UnitedHealth Group Incorporated (UNH) Earnings Call Transcript & Summary

Okay. Great. Good afternoon, everyone. Thanks for joining us. My name is Nathan Rich, I cover the managed care space here at Goldman. We're very happy to have UnitedHealth with us here today. Zach, maybe I'll turn it over to you for a quick disclosure, and then we can do introductions.

Thanks, Nate. I just want to take a moment to remind you that today's presentations 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 in our SEC filings posted on our website. Thanks, Nate.

Great. All right. With that, let me do a quick round of introductions and then we'll get into questions. So joining me on stage to my right, John Rex, EVP and CFO; in the middle, Tim Noel runs the Medicare & Retirement business for UnitedHealth; and then Patrick Conway to the right, CEO of Optum Care Solutions. I thought we'd maybe start with big picture. Value-based care is obviously a key part of the company's long-term growth algorithm. I think you've increasingly talked about care modalities outside of primary care. So I guess, could you maybe talk about where those investments have been focused? What you kind of see as how that strategy evolves and what's sort of the next leg of growth for United?

Sure. First, Nate, thank you for having us. Really appreciate that, being here with you. Beautiful setting to be here with all of you in this place. We have talked about other modalities of care for value-based care. So we started really building out our primary care and multi-care -- multi-specialty practices. And that was really the beginning of maybe 15 years ago, where we really laid in the foundation and build those over a number of years. Increasingly, what we've been focusing on over the past few years are other areas where we could also make investments. I'm going to ask Patrick to comment on some of these, but I comment, in particular, areas that are very important in driving the kind of outcomes we'd like to see in our value-based care operations. So in particular, 2 really important ones, behavioral care delivery capacities and home capacity. So Patrick, maybe comment a little bit about that. And these all fit in Patrick's business world.

Great.

Yes. So at OptumHealth, we're taking risk for complex Medicare advantage patients and [indiscernible] eligible patients. And as John said, increasingly, we can do that across the platform. So obviously, still have a huge clinic platform. With home and community, we now have coverage in all 50 states, including in the majority of states the ability to do full risk care in the home and to coordinate with those physicians and clinicians and clinics. So these are doctors and nurse practitioners specialized in providing home care. And we've continued to expand our home platform with home health and hospice, as you've seen. So we have the full care continuum. And mental and behavioral, we now have almost 5,000 clinicians, so psychiatrists, therapists delivering mental and behavioral health care integrated with physical health. 50 states nationally, over 35 states with clinics. And so what this really provides, as John said, is the ability to manage patient populations holistically: their physical, mental and social needs in clinics, in the home, integrated mental and behavioral health care.

Great. And home, as well as behavioral to a degree, both pretty fragmented markets. I guess, how do you think about building to the appropriate scale that you need to serve a business with scale of United in terms of the membership base there and what that looks like?

Yes, Nate, you're absolutely right. Very, very fragmented area, like some of the areas early on that we were going into even back a long time ago, primary care and multispecialty continues to be in that area. And Patrick, maybe offer a few thoughts there?

Yes. So I think as we do this work, we want to serve members, beneficiaries, people wherever they are. And Tim, feel free to add on, too. As we work with our payer partners, whether it's UnitedHealthcare, we work with, as you know, and OptumHealth, over 100 national and regional payers in some way. We are trying to put together a set of assets and capabilities to holistically care for people. So I was actually with a bunch of home health companies this morning, talking with them. And we talked about, if you have a Mrs. Gonzales that we're serving, how do we serve her in the home deeply? How do we have both nurse practitioners, behavioral, social workers, whatever she needs to prevent hospitalizations? Real story that we've shared, I was on a home visit not so long ago. A patient had more than 10 admissions a year before. Now we're wrapping services around her, 0 admissions. The star ratings in our home and community, this year we have 100% of members in 4-star plus plans, so really delivering on quality of care. And then the NPS for these programs is in the 80s because people really love this level of care in their home. And for our payer partners, I think it makes it a much stronger relationship with the beneficiaries, the patients, the people we serve.

