April 12, 2018
Vertical
integration is all the rage in healthcare these days, with Aetna, Cigna
and Humana making notable plays.
If
the proposed CVS-Aetna, Cigna-Express Scripts and Humana-Kindred deals
are cleared by regulators, the tie-ups will have to immediately face
UnitedHealth Group's Optum, which has been ahead of the curve for years
and built out a robust pharmacy benefit manager (PBM) business already along
with a care services unit, employing about 30,000 physicians and counting.
UnitedHealth
formed Optum by combining existing pharmacy and care delivery services within
the company in 2011. Michael Weissel, Group EVP at Optum, told Healthcare Dive
the company began by focusing on three core trends in the industry: data
analytics, value-based care and consumerism.
Since
then, the company has been on an acquisition spree to position itself as a
leader in integrated services.
"For
the longest time, the market assumed that they were building
the Optum business [to spin it out] and what is interesting in the
evolution of the industry is that that combination has now set a trend,"
Dave Windley, managing director at Jefferies, told Healthcare Dive.
"United
has now set the industry standard or trend ... to be more vertically integrated
and it seems less likely now that United would spin this out ... because
many of their competitors are now mimicking their strategy by trying to buy
into some of the same capabilities," he said.
Weissel
said Optum will continue to push on the three identified trends in the next
three to five years, with plans to invest heavily in machine learning, AI and
natural language processing.
The
question will be whether and how the company can keep its edge.
What
Optum is
Optum
is a company within UnitedHealth Group, a parent of UnitedHealthcare. Optum's
sister company UnitedHealthcare is perhaps more well known within the industry
and with consumers.
However, Optum,
a venture that encompasses data analytics, a PBM and doctors, has
been gradually building its clout at UnitedHealth Group.
In
2017, the unit accounted for 44% of UnitedHealth Group's profits.
In
2011, UnitedHealth Group brought together three existing service lines under
one master brand. Services are delivered through three main
businesses within a business within a business:
- OptumHealth
- the care
delivery and ambulatory care capabilities of OptumCare, as well as the
care management, behavioral health, and consumer offerings of Optum;
- OptumInsight
- the data
and analytics, technology services and health care operations
business; and
- OptumRx - its pharmacy benefit service.
The
company focuses on five core capabilities, including data and
analytics, pharmacy care services, population health, healthcare
delivery and healthcare operations. Services include but are certainly not
limited to OptumLabs (research), OptumIQ (data analytics), Optum360
(revenue cycle management), OptumBank (health savings account) and
OptumCare (care delivery services).
The
Eden Prairie, MN-headquartered company has recently expanded its care delivery
services, with much of the growth coming from acquisitions. The past two years
have seen Optum expand its footprint into surgical care (Surgical Care
Affiliates), urgent care (MedExpress) and primary care (DaVita Medical Group).
Timeline
of Optum Acquisitions
- 1998
UnitedHealth Group forms
health IT arm Ingenix (now OptumInsight) and Specialized Care Services (now
OptumHealth).
- 2002
UnitedHealth Group charters
Exante Financial Services and Exante Bank, a health banking platform.
- 2005
UnitedHealth buys PacifiCare, a health plan
which had a pharmacy benefit manager. The PBM is separated within the company
and named Prescription Solutions (now OptumRx).
It's
a wide pool, but the strategy affords UnitedHealth the opportunity
to grab more revenue by expanding its market presence. For example, the DaVita
acquisition, which is still pending, allows OptumCare to operate in 35 of 75
local care delivery markets the company has targeted for
development, Andrew Hayek, OptumHealth CEO, said on an earnings call in
January.
Optum's
strategy of meeting patients where they are and deploying more ambulatory,
preventative care services works in concert with its sister company
UnitedHealthcare's goal of reducing high-cost, unnecessary care services, when
applicable. If Optum succeeds in creating healthier populations that use lower
levels of care more often, that benefits the parent company UnitedHealth Group
as UnitedHealthcare spends less money and time on claims
processing/payout.
The
strategy has been paying off so far.
Three
charts that show UnitedHealth's financial health as it relates to Optum
Optum's
presence has grown as it has steadily increased its percentage of profits for
UnitedHealth Group.
Credit: Healthcare
Dive / Jeff Byers
In
2011, the first year Optum was configured as it looks today, the company
contributed 14.8% of total
earnings through operations to UnitedHealth Group with $1.26
billion. That's about 29 percentage points lower than in 2017, when Optum
brought in $6.7 billion in profits on $83.6 billion in revenue.
Broken
down, it's clear that pharmacy services make up the lion's share of the
company's revenue. In 2017, OptumRx earned $63.8 billion in revenue, fulfilling
1.3 billion prescriptions. OptumRx's contributions to the company took off in
2015 when Optum acquired pharmacy benefit manager Catamaran.
Credit: Healthcare
Dive / Jeff Byers
In
recent years, OptumHealth has grown due to expansion in care delivery
services, including consumer engagement and behavioral and population health
management. The care delivery arm served 91 million people last year, up from
60 million in 2011.
OptumInsight
has grown largely due to an increase in revenue cycle management and operations
services in recent years.
