UnitedHealth Group Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
April 16, 2024

There are 18 speakers on the call.

Operator

and welcome to the UnitedHealth Group First Quarter 2024 Earnings Conference Call. A question and answer session will follow UnitedHealth Group's prepared remarks. As a reminder, this call is being recorded. Here's some important introductory information. This call contains forward looking statements under U.

Operator

S. Federal Securities Laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations. A description of some of the risks and uncertainties can be found in the reports that we file with the Securities and Exchange Commission, including the cautionary statements included in our current and periodic filings. This call will also reference non GAAP amounts.

Operator

A reconciliation of the non GAAP to GAAP amounts is available on the Financial and Earnings Reports section of the company's Investor Relations page at www.unitedhealthgroup.com. Information presented on this call is contained in the earnings release we issued this morning and in our Form 8 ks dated April 16, 2024, which may be accessed from the Investor Relations page of the company's website. I will now turn the conference over to the Chief Executive Officer of UnitedHealth Group, Andrew Witty.

Speaker 1

Good morning and thank you for joining us today. We have a lot to cover. First, we'll discuss the status and impact of the Change Healthcare cyber attack. Then we'll turn to the performance of our businesses, which continue to grow and perform well. It's important to underscore at the outset that even as we have devoted significant attention to addressing the change healthcare attack, The vast majority of the 400,000 people of this enterprise have remained as usual intensely focused on delivering for all those we serve.

Speaker 1

That dedication is reflected in our overall performance this quarter. Directly as a result of their hard and hard work and the broad performance of our diversified businesses, we're able to reconfirm our full year adjusted earnings outlook, even as we absorb $0.30 to $0.40 per share in business disruption impacts related to Change Healthcare. Now turning to Change Healthcare. This was an unprecedented attack by a malicious actor on the U. S.

Speaker 1

Health system. We promptly disconnected the affected services and turned our focus to 2 main areas, restoration and support. The attack disrupted the ability of care providers to file claims and be paid for their work. We moved quickly to fill this gap. Fortunately, we were able to bring to bear the substantial resources of UnitedHealth Group to drive the recovery and begin to mitigate the impact.

Speaker 1

Resources which are stand alone Change Healthcare would not have had access to on its own. These are the resources and philosophy that underpinned our remediation of healthcare dot gov back in 2013 and our distribution of CMS COVID emergency relief funds to care providers in 2020. Here, we assisted care providers in financial need, providing over $6,000,000,000 in funding, all at no cost to them. We rapidly deployed resources to develop alternative solutions and moved promptly to restore claims and payment services. We've made substantial progress and we will not rest until care providers' connectivity needs are met.

Speaker 1

And to help care providers mitigate workflow disruptions and help ensure the uninterrupted delivery of care, for a period of time, we suspended some care management activities. I'm immensely grateful for our colleagues who continue to work tirelessly day and night to restore services, free up funds for providers and protect the broader health system. Let me touch on 2 more items we know are of interest to you. 1st is care activity. The central point is that overall care patterns are consistent with what we anticipated last year heading into 2024 and within the outlook we shared with you in November.

Speaker 1

The second item is the essential value of Medicare Advantage to seniors. Here are what we see as some of the core facts regarding Medicare Advantage. It drives better health outcomes, provides a higher value, significantly more comprehensive benefit for people, all at a lower cost to beneficiaries and taxpayers, and is more popular with and valuable to seniors than traditional Medicare. Medicare Advantage consumers spend on average 45% less on premiums and out of pocket costs than those in traditional Medicare. That translates into nearly $2,400 in savings annually and several times more for the country's most underserved and medically challenged populations.

Speaker 1

That's one of the many reasons why more than half of seniors choose Medicare Advantage today versus 30% 10 years ago and why we believe these offerings will continue to grow strongly for years to come. 2025 is the 2nd year of the significant 3 year phase funding reductions to Medicare Advantage introduced by CMS last year. Here in early 2024, we're at the beginning of our thoughtful, responsible 3 year plan we developed last year to adapt to those changes. Our strategy continues to focus on providing as much stability as possible in the reduced funding environment, improving outcomes and experiences for the consumers we're privileged to serve and delivering the performance you expect from us. We believe our long term perspective and the deliberate multiyear approach we began last year is serving us well, putting us into a position of sustainable competitive strength.

Speaker 1

Among a handful of notable business developments to share, UnitedHealthcare was honored to secure major Medicaid wins in Virginia, Texas and Michigan. While we were disappointed in the outcome in Florida, we'll be seeking to better understand the process and considerations there. There's a substantial pipeline in Medicaid RFPs and we're confident that our offerings will resonate in other states as well. UnitedHealthcare's commercial benefits continued their momentum from last year, growing to serve 2,000,000 more people in the Q1, the largest increase in years. This growth was across UHC's commercial customer segments from individuals up through the largest of employers.