Yes. And from health plan side, from the payer side, assembling all of these capabilities and then synchronizing all of them, especially when we're talking about the unique needs of this vulnerable population that Patrick is talking about, is a real challenge from the health plan. And in fact, it hasn't worked in the way that it works when Patrick and his team have the opportunity to deploy that expertise in a more meaningful way, a more customized way at the local level like he's doing for us.

And I guess maybe, Tim, sticking with you, with the 2024 bids due last week, there's obviously been a lot of focus on a tighter rate environment and what that might mean for the market. Can you talk about maybe your expectations for market growth next year as well as maybe what you prioritize in your bids from a competitive standpoint to kind of position the company to continue to grow in the Medicare business?

Yes. So I think everyone knows that it was a bit of a challenge in terms of the rate environment this year. However, I'm as confident as I've ever been around the value proposition, the overall value proposition of Medicare Advantage. It continues to be what really meets the needs of seniors in a very holistic manner. And I believe that likely in 2023, there -- pardon me, 2024 bids, we may see a little bit of pressure on benefits across the board inside of the industry, and you see that there tends to be growth that may not be as strong as has occurred in past years, but I still believe that over the long term, we'll see the kind of growth rates that we've been accustomed to historically on Medicare Advantage.

And I think you're in a maybe a more favorable position than some of your peers. I guess, how do you maybe leverage that like, relative competitive advantage for 2024 as you think about how to design plans and potentially maybe gaining more market share on the back of what the industry is going through?

I think that what success in Medicare Advantage is the multifactorial exercise, and it's about developing tools and capabilities that consumers want and need. And that's an ever-changing proposition. It's about innovation. And as both of those areas intersect right now, we are seeing a consumer that has a much larger appetite to engage digitally. And some of what we've rolled out recently around the UCard, which I think everyone is probably familiar with, which brings 5 different elements that used to take 5 different cards to provide together into 1 experience and has launched on a digital chassis, has really propelled higher digital engagement for our consumers. Continued lean into customer service is super important, being able to offer home-based care in the manner that we're doing, largely in partnership with Patrick. So the continuation of the value proposition around simplicity that we've continued to bring to market is what we'll continue to lean into in the future, and that's how we differentiate ourselves in the marketplace. And we'll continue to do that in 2024.

Great. Maybe, John, for you, I think utilization in the first quarter was consistent with the trends that you had expected. I think as we look at some of the data for 2Q, it seems like inpatient volumes have been pretty consistent. I guess, given kind of your insight into the market, is that generally consistent with what you've seen kind of play out as things have progressed since the first quarter?

Yes. I think -- and one of the areas we commented about in the first quarter was outpatient care activity. It was the area where we saw higher levels, inpatient continued pretty controlled. In fact, probably below 2022 levels. But outpatient levels have continued to be an area that we've really focused on most. And where we see it really occurring, especially as you think about kind of completing -- fully completing April and seeing May and kind of leading indicators in the 2 weeks of June would be just continued strong outpatient care activity. Think things, hips, knees and senior business. Hips, knees, cardio, kind of the areas and it's very localized in Medicare businesses where we're particularly seeing it trend. There are some indications that looks a little bit like a pent-up demand or delayed demand being satisfied and there are some indications of what we see. We have insight into other areas, for example, our ambulatory surgery practices that we own and operate, seeing very strong volumes. And you get insights into the trends and the types of care that are being delivered and the backlogs that you're seeing in terms of how that's growing. So that has continued to be quite strong, actually, in terms of the levels of care activity that seniors are getting. Interestingly, not acuity -- and the insight we have in the acuity is -- this is straight-up care activity, not cost per case. So we're not seeing anything on acuity level, but certainly a meaningfully higher number of cases that are being performed to what we're seeing. And so continue to develop more and more insights into that as we progress through this period and particularly in the quarter. The other place that we've seen stronger care activity is OptumHealth's behavioral businesses and Patrick's businesses also. So all areas kind of that we've been focused on in terms of seeing that elevation. I think where it would lead us to believe, as you would look at Q2, you would expect Q2 medical care ratio to be somewhere in the zone of probably the upper bound or moderately above the upper bound of our full year outlook in terms of where the Q2 would be. And then I would expect that this distance that the full year would probably settle in the upper half of the existing range that we set up. But Q2 is showing some of that. And the great thing is seniors are getting access to care. We're seeing they're getting access to care. There's evidence that they had to delay this care. One of those elements that we see -- saw is likely tracking in at some point post-pandemic, and I think the question is which quarter would you see it occur in as it came out. And so not really impacting the ranges of the full year that we've set up, but more impacting what we're seeing right now. And Tim, I don't know, any other thoughts you have on that?

