clients, we grow, we maintain those sort of those mid-single-digit margins because we pass the value on to the clients and then we grow, we can bring scale, better purchasing power, pass value. And that's why I think about the PBM. Pharmacy services is where our [indiscernible] will expand, continue to grow.

All right. Great. I think that's all we have time for. Thank you very much.

Thanks, Kevin.

Thank you.

Good to see you.

Thank you for coming. Bye.