Speaker 1

This is further evidence of our innovative and consumer centric products have established a footing for sustained growth. We also see continued momentum at OptumRx coming off last year's record selling season with a recent win in Hawaii and the renewal of our contract with the Department of Veteran Affairs. We're grateful for the opportunity to support them. And OptumHealth is tracking well objective of growing to serve another 750,000 patients in value based arrangements this year in partnership with many payers. Before I turn it over to John Rex, our President and Chief Financial Officer, I want to acknowledge Dirk McMahon, recently retired after more than 20 years of service.

Speaker 1

I'd like to thank him for his leadership and partnership. Dirk has left an indelible mark on this company through the example he set and the many of our leaders he has mentored. John?

Speaker 2

Thank you, Andrew. This morning, I'll first provide color on some of the unique items in the quarter directly related to the Change Healthcare cyber attack, followed by care activity trends, business updates and finally thoughts on the remainder of 2024. But first, let me start at the most fundamental level. UnitedHealth Group businesses continued to grow and perform well during the quarter, and we are encouraged by the momentum and the many opportunities to serve we're seeing across the enterprise. On the change health care cyber attack, as Andrew noted, our guiding focus throughout has been to make sure patient care is delivered and care providers access to funding is secured as we work to bring back services fully.

Speaker 2

The cyber impacts in the quarter totaled about $870,000,000 or $0.74 per share. At this distance, we estimate the full year impact will be $1.15 to $1.35 per share. Let me break that down into its key components. Of the 870,000,000 about $595,000,000 were direct costs due to the clearinghouse platform restoration and other response efforts, including medical expenses directly relating to the temporary suspension of some care management activities. For the full year, we estimate these direct costs at $1,000,000,000 to $1,150,000,000 or $0.85 to $0.95 per share.

Speaker 2

It's important to note these direct costs are included in net earnings, but are excluded from adjusted earnings per share. The other component affecting our results relates to the disruption of ongoing Change Healthcare business. This is driven by the loss of revenues associated with the affected services, all while incurring the support and costs to keep these capabilities fully ready to return to service. Notably, these effects are not excluded from adjusted earnings. In the Q1, this impact was about $280,000,000 or $0.25 per share.

Speaker 2

At this distance, we currently estimate the business disruption at $350,000,000 to $450,000,000 or $0.30 to $0.40 per share for the year. This of course will depend on the ultimate timing of service and transaction volume restoration. These elements are broken out for you in the supplemental tables provided with our press release this morning. Of course, we will provide regular updates on our progress and outlook throughout the course of the year. While much of Change Healthcare's functionality and services have been restored, we are working hard to restore more.

Speaker 2

And the objective we all share is for an even stronger Change Healthcare to be fully returned to expected performance levels next year. I'll come back to some of these elements in more detail in just a moment. Turning to underlying care patterns. The headline is that these continue within our expectations. Outpatient care activity among seniors remains consistent with the elevated levels we began seeing in the first half of twenty twenty three and for which we planned.

Speaker 2

So we continue to be comfortable with the outlook we established last June when we filed our 2024 Medicare Advantage benefit offerings. The winter seasonal activity we discussed with you in January, particularly related to strong vaccine uptake, higher respiratory illness incidents and related physician office visits has subsided. Overall inpatient care activity also remains within our expectations. The 1st quarter medical care ratio at 84.3 percent included roughly 40 basis points or about $340,000,000 related to the temporary suspension of some care management activities. These have been recently reinstated.

Speaker 2

The majority of the remaining $325,000,000 of full year medical expense impact included in our outlook will land in the 2nd quarter. Notably, we did not reflect any favorable earnings impacting medical reserve development in the quarter. Out of prudence, due to the potential for the cyber attack to affect claims receipt timing, we reflected an additional $800,000,000 of claims reserves. We'll continue with a judicious view as we progress over the next several quarters. Turning to the performance of our businesses.

Speaker 2

The most important takeaway is they are growing and performing at a level which allows us to maintain the adjusted earnings per share objectives we established last November, even while taking on the business disruption impacts of the change healthcare attack. At UnitedHealthcare, revenues of $75,400,000,000 grew nearly 5,000,000,000 dollars Within our domestic commercial membership, we're off to a strong start powered by disciplined growth, serving 2,100,000 new consumers in the Q1. We are encouraged by the momentum and positive customer response to our differentiated offerings and look forward to building further upon that momentum heading into 2025. For Medicare Advantage, as you would anticipate, we are deeply into our 2025 planning activities. As we finalize our 25 benefit designs over the next several weeks, we will build competitive offerings that once again appropriately reflect the funding and cost environment.

Speaker 2

We approached this last year with a deliberate 3 year plan, which continues firmly on track and positions us well going into 2025. Our Medicaid business ended the Q1 with 7,700,000 members. As Andrew noted, key wins in Texas, Virginia and Michigan demonstrate the value state customers see in our offerings. In Virginia, UHC was the highest scoring plan with particular strength in member centric care, benefits and service delivery, quality and value based payments. In Texas, UHC was awarded the maximum number of possible service areas, expanding the number of people we will have the opportunity to serve.