Yes, yes, I agree, John. I think what we're seeing is we're seeing as behaviors kind of normalize across the country in a lot of different ways and mask mandates are dropped, especially in physician offices, we're seeing that more seniors are just more comfortable accessing services for things that they might have pushed off a bit like knees and hips and combined with a little bit more capacity, less constrained capacity in the delivery system. We're just seeing more services, which again, we're really happy to see that our seniors are accessing the care that they need. And as we think about our bidding assumptions for 2024, certainly, we are able to think about this and accommodate on what we're seeing today and our forward pricing assumptions for 2024.

So it was an important factor as we have this visibility into it and seeing it trend that way. And even though it looks like there are elements that may be pent-up delayed demand, we decided to go ahead and we decided to build a 2024 benefit design that would accommodate this higher care activity level as we did that. So for the bids that Tim filed whenever it was a week or so ago, we incorporated those kind of views into the '24 benefit design.

And maybe just a follow-up on that. I mean, I think for the bulk of the last 2 years, Medicare has been one of the businesses that's been running below that "baseline." And I know you kind of haven't pegged it to that more recently, but should we think about this as sort of a catch-up in Medicare to what you would have otherwise expected to see?

Yes, I think that's a fair way to say, a catch-up to what you'd expect to see. And it was -- I think it was for us, it was always a question, well, at some point, people are going to be able to access the system a little more freely, they've been accessing it. And that -- either there's the capacity there to do it or the willingness there to do it. And predicting what quarter that might occur in, how it would occur, but that would come into the mix here at some point.

And more of a philosophical one, just kind of looking back at the sheer volume of procedures that may have been missed during the past couple of years would suggest that this might be more than just potentially 1 quarter of catch-up in pent-up demand. I guess, I'd just be curious to get your thoughts on that dynamic.

It's a really good question. It's -- so an important reason why we built it into our 2024 plan design, because I think just assuming that it was going to end quickly wouldn't have been prudent in our part or why seeing and the commentary offered and how I think about the medical care ratio progressing, also assuming that we continue at these kind of the levels that we're seeing here. So we'll see how it progresses here. Typically, what you see -- and even I've seen some of this in the backlogs for our own ambulatory surgery centers. See a lot more vacation coming in December month. Other elements that start impacting some of the provision. But being super respectful of the trends that we're seeing and not assuming that those abate right away.

And I think it's also important, just to reinforce that, this is -- what we're seeing is quite narrowly focused on just a couple of different categories of outpatient services. And John alluded to earlier, that population acuity is not something we're seeing a meaningful change in when you think about things like cancer Stage III, Stage IV diagnosis. The prevalence of those are in line with what we've seen in the past. Neoplasms also in line. So the population that we're seeing is not representing an acuity that's any higher than we had seen in some of what we had watched closely during the pandemic around deferral of care. Certainly worked its way through the system already, and we're really kind of, I think, in this finite set of services that we were watching and now we're seeing.

And it sounds like the bulk of this is outpatient, which obviously the lower cost site of care.

Bulk of it is outpatient, but it's enough to be meaningful that we were seeing. Patrick, maybe behavioral, what you're seeing in OptumHealth?