On
Wall Street, UnitedHealth Group is performing well and has seen healthy growth
since 2008. The stock peaked in January and took a dive when Amazon, J.P.
Morgan and Berkshire Hathaway — industry outsiders yet financial giants
— announced they would create a healthcare company.
Credit: Healthcare
Dive / Jeff Byers
While
these charts suggest a dominant force, the stock activity shows that investors
believe there's still more room for competition, if the new entrants play their
cards right.
Where
Optum could lock out and rivals could cut in on competition
UnitedHealth
started down this strategic path many years ago and the rest of the industry
just now seems to be catching up.
"Optum's
been the leader in showing how a managed care organization with an ambulatory
care delivery platform and a pharmacy benefit manager all in house can lower or
maintain and bend cost trend and then drive better market share gains in their
health insurance business," Ana Gupte, managing director of healthcare
services at Leerink, told Healthcare Dive. "I think they have been the
impetus in the large space for the Aetna-CVS deal."
Because
the company is multi-dimensional, Optum's competition will be varied. If
all the mergers making news — including the Walmart's rumored buyout of Humana
— close, here's what competition could look like:
Credit: Revive Health
Perhaps
oddly, its largest revenue contributor, OptumRx, seems to have the largest
vulnerability for competition in the coming years.
Optum's
competitive advantage in the PBM space is driven largely by already realized
integration. Merging data across IT systems is no easy task, and Optum has
spent years harmonizing pharmacy data across platforms to assist care managers
in OptumCare to see medical records for United members.
Anyone
with experience implementing EHR systems can tell you such
integration doesn't happen over night.
If
the Cigna-Express Scripts deal closes, the equity can compete with OptumRx, but
the technology investment needed to harmonize data and embed Cigna's service
and pharmacy information into Express Scripts servers will take time, Windley
said. Optum, on the other hand, has invested in the effort and integration for
years.
Gupte
says the encroaching organizations in the PBM space have the ability to realize
the efficiencies and savings and the integrated medical that Optum has been
realizing across OptumRx and the managed care organization.
Optum's
leg up in PBM space could last two to three years over the competition, she
said.
On
the care delivery side, OptumHealth has been purchasing large physician groups
for a variety of services. There are only so many large physician groups
putting themselves on the market, and Optum has been making bids for them.
There's
still a bit of white space to fill in its 75 target markets, but analysts note
Optum may have the competition on lock in this space.
Even
if CVS-Aetna closes, OptumCare is a $12 billion business with many urgent
and surgery care access points. If CVS-Aetna is finalized, the company
will have about 1,100 MinuteClinics capable of realizing efficiencies with
Aetna, but, as Windley notes, they likely won't have primary care or surgery
care elements.
There's
also a lot of time and capital needed for building out and retrofitting retail
space to medical areas.
On
the surgical care services, "I don’t see either Cigna, Aetna or
Humana getting into that business," Gupte said. "That will be one
element of their footprint on care delivery that will be unique and differentiated
for them."
Urgent
care has the potential for outsider competition, she added. However, Optum is
using its MedExpress business to treat higher acuity conditions and have an ER
doctor on staff in each center. Compared to the typical types of conditions treated
in retail clinics or those that would be feasible over time, Gupte believes
services that could be seen in CVS or Walmart would be lower acuity, chronic
care management services.
"[Optum
has] been so proactive and so strategic I don't think there's going to be
a lot of reactive catchup they have to do," Gupte said. "I
think it’s going to be hard for the other entities to play catch
up, outside of the PBM."
One
potential issue will be harmonizing the disparate businesses so patients can be
effectively managed across the various organizations, Trevor Price, founder and
CEO of Oxean Partners, told Healthcare Dive.
"I
think the biggest challenge for Optum is operationalizing the combined
platform," Price said. "The biggest question is do they continue to
operate as individual businesses or do they merge into one."
What's
next?
Optum
will continue to explore ground in the three core trends it has
identified.
Out
of the three, consumerism has the longest path to maturity in
healthcare, Weissel said, adding he believes consumerism is going to
change healthcare more than any other trend over the next decade.
"There
is a wave coming, and this expectation that we will move there," he
said. "Increasingly, this aging of people who become very comfortable
in a different modality is going to tip the balance with how people will want
to interact with healthcare. I know there’s pent up demand already."
That
means the company is putting bets into the marketplace around consumer building
and segmentation models as well as thinking about how to connect data to allow
patients to schedule appointments, view health records, sign up for insurance,
search for providers or renew prescriptions online.
Consumer-centric
projects currently underway include digital weight loss programs — including
streaming fitness classes — and maternity programs to track pregnancy. The
company is also experimenting with remote patient monitoring to understand the
impacts on those with heart disease or asthma and to search for service
opportunities.
Optum
will pursue investments as well as acquisitions to push into the consumer
space.
"When
it comes to acquisitions to Optum overall, we're always in the marketplace
looking to extend our capabilities, to extend our reach in the care management
space to fill in holes or gaps that we have," Weissel
said. "That's a constant process in our enterprise."
https://www.healthcaredive.com/news/optum-unitedhealth-vertical-integration-walmart/520410/
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