Speaker 2

And in Michigan, UHC achieved perfect scores in such critical consumer centric areas as social determinants of health and health equity, further solidifying our value proposition. OptumHealth revenues grew by 16% to $26,700,000,000 as we increase the number of patients served and are on track to approach 5,000,000 patients in value based care by year end. For the most complex patients that OptumHealth serves, we have engaged 75% through the Q1 this year, a significant increase in the number of patients engaged over last year. This reflects progressively earlier connectivity with patients and the ability to improve their health outcomes and experiences more rapidly. OptumRx revenues grew 12% to $30,800,000,000 driven by new client starts, continued expansion within existing partnerships and growth within pharmacy services.

Speaker 2

OptumInsight, as you know, is where the change healthcare business resides. In the quarter, about $500,000,000 of the 870,000,000 dollars total impact is within OptumInsight. Just under half of this are direct response costs. Think clearinghouse restoration activities, which we have excluded from adjusted earnings. And slightly over half are the business disruption effects, which are not excluded from adjusted earnings.

Speaker 2

For many of the impacted Change Healthcare Services, transaction volume drives revenues. So the effect of the attack in the period is one of keeping all the lights brightly burning at full readiness to resume services, while revenue production was essentially suspended. To be clear, the OptumInsight team did the critical and right thing, promptly shutting off services and finding any method possible to keep the care system working, including helping clients find alternative solutions. Coming out of this incident, the team will be working tirelessly with customers to recover transaction volumes and demonstrate that Change Healthcare is ready to serve and is more valuable than ever. Beyond Change Healthcare, backlog increased to nearly $33,000,000,000 growth of over $2,000,000,000 from a year ago, driven by health system partnerships to provide business process and information technology services.

Speaker 2

A couple of other items of note that were affected by the cyber attack. Days claims payable in the Q1 were 47.1 compared to the 47.9 in the 4th quarter, 23 47.8 a year ago. The accelerated payments to care providers and the Brazil sale reduced what would have been our reported measure for the quarter by about 3 days. The medical costs payable balance increased $1,600,000,000 from year end 2023 to 30 increase in the incurred but not yet reported component or IBNR. This is a result of the prudent ongoing claims receipt assessment, offset by a $1,600,000,000 reduction in the fully processed claims component due to care provider payments acceleration.

Speaker 2

Cash flows from operations in the quarter were $1,100,000,000 impacted by about $3,000,000,000 due to the funding acceleration to care providers and collection extensions to affected customers and were additionally impacted by the timing of some public sector receipts. To summarize, a continued focus on better serving patients and the health system underpins our mission and growth drivers, which remain strong. And as we move further into this year, the broadly strong performance across our enterprise allows us to continue to expect full year adjusted earnings per share in the range of $27.50 to $28 even as we incorporate a $0.30 to $0.40 per share of business disruption impacts. Now I'll turn it back to Andrew. Thank you, John.

Speaker 1

As we look out over the next several years, we like many others see a healthcare environment in need of improvements in quality, value, simplification and consumer responsiveness. While we're a comparatively small part of the $5,000,000,000,000 U. S. Health system, UnitedHealth Group's strategy is focused on helping to meet those very needs and we're well positioned to do so. Our focus on understanding opportunities to align incentives, notably led via our value based care offerings, demonstrates what can be achieved through partnership and realignment of ways of working.

Speaker 1

Our commitment to improving all we do for consumers stimulates our drive to help bring care to patients where they need and want it at prices and with an experience worthy of the 2020s. We have a proven commitment to making available our insights and innovations widely and quickly throughout the market alongside our relentless multi payer orientation at Optum. We remain committed to partnering with others throughout healthcare to help make the health system more modern and responsive. Our success depends on enabling partners and customers outside our company to succeed. The combination of this strategic design, strengths and behaviors underpins our high confidence in our ability to navigate the inevitable environmental change and challenge, and it reinforces our confidence in our ability to perform and grow strongly as you have come to expect from us.

Speaker 1

With that, operator, we'll turn to questions.

Operator

Thank you. The floor is now open for questions. And we'll go first to Lisa Gill with JPMorgan.

Speaker 3

Thanks very much and thanks for all the comments. I just want to go back to your comment around your 3 year plan as it pertains to V-twenty 8. Does the 2025 final bid change anything around that plan? And how do I think about the impact in the quarter of V-twenty eight in both OptumHealth as well as on the UnitedHealth side?

Speaker 1

Yes, Lisa, thanks so much for the question. Yes, as we said a few times and certainly repeated this morning, we've looked at the changes that CMS finalized last year really thoughtfully, and we see this as a 3 year strategy in response. Obviously, it's phased in over 3 years. We want to make sure we don't do anything that chases short term growth, for example, but puts a lot puts at risk long term sustainability. What you're also not going to see from us is a kind of knee jerk reaction the As you look at the most recent final rate, I don't think it really changes the story.