Yes. Yes, just in Optum Behavioral Health, we serve UnitedHealthcare and other payers. We're seeing outpatient behavioral trends continue, where people are wanting to seek care for -- as you see the prevalence of conditions, whether it's depression, anxiety or other conditions, people are seeking care for that. And it's our job to provide that access to care for our payer clients, and we're doing that. But we are seeing that outpatient trend in behavioral, especially for therapy services, to continue to be at higher levels coming out of the pandemic.

Okay. Interesting. And maybe just one on the rates that you're seeing from hospitals and other providers, how that's -- the negotiations you're going through now, maybe how that compared to a year ago?

Yes. And I'll maybe ask Tim to comment a little bit, too. But I tell you, it's really care activity that we're seeing in terms of where there's impact. The unit cost picture really has not changed materially.

No, it has not. I mean, obviously, in the Medicare business, it's a little bit less of a unit cost discussion in the traditional sense of negotiated rates, more around fee schedules or some of the bigger deterministic drivers. But broadly across the industry, unit cost is staying in line with expectations.

Yes. And even in behavioral, it's not a unit cost issue. It's employers and clients of ours saying we want to provide access to our employees, our members, et cetera. We're providing that access to people who have conditions. And so that utilization is going up. So it's not a unit cost issue.

Got it. Okay. Maybe one sticking with just the pricing for 2024. It looks like Leqembi might get full approval for Alzheimer's. I guess how did you think about putting that into your bids for next year? And is that something that could meet the significant cost threshold for CMS, I guess, in your view? How do you guys think about that?

Yes. So yes, obviously, a lot of fluidity in certain areas of the drug marketplace for seniors. And we obviously thoughtfully considered our expectations around utilization of the Alzheimer's drugs that are out there in the context of the various clinical trials and registries that are in the picture and obviously some changes on the registry side that informed our thinking and formed our projections for the bids. But fortunately, we had good visibility to that before we submitted our bids in early June.

Great. One other one as we think about the Medicare business for 2024, you've moved a lot of members into capitated arrangements via OptumHealth for the last several years. I guess, when we think about that shift going forward, given the maybe market backdrop and the tougher rate environment, does that change at all your view on maybe the pace of membership shift to OptumHealth and what you're kind of asking providers in that business to manage those patients?

No, it doesn't. I mean I think the impact that we see for patients by moving them into these value-based care arrangement is so, so powerful, both in terms of the outcomes that we're seeing from those patients, in terms of the clinical efficacy and certainly in terms of the cost profile that's ultimately delivered to the system. So it doesn't change our appetite for that at all. In fact, it probably just continues to manifest why that is such an important thing for us to be activating.

Yes. I think for me, it in fact, makes it more important. It becomes even more critical to be as efficient as possible in resources that support the delivery of care. And what we see in our partnerships with OptumCare is the ability to really have an extremely tightly integrated relationship so that we're not duplicating efforts on service, network, clinical, on and on down the line because inside of that duplication is costs that are better deployed on value that we can provide in benefits to consumers. And we're getting much better on that, but I still think we can evolve more fully. And in doing that, it's a key element of how we continue to win in the Medicare marketplace.

And Nate, if it's okay, just building on that. At OptumHealth, we're able now to deliver that care even more holistically, especially over the last 3 years. So for those members that we can see in a clinic, we'll see in a clinic, direct primary care relationship, delivering results. We'll wrap around home- and community-based services for those patients, some of them can't get to the clinic or may need a level of care in their home. Now home health hospice. In the post-acute period, we're able to manage them through that care transition from hospital to home. Mental and behavioral, which talked about integrating mental and behavioral, we have a business called Health Solutions, which delivers specialty solutions. We're seeing some great results as we look at renal and some of the subspecialties. So that holistic care model that OptumHealth is delivering for UnitedHealthcare and other payers, I think as both John and Tim said, it continues to get better over time. And so I see that acceleration continuing.

