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The Perils of Being ‘Too Big to Fail’ for Healthcare Providers

The Perils of Being ‘Too Big to Fail’ for Healthcare Providers

Originally published on RAC Monitor December 14, 2022 by Dr. Jerilyn Morrisssey

Last quarter UnitedHealth Group (UHG) beat Wall Street expectations with revenue of $80.9 billion, up 12% year over year. UnitedHealth’s UnitedHealthcare (UHC) health insurance business grew in all areas from commercial to government-subsidized insurance such as the increasingly popular Medicare Advantage plans. Meanwhile Optum’s revenue grew 17% year over year to $46.6 billion.

The controversial acquisition of Change Healthcare is expected to bring about $800 million in revenue to Optum in the fourth quarter. UHG projects its 2023 revenues will be in the neighborhood of $357-$360 billion. While UHC is the nation’s largest health insurer by revenue, selling commercial, Medicaid and Medicare Advantage plans, Optum is the fastest growing subsidiary of UHG with its voracious appetite for acquisitions, investments, and strategic partnerships.  In fact, in 2021, Optum drove more profits for UHG than insurance did.

Optum Growth. UnitedHealth's services businesses now drive more profits than insurance.

 

Understanding the structure of the Empire

While Optum was officially created in April 2011 by UHG, its origins and parent components can shed much needed light on its acquisition objective to be a leader in integrated services.  UHG has two main divisions: UHC Insurance and Optum Technical Health Solutions.  On its own, Optum would be one of the largest companies in America.  Optum contains many additional companies within its 3 main branches: OptumInsight, OptumHealth and OptumRX.  OptumInsight houses the health information technology and analytics services and includes Optum Labs, a health data initiative with Mayo Clinic and Optum 360, a revenue cycle management venture with partner Dignity Health. OptumHealth, is the fastest growing arm of the business and houses healthcare providers and clinics as well as care management, behavioral health, and consumer offerings under OptumCare in addition to OptumBank.  Finally, OptumRx houses pharmacy and prescription services.

Long before the discourse revolving around the acquisition of Change Healthcare, Optum had been building a comprehensive healthcare system that spans every corner of healthcare delivery and insurance.  Optum has spent over $30 billion on acquisitions, which have been a key driver in the growth of the UHG empire.  The following abbreviated list shows the breadth and depth of the diversity of acquisitions through the years.

MedExpress 2015 – an urgent care and preventative services company

Catamaran 2015 – a pharmacy benefit manager

DaVita Medical Group 2017 – a leading independent medical group and the nations largest provider of kidney services

Surgical Care Affiliates 2017 – included 205 surgical facilities, including ambulatory surgery centers and surgical hospitals, and partners with appropriately 3,000 physicians

Reliant Health 2018 – Large physician practice in Massachusetts

Sound Physicians 2018 – hospitalist and physician advisor staffing company

Equian 2019 – claims analysis/payment integrity

Vivify Health 2019 – mobile, cloud-based platform for remote patient care

Kaia Health 2019 – smartphone-based technology for chronic condition management

naviHealth 2020 – post acute care management service for 4.5 million Medicare Advantage members and more than 140 in the CMS bundled payments for Care Improvement Advance programs

Optum’s most recent (2021-2022) acquisitions, investments, and partnerships demonstrate further diversification into behavioral health, care coordination, remote patient monitoring, value-based care, and virtual care with the acquisition of:

Landmark Health 2021 – Landmark Health is an in-home medical care company focused on the sickest and frailest populations.  Landmark’s care teams currently provide services in 17 states. Landmark helps Medicare Advantage Organizations and fee-for-service Medicare beneficiaries curb costs by reducing avoidable ER visits and hospitalizations.  As the pandemic disrupted traditional in person delivery of care, the acquisition of Landmark reinforces Optum’s goal of delivering more and more healthcare services in the home which ultimately bolsters UnitedHealth’s payor division (UnitedHealthcare).

Change Healthcare 2021 – Change Healthcare is a software and data analytics giant and will be merged with OptumInsight.  The Department of Justice attempted to block the acquisition based on concerns that with access to billions of healthcare claims UnitedHealth Group would have an unfair advantage over competitors.