Speaker 1

Obviously, it's a little disappointing that we don't think CMS really reflected what was what we've seen over the last year in terms of actual in market medical trend. But in reality, it's just a little extra pressure for 25% on top of what we'd already seen previously. We're well positioned for that in terms of all the work we've been doing really from the get go last year, really February last year, we've been getting ourselves lined up for this. You're seeing that reflected in Q1 in a few really key features, right? So you're seeing really strong cost control inside the company as you'd absolutely expect us to do, making sure that we're not incurring any expense that we don't need to, to support our members and patients on the outside of the organization.

Speaker 1

You saw us take a very thoughtful bid strategy last year. And of course, we continue to focus on how to make sure that we manage medical cost as effectively as possible, ensuring quality of care delivered and avoiding waste. All of that plays through. I'm very, very pleased with how this Q1 played out in that respect. If you look at the performance of OptumHealth and our MA business within United Healthcare, both very strong performers during this quarter despite the pressure that's been incurred on them from the rate notice last year.

Speaker 1

And I think that bodes super well for the rest of this year and the strategy we've laid out for the next three. Thanks Lisa. Next question.

Operator

We'll go next to Josh Raskin with Nephron Research.

Speaker 4

Hi, thanks. Good morning. Can you just explain what medical cost you categorized as accommodations to support care providers? I think the management that you guys are talking about. What a certain medical what puts a certain medical expense in that bucket?

Speaker 4

And then when you look at your actual claims received or claims processed inventories, what percentage of a normal or expected quarter did you actually see in the quarter versus how much did you just sort of put into IBNR?

Speaker 1

Josh, thanks so much. I'm going to ask Brian Thompson in a second to give you a little bit more color on the first part of your question. Listen, I think by the time we got to the end of the quarter, we had the overwhelming majority of what we'd anticipate in receipt in terms of claims received into the organization. Of course, it's always a little bit tricky to be absolute about that because you're kind of comparing against what you would have expected. And as you obviously know, every quarter you see corrections both up and down in terms of actual claim submissions catching up with what you may have estimated and that's been obviously the feature of this marketplace.

Speaker 1

But overall, I would say UHC claims receipt was very, very close to normal by the time we closed the quarter. But maybe Brian, you could give a little more color commentary on how you would characterize some of that relief we gave.

Speaker 5

Sure. Appreciate the question. Yes, Josh, I believe we started March 8th. And what we did, I call it foregone utilization management protocols and those are really in 2 categories. The first is we suspended our inpatient level of care reviews where we assess for appropriateness of inpatient versus outpatient.

Speaker 5

And that was the lion's share of our adjustment. And we've got a long history of understanding those elements. It's just a unit cost adjustment. So pretty simple and easy to estimate and adjust for. The second element inside those practices was some outpatient prior authorizations that we also suspended.

Speaker 5

Those were a smaller element inside this quarter. Those will play out a little bit more in next quarter as you think about that lag between notice and actual in curl date. But again, pretty easy for us to estimate. These are practices we've had in place for a very long time and feel comfortable about the adjustment that we made.

Speaker 1

Brian, thanks so much. And just again to confirm, as you heard from John, we've brought those processes back into play in the last few days. Next question?

Operator

We'll go next to A. J. Rice with UBS.

Speaker 6

Thanks. Hi, everybody. Congratulations on working through all this. Maybe just make sure I understand a little more, the $800,000,000 reserve that you're holding out and you did comment that you didn't take any prior period development in the bottom line. I guess it sounds like you've used the word prudent several times in describing that.

Speaker 6

How much yes, just maybe to follow-up on the last question, how much of that is things that either from what you get insight from OptumHealth or from your own ability to look at prior year claims versus what you've seen so far is what you really think is going to happen and how much of that is sort of add on just because of the moving parts out there? And then it sounds like you're basically saying that the care dynamics are similar. Is there anything you call out outpatient, inpatient that suggests any variance relative to your MLR assumptions for the year when you started out?

Speaker 1

So I'm going to ask John just to comment on the $800,000,000 more specifically. I mean, I think as we said a couple of times, A. J, really not seeing anything stand out in terms of care pattern differentiation from what we really expected. I mean, as we mentioned earlier, that kind of pressure we saw at the end of Q4 and rolling into the very beginning of the year around some kind of winter syndrome vaccination dynamics, we talked about a lot last time. As expected, that did subside beyond that, I would which was what we were anticipating.

Speaker 1

Beyond that, I wouldn't say there's anything really to call out within all of that. John, could you maybe go a little deeper on the 800?

Speaker 2

Yes. Good morning, A. J. So picking up on comment Andrew had made earlier. So what you're really doing there is estimating what you didn't see.

Speaker 2

So claims receipts that you may have not received in the quarter and trying to make an accommodation for that, as you said, a prudent accommodation for that. Just to acknowledge that there clearly had to be some disruption in the quarter in claims patterns. And so you're trying to make some estimation in that zone to anticipate that. So you put it somewhere in the zone, it's not 0 and it's not 800, somewhere in between, probably as you think about those elements and where you might land. And so as we look out and you should expect that we'll probably continue with a judicious view over this over the next several quarters actually also.