And maybe Patrick, sticking with you, has there been greater receptivity in certain areas versus others when it comes to those risk-based contracts in certain specialties, maybe where you've seen it resonating more, where there's maybe more demand from other payers for those type of contracts?

Yes, I'll start and feel free, others to jump in. I mean we work across 100-plus payers, so national, regional risk in the Medicare Advantage, [indiscernible] market, obviously, is where we have the predominance of risk that we're managing, but also increasing focus on commercial. So I don't know that there's a particular payer type or a population that I would focus on. We're really focused on how you put the various solutions together. As we serve clients, if people don't want to have a full risk relationship, they want us to think about other episodic risk or special populations, we do look at that. That's an option, but our preferred model is to really care for the broadest population possible holistically.

And the only thread that sometimes I think we noticed is in areas where there are access issues. And so can our services and the whole wraparound of the services, in particular, the home-based service create a better access profile?

Yes. That's a great point.

Maybe shifting gears a little bit, a couple of policy questions related to OptumRx. There's kind of various things out there, there's legislation before Congress, there's an FTC investigation, kind of all geared towards looking at the economics around rebates and spread pricing. I guess a couple of your peers have talked about those buckets representing 20% or less of PBM earnings. I guess, is that consistent for Optum? And is there anything that you would maybe highlight that would differentiate the Optum model versus the others that are out there?

Well, I'd say we'd be meaningfully less positioned than the things that you're referring to on that component. So perhaps that's an important factor in thinking about how we progress. And I think the other element, just within the Optum model that you highlighted, we already offer solutions for clients really across every model. So no spread, no rebate -- all rebate pass through, every model you can imagine, we offer it. And certainly, so those offerings are there for clients. And we certainly promote those clients. Some clients prefer other avenues. And it's really a very much a customer-specific preference when they go to a different model. But to your first point, I'd say we'd be in a meaningfully different position than that.

And I guess, is your view kind of maintaining that customer choice and kind of letting the client decide?

That's a really important question actually there. Our ambition is to continue to educate clients on the value of other models also. But look, we need to be responsive for our clients. We are going to give clients choice, but also to make sure that we're providing good visibility, education into the other models they might choose and why those might be good, important models for them to choose also.

Yes. And kind of in a similar vein, when we look at how the biosimilar market might evolve, we had 1 manufacturer announce a low WAC price drug for biosimilar HUMIRA. Others, I think, have come in with kind of the high-list, high-rebate strategy. I guess when you think about this market, does that -- having that low-list price drug change the way you did -- Optum thinks about formulary design because it does have significant implications for the consumers' out-of-pocket cost. Can you maybe just go into the factors that you kind of think through in that regard?

You're absolutely right. It can have implications for the consumers' out-of-pocket cost, and that's a very important consideration. Where we see this -- and our ambition is to really -- so you talked about kind of almost maybe a handful of -- 3 different types of scenarios of how you could price a biosimilar and structure it. And we'd look to have an offering that has each one of those in there so our customers can choose. You may -- creating a scenario where a patient has to move from one biosimilar to another, that may not be a great clinical outcome always. Maybe not something that the clinician or the patient would want to do. So you want to create the choice along the spectrum. And really, that's how we're approaching the whole market to create that kind of customer choice in there and have an offering really across the categories.

And then another one, kind of along this topic, is the GLP-1s for obesity, obviously, a new therapeutic class that could potentially bring significant cost implications for your commercial customer base. How do you think about coverage of these products, utilization management that you can put in place to help employers manage costs? And maybe if you could just talk to what the appetite has been from your clients around coverage of these products?

They are quite expensive offerings in the marketplace right now. And our customers are certainly aware of that. And you know and I think you're implying we serve a lot of self-funded employers also. And our customer base is -- looking at them carefully, but with an eye towards the -- what it means for the rest of the employees that they serve as they move into that. And so there's really been, frankly, with our customer base, a voice of -- this is something they want to continue to evaluate. I guess I would say, to shorthand it, not rushing into these kind of offerings until they understand more. And really, looking -- will we get a better price point in the marketplace, ultimately, on these kind of products?