LHC Group 2022 – LHC Group is one of the nation’s largest home health and hospice companies providing 12 million in home interventions to 500,000 patients annually. LHC has 557 home health locations, 170 hospice locations and joint venture partnerships with 435 hospitals and health systems in 37 states.  Like Landmark Health, the acquisition of LHC group expands the role of home services as alternatives to hospitals and nursing homes and supports the payer division. LHC will likely be integrated into provider networks and health plans, especially Medicare Advantage plans where home health utilization is part of value based care and costs are increasingly scrutinized.  Through LHC Optum is also acquiring Imperium Health.  Imperium currently manages 16 ACOs and is in partnership with a large ACO group.

Refresh Mental Health 2022 – Refresh operates a network of 300 outpatient mental health, substance abuse and eating disorder clinics across 37 states.  The acquisition of Refresh Mental Health gives Optum access to the growing behavioral health sector which has had increased demand since the pandemic.

Emis 2022 – a U.K based healthcare software and solutions company.

The most recent acquisitions are more than the sum of their parts and not only demonstrate diversity and growth, but also the synergies created between the payer and provider divisions through the acquisition.

Furthermore, with steady and methodical precision, OptumCare marches forward in its acquisition of healthcare providers and clinics.  The list of acquisitions above fails to accurately depict the size and scale of the tactics and strategy. While all these acquisitions give Optum diversification and vertical integration, the biggest area of growth and dominance remains in the acquisition of healthcare providers and clinics. 

UHG remains the largest employer of physicians in the country with 60,000 doctors in 2000 locations across the nation serving over 20 million patients.  UHG and its Optum medical care provider business are rolling out a combined package of medical care and health insurance as insurers meld health benefits with the provision of healthcare services. For example, in California, Harmony Health Plan is the creation of an accountable care platform by UHC and Optum that now serves 1.5 million people through value-based arrangements. OptumHealth has a formidable presence in California with plans to expand to Texas as evidenced by at least one recent provider group acquisition. 

The following are just a few of the provider acquisitions that were occurring simultaneously with the Change Healthcare acquisition:

Atrius Health 2022– Atrius Health is an independent physician-led healthcare organization with 645 physicians and primary care providers at 30 locations in Massachusetts. 

Kelsey-Seybold 2022 – Kelsey-Seybold is a Houston based multispecialty physician group with cancer and women’s health centers, two ASCs and a sleep center. It is also an ACO focused on providing evidence- based care.  Optum acquired Kelsey-Seybold for $2 billion.  In addition, UnitedHealth Group acquired KS plan Administrations, which is affiliated with Kelsey-Seybold and covers approximately 41,000 Medicare beneficiaries.

CareMount Medical 2022 – three midsized physician-led independent medical groups in southeastern New York State, New Jersey and Western Connecticut.

UHG’s progress toward building a closed, end-to-end continuum of care has real implications for hospitals and the future of the healthcare landscape.  Optum is a goliath in the healthcare industry, reaping profits for its parent company, UHG, by having virtually every payer and over 5,000 hospitals in its portfolio. 

Optum is not an insurance company and therefore not under the same restrictive regulations faced by insurers. This means it can have a higher profit margin than the 15 to 20 percent that’s regulated.  While the industry watched and debated the acquisition of Change Healthcare, Optum steadfastly continued to grow as the nation’s largest employer of doctors, owner of one of the country’s largest ambulatory surgery center chains, and the nation’s largest operator of urgent care clinics. OptumHealth, just one branch of Optum’s services, has regular access to approximately 30 percent of the U.S. population.

Despite being an integral revenue generating arm for UHG, Optum is a separate business from UHG and UHC and would be a behemoth in the healthcare industry all by itself.  As Optum continues to invest in solutions that are adjacent to the ‘traditional health insurer’ space, the company becomes increasingly insulated from the regulatory pressures most insurers and providers face. The combination of size, capital and lack of regulatory pressures seemingly creates a titan that is too big to fail, and this places the burden on providers, to protect their own interests.

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