Speaker 2

We want to make sure that we've got full visibility into this, that claims are flowing. And as we sit here on April 16, it does we see at UHC, we see a fairly normal claims receipts and payments flows going on at this point. But we'll really want to be careful on that because we know there are certain care providers out there that maybe have been left out of it. And so we'll continue to be very judicious next quarter also in terms of assessing that. Thanks, John.

Speaker 2

Thank you, A. J. Next question.

Operator

We'll go next to Justin Lake with Wolfe Research.

Speaker 7

Thanks. First, I just wanted to quickly follow-up on A. J. Question here around the $800,000,000 Can you just be specific around is that conservatism related to 2023, meaning you would have had up to $800,000,000 of development that would have benefited the quarter? Or are you saying that you just took extra reserves that actually impacted Q1?

Speaker 7

Because we're looking at an MLR that's 50 basis points above where you kind of expected it and yet you're saying trend is in line. So we're trying to figure out if it did was there a 50 basis point miss or are you saying that really that's just the conservatism here? And then any my question was really around the relative visibility on cost trend, right? Last year, it was somewhat opaque. You kind of told us that there was some uncertainty.

Speaker 7

And then if that uncertainty turned to certainty around, hey, trend is higher in Q2, how do you feel about your visibility this year? Do we have to wait till 2Q to kind of be able to declare that, hey, we're kind of through this and you're not seeing what the rest of the industry is seeing? Or do you think we probably have to get that update again in the Q2? And lastly, any commentary on Q2 MLR and where you think you end up in the full year range for MLR would certainly be helpful if you could provide. Thanks.

Speaker 1

Okay, Justin. Thanks for those questions. Let me I'm going to ask John in a second just to go back and again just give you a little bit more definition around the $800,000,000 as you asked. Just in terms of cost trend, let me make a couple of comments. I'm going to ask Brian maybe to go a little deeper as well and then come back to John.

Speaker 1

As I look at the cost trend this year versus last year, some big differences. So last year, really, I think the core of the story of what led to that sort of step shift, if I can put it that way, in early Q2, Q2 of last year, I think that was really and the hindsight tells us that was really around a kind of post COVID or end of COVID story playing out in terms of capacity coming on stream most importantly and to some degree a pent up demand. I actually think the capacity coming coming on stream was as much an issue as a driver of that as anything else. So I think it's to some degree a one off. We don't see anything like that.

Speaker 1

We've seen much more stabilization. We haven't seen a step down from that trend. We'd be super clear about that. We haven't seen it kind of go back down again, but we've certainly seen that kind of sustained activity without aggressive acceleration. And then the other thing I would say to you is, as you would expect, given that shift we saw last year, in the intervening year, we've put in a lot of sensing mechanisms across our organization, both in UAC and Optum, to look for early warning signals of changes, quite a low granularity in terms of trying to figure out how this pattern plays out.

Speaker 1

Now as all our actuaries and any actual will tell you that the gold standard of knowledge on trend is a paid claim. But nonetheless, we've tried to put in place a lot more prospective sensing capability. And again, that's kind of consistent with what we're sharing with you. So we're not really anticipating a big change there. I mean, obviously, the future is the future.

Speaker 1

But as we sit today, everything looks pretty much as expected. Brian, you may want to give a bit more from a UHC perspective.

Speaker 5

Yes. Thanks, Andrew. And I think you summarized it well. I'll reiterate what you heard from John, which is what we're seeing in these underlying service types, inpatient, outpatient, etcetera, are in line with what we had planned for. So I'll reiterate that.

Speaker 5

And just to add to that level of improved visibility this year over last, certainly COVID being the biggest driver, but also redeterminations. Last year, we were at the beginning of that. This year, we're nearing the end of that. So 2 key unknowns a year ago, I think that contributed to perhaps a little less visibility, both of which I think we've really got a better view to this year. And the last thing I'll just point out is, as we've paced through oneone, I also feel good about our business mix.

Speaker 5

Again, early in the stages of evaluation of that, but how our growth has changed and what we've seen in those profiles from the growth that you're seeing in our commercial business to the growth in our Medicare business as well, really feel good about all those elements. So yes, optimistic about

Speaker 8

the rest of the year and

Speaker 5

how it's playing out against what we had planned for.

Speaker 1

Great. Thanks, Brian.

Speaker 2

And Joel? Yes, Justin, good morning. So I think the way you look at it, so overall, the net view being so we didn't let any earnings or medical care ratio impacting development flow through into the quarter. And when you look at it, so you can come at it as the normative course of assessments would have indicated some potential for favorable development in the quarter. We would we took a position also that there was likelihood that there were claims we didn't receive.

Speaker 2

And so in terms of the claims completion factors and such and so how that may have impacted it. So you're really netting that all off in the course of the quarter to try to just normalize that out, not having any impact from any of those elements and taking a pretty prudent view of where you might be in terms of the claims you received. In terms of your question here on Q2 MCR, at this distance, I'd put it in a similar zip code to 1Q, including similar impact from the cyber effects that we had also. And as I noted in response to A. J.