Yes. And then, John or Tim, there's also been discussion of whether Congress should move to have obesity covered via the Medicare program. I guess do you have any high-level perspectives on that prospect?

Well, first off, just for levels, I think most folks are probably aware, but our coverage decisions will obviously mirror the coverage decisions of CMS. But I think that the decision CMS is confronted with is the very same one that John talked about with employers, is that these are very expensive therapies. And there are therapies that if -- once we start thinking about them in the context of weight loss, it could have a meaningful impact on premiums in the Medicare space and meaningful impact on cost for the federal budget. So I think that's the calculus that they'll be doing.

Got it. Okay. Maybe moving over to financial services. That's one of the large long-term opportunities that you laid out. Could you maybe talk us through what the first few innings of the strategy looks like in terms of go-to-market? And what's the best way for maybe investors to track United's progress as you start to go after this large opportunity?

Yes, absolutely. Thank you. In a lot of ways, it reminds us of care delivery 15 years ago, just in terms of where we are right now. Care delivery 15 years ago was a fairly small offering for UnitedHealth Group at that point. But in terms of where it sits today and the potential opportunity for the business -- and you're right, it's early innings. So what you should be -- what should you be looking for from us -- in these early innings. And importantly, I think -- so one of the areas that we want to get at is really the friction in the system. And where you see the most friction off in the system between a patient, between a physician and between a payer is really along the payment process. So how can we make that payment process much easier for all those different parties? Simpler, faster, much less costly. And so you've seen us in a lot of those zones. Tim referenced things we're doing with the integrated card that UnitedHealthcare is using and other payers also, really, in terms of simplifying the whole consumer experience so that they can access their other benefits, food, other benefits with a simple swipe of a card. And it becomes their single card solution. But imagine kind of moving forward in terms of how we move more deeply into those spaces also. So there is much more integration across the channel when a patient is seeing a physician in terms of how that payment might occur, how they access to the -- if there's an account-based product for a commercial customer also. How the funds flow, the speed with which a care provider could also get paid. Importantly, also another zone that's very important for care providers, how can we help them with important expansion opportunities in their own businesses also? A small physician office that would look to add a few infusion beds, how we could be in that flow and helping them finance that also? Because we're in a particularly interesting space in which we could help do that. And we could do that in a much more cost-efficient fashion than they face right now when they try to go to market for those elements also. So it's really cross -- moving across. I think it's -- and super importantly, because Nate, you asked a really insightful question, how we think about it. It's an important area just in terms of how it can touch many different parts of the enterprise too, in terms of making those experiences simpler, more efficient and much more costly. But think about it first in terms of things you're looking at. Some of these technologies that we're laying out in terms of making the consumer experience simpler, such as in Tim's business and about moving into other businesses also, so they can access other benefits. How we help physicians and other care providers expand their practices and grow, and how we really step into the process between that interaction and the payment flow between a physician and where consumer touches and the payer also and speeding that up. So those payments areas are kind of the zone you should be looking at for us to be focused on.

And is that -- are those businesses today mainly in OptumHealth?

They are. They are mainly in OptumHealth. I think it's a good question. There are components of those businesses in the payments arena also, some of those components that you would see, some in insight also today. But mainly in OptumHealth, I think, is the right way to think about it with some important connectivity and potential within the capabilities of OptumInsight also.

And I guess the reason I ask -- and maybe just in a few seconds we have left -- is just how that might impact the margin outlook for that business as you guys kind of invest to look to scale some of those offerings.

Well, so I wouldn't think that would be an enormously impactful area in the near-term here in that business. We are investing and scaling in those businesses, and we've been doing it, and we will accelerate it, but I would not see it as an enormous impact.

Okay. Great. I think we're out of time. John, and yes, Tim, Patrick, thank you very much. Really appreciate the time.