Speaker 2

Question, we'll be continue to be very judicious as we look at those patterns also on claims receipt. So we'll continue with a judicious view of how we think about development and those impacts as we step out here in the next couple of quarters to make sure we're getting our claims receipt timings fully incurred here.

Speaker 1

Right. John, thanks so much. Next question.

Operator

We'll go next to Stephen Baxter with Wells Fargo.

Speaker 5

Yes. Hi, thanks. The business disruption costs you projected beyond the Q1 are, I think, smaller maybe than most had expected despite the fact that we've heard commentary from the stakeholders reducing their dependence on Change Healthcare during the quarter. I guess, what are you seeing from customers on that front? I guess, how much of that recovery do you have on a revenue line?

Speaker 5

Do you have line of sight to versus you have to drive throughout the balance of the year to get to that no impact to 2025 that you seem to expect? Thank you.

Speaker 1

Yes. Stephen, thanks so much. So I'm going to ask Roger Connor, who runs OptumInsight, to give you a little detail on this. First off, so I just want to take a moment to pay credit to the teams for the speed in which they brought back the overwhelming majority of the functionality of OptiMins of Change Healthcare after the attack. It's been an extraordinary example of really the resources of UHG and frankly the support of many of the biggest companies across America in the tech environment coming in to help recover from this particular attack, which was straight out an attack on the U.

Speaker 1

S. Health system and designed to create maximum damage, I think. We've got through that very well in terms of the remediation and the build back to functionality. And Roger, maybe you could share a little bit of what you're seeing and expect in terms of customer dynamics over the next few months. Yes, will do.

Speaker 1

Stephen, thanks very much for the question. So the way that

Speaker 8

we're thinking about the whole cyber attack responses is 2 key areas of focus. 1st of all, as Andrew mentioned, good progress on system restoration. If you look at the biggest areas where we have the largest number of customers, that's pharmacy, claim and payment, we're up to 80% functionality and that's continuing to improve day by day. We've still got work to do. We've got another set of products coming online in the number in the coming weeks, but pleased with that progress.

Speaker 8

I think your question is really about our next focus, is recovering the business. And this is about bringing those products back, but actually bringing them back stronger where we can. We're adding functionality where we can too. But then also bringing back customers who, because of the outage, have to go elsewhere to get things like their clearance house support. Now we're confident in our ability to do that.

Speaker 8

Why? Well, first of all, the portfolio and the differentiation we have, which is good. But also, as you can imagine, we're talking to those customers all the time, and they want their functionality back. They like what they've got they had with change, and they want to get that back. So we're working with them to ensure that we can actually do that.

Speaker 8

Also, we provided financial support to a number of our clients, and they appreciate that. They have said to us that they appreciate it. That's a signal that we are committed both to them, but then also to this marketplace as well. So when you add those elements up, Stephen, that's where we're confident we've got more work to do. This has been a heavy lift, and we're going to continue that work.

Speaker 8

But that's why we're confident in getting back to that baseline performance in 2025.

Speaker 1

Roger, thanks so much. And I think, Stephen, what you heard in Roger's response there is a couple of really important features of the character of UnitedHealth Group, super high resilience and we will always stand by our customers and clients. And when an attack like this happens, which puts our customers and clients at risk, we will do whatever it takes to make sure they get through that, whether it's technical fixes or financial support, we are going to stand by our clients, who in this case are the providers and the systems across America who look after American patients and we will do that. And I think that means a lot to a lot of people and it's an important capability to have running through the backbone of American healthcare. With that, Stephen, thanks for the question.

Speaker 1

Next question.

Operator

We'll go next to Kevin Fischbeck with Bank of America.

Speaker 9

Great. Thanks. Just want to go more a little more into the visibility that you guys think that you have into claims today. It sounds like you feel like you're largely back, but I guess where would you say today that you are from a percent visibility into claims versus the same time last year? And I know that there's forecasted improvement, but there's a lot of focus on the ability to price 2025 correctly.

Speaker 9

So by the time you're submitting your MA bids, how much back to normal, what percent of back to normal do you think you'll be from a claims perspective at that point? And finally, I'm used to hearing you guys reiterate 13% to 16% long term EPS growth. I hear that in the prepared remarks. I just wasn't sure that was due to time or whether there was anything that you were trying to say there. Thanks.

Speaker 1

All right. So I'm going to ask John to comment on your substantive question, Kevin, and I'm going to ask you just to stay on the line for my last paragraph of closing comments for the second part of

Speaker 2

your question. John? Good morning, Kevin. So as we sit here today on April 16, I would say UHC is pretty back much back to normal levels in terms of claim submission activity. We view it as normalized now.

Speaker 2

That we're seeing claims flowing like they we'd expect them to be flowing and moving along. So that's all progressing quite well, which assists a lot with it, the piece that you were just describing here in terms of where we think that is. And as we move forward, look over the next month plus to finalize our bid submissions and such. So feel good about that in terms of our visibility and insights.

Speaker 1

Yes. Thanks so much, John, and thanks so much, Kevin. Next question.

Operator

We'll go next to Nathan Rich with Goldman Sachs.

Speaker 10

Hi, good morning. Thanks for the question. The next steps might be as we look about what for what the possible outcome of this process could be?

Speaker 1

Hey, Nathan, thanks so much for the question. Listen, I think you'd probably expect we don't comment on these sorts of matters. And I don't think it will be appropriate to do so today and certainly we never have done in the past. So it's not something we're going to get into in the call, but appreciate the interest. Thanks.

Speaker 1

Next question.

Operator

We'll next to Andrew Mok with Barclays.

Speaker 2

Hi, good morning. Commercial risk and ASO membership both came in above the high end of your initial guidance. Can you help us understand what drove a better membership results for each segment? Thanks.

Speaker 1

Thanks so much for the question. I asked Dan Kieta who runs our E and I business from UHC to respond to that. Dan?

Speaker 11

Yes. Hi, Andrew, and thanks for the question. Certainly encouraged with the broad based growth, share gaining growth, I would say, in our individual segment, our local market segment and our national accounts business. Some of the key drivers underlying that, about a third of our group growth gains were attached to our most innovative products and the expansion of those into 37 states now on a fully insured basis to be and also fully available nationally on an ASO fee based business. Specifically inside the risk business, our individual and family exchange based plans were a significant driver of the growth.

Speaker 11

We've seen some latency from membership we expected that would have come in from redeterminations into the final portions of 2023 now begin to emerge into 2024. That's been a significant contributor to that risk based growth in the Q1. As a punch line, I like our growth. I like the pricing, very much like the profile of both the groups and the consumers that we're attracting. And finally, I'm really pleased with the consumer experience that our teams are delivering to those that we

Speaker 8

serve. Great.

Speaker 9

Thanks for

Speaker 1

the question. Thanks so much. And as you saw, Dan's organization delivered an extraordinary 2,000,000 member growth in the Q1, one of the highest growth rates we've seen for many, many years. And I think that really comes down to relentless focus on modernization of service offer and then delivery of that service offer. And I'm very proud of the whole team in the UAC Commercial Businesses domestically for what they've done.

Speaker 1

Next question.

Operator

We'll go next to Lance Wilkes with Bernstein.

Speaker 12

Thanks. A question on OptumHealth. As we're looking at outlook there, we've been really focused on capacity growth in the systems. Do you guys have any insights for your capacity growth in OptumHealth? Obviously, you've been taking some cost actions there.

Speaker 12

So interested in hiring trends. And then second, have you been renegotiating risk deals? I know that there was likely some of that for 2024. What's the outlook for that and the impact of that in 2024 and the outlook of that for 2025? Thanks a lot.

Speaker 1

Yes. Lance, thanks so much. And I'm glad you've asked about OptumHealth. I'm going to ask Doctor. Desai to respond to that.

Speaker 1

Amar runs our OptumHealth business, been doing a great job of continuing to mature that business for us, which for me I think is one of the great headlines of OptumHealth. It's continuous maturation as a sophisticated value based care delivery organization. And Amar, maybe you could respond to Lance's question.

Speaker 13

Yes. Thanks for the question, Lance. I'll take the first one in terms of hiring trends. We continue to work with more providers in a deeper way, continuing to grow across a range of arrangements. As you know, physicians across the country work with us in contracted affiliated arrangements as well as employed arrangements, and continue to have strong partnership and growth, both organically and also through some of our inorganic M and A activity.

Speaker 13

We don't see a capacity constraint there. In fact, we continue to see incredible growth with our payer partners. To the second part of your question, the risk partner growth continues to increase across multiple payers. It's being driven by some of the funding and benefit dynamics that are out there. Folks are looking for a real stable partner to be able to grow with.

Speaker 13

We have worked with them continuously in terms of our contracts, both looking at the benefit and funding changes and ensuring that the funding level is appropriate for the risk that we're taking on and to be able to provide very high quality care across our membership. So we're very proud of the growth we've had and we'll continue to do so. Thanks.

Speaker 1

Great. Omar, thanks so much. Next question.

Operator

We'll go next to Sarah James with Cantor Fitzgerald.

Speaker 3

Thank you. We wanted to understand a little bit better the $3,000,000,000 in IBNR. So just our back of the envelope math suggests if 15% to 20% of claims from UHC run through change post event that would be like assuming a third of the change related claims are delayed. Is that in the ballpark of where your change completion factor assumptions were? And keeping that conservative assumption of claims like throughout the year, what does that imply for the seasonality of the remaining $0.41 to $0.61 GAAP impact from change?

Speaker 1

So Jane, thanks so much. John?

Speaker 2

Yes. So I don't know if I'd kind of go right with some of those stats that you pulled out in terms of where those sell. But here's some insights I can offer on that. So one of the elements we wanted to break out on the IBNR component is so as you know, what we report on the balance sheet you received this morning, medical costs payable, is a combination of IBNR and medical claims payable. And so we're hoping to describe some more transparency for you as you looked at the quarter and such.

Speaker 2

And a $3,000,000,000 increase in IBNR is significant. And then offsetting that on that line item would have been the really the funding advances, the component where we just made sure that as soon as the claim was in house processed, we were speeding it out the door to get it to providers. That was one of the components in addition to the interest free loans we made that we were helping the provider community with. As you talked as you discussed kind of where we were, let's say, today we feel that UnitedHealthcare is essentially at normalized levels in terms of claims receipts. We say here we're going to be super prudent how we look at that, because we know there are providers out there that could still be having trouble submitting claims and still having troubles with payment flows and such.

Speaker 2

And so we're going to be very appropriately constrained in how we think about that dynamic playing out here over the next couple of quarters. But really that's those are the kind of mechanics of what's going on between the IBNR component that you spotlighted and the full line of medical costs payable.

Speaker 1

Right. Thanks, Joe.

Speaker 8

Next question.

Operator

We'll go next to Gary Taylor with Cowen.

Speaker 2

Hi, good morning. Just want to follow-up on that point, John. My understanding is on the IBNR that you report in your Qs and Ks includes unprocessed claims inventories. So the $3,000,000,000 is that just going to tie to the number we see when the Q comes out? Are you saying the $3,000,000,000 really is true unreported claims at this point?

Speaker 1

Thanks so much, Guy Jon.

Speaker 2

$3,000,000,000 is IBNR directly. That is to your point. That is the IBNR component of it, Gary.

Speaker 1

Okay. Thanks, John. Next question?

Operator

We'll go next to Erin Wright with Morgan Stanley.

Speaker 14

Okay. Thanks. On capital deployment, you didn't

Speaker 5

change your expectations for share repurchases, but how should

Speaker 14

we think about the your expectations for share repurchases, but how should we think about the priorities more broadly, whether it's M and A or otherwise and your ability to be opportunistic on that front? Thanks.

Speaker 1

Aaron, thanks so much. I'll ask John to comment on.

Speaker 2

Yes, Aaron. Yes, we didn't update any of those components here. We continue to take a very balanced view in terms of how we think about our opportunities. You saw certainly that we had activity in the quarter from in terms of both share repurchase and dividends. Also, we continue with robust opportunities in the marketplace in terms of other capabilities that we are looking at.

Speaker 2

So that all continues strong. So you'll see us continue to balance those out nicely in terms of the opportunities that are out there. And with capacities really to approach all those elements strongly.

Speaker 1

Yes. And I continue to see very interesting diverse pipeline of M and A opportunity across the marketplace in terms of business areas that we have interest in. As I think you see some of the funding changes play out across the next few years, I suspect that may also create new opportunities for us as different companies assess their positions. I think how we look at this situation is we have a good strong strategy for how we navigate through this dynamic. You're seeing that play out super well in Q1 performance of OptumHealth and UHC.

Speaker 1

And I think it gives us a sense of real confidence as we look not just in terms of our performance, but potentially how we might think about M and A opportunity. And as you rightly said, be somewhat opportunistic if those moments arrive. Next question.

Operator

We'll go next to Whit Mayo with Leerink Partners.

Speaker 11

Thanks. Good morning. Just back on the 2025 rate notice, I think you're if I'm hearing you correctly, it sounds like you're framing this as modestly disappointing, but perhaps manageable. Just any more color on growth expectations for next year? And then if you could elaborate on the broker agent changes, what this could potentially mean for your strategy?

Speaker 11

Seems like a meaningful change. Don't know if you think about investing more into captive broker strategies? Just any color would be helpful. Thanks.

Speaker 1

Thanks so much for the question. I mean, obviously, we're not going to get into give it's kind of 25 numbers or expectation just yet. But Tim Noll, who runs our M and R business, certainly give you some good perspective on the rest of your question, Tim.

Speaker 15

Yes. Good morning, Whit. Thanks for the question. So on the final notice and some of the distribution elements of that, we continue to believe that there's opportunities to improve the distribution environment in Medicare Advantage and have been in a dialogue with CMS for several years on how to do that. Some of the elements of the final notice that were published recently are directly in line with some of our recommendations.

Speaker 15

And some of them are relatively consistent, but not totally as we had conceived them. I would also say right now it's a little bit early to comment on how this might rebalance some of the channel mix as still some questions on how some of the key elements of that will be rolled out. So we're still waiting for a little bit more detail before we can get more specific on how it impacts go to market in 2025.

Speaker 1

Thanks so much, Tim. Next question.

Operator

We'll go next to Anne Hynes with Mizuho Securities.

Speaker 16

Hi, good morning. So I would say your commentary on care patterns is definitely more positive than what investors feared. And you referenced several times that trend came in line with your expectations. Can you actually tell us what growth rates you're assuming, like the major trend categories and guidance, whether that's inpatient and outpatient, maybe some year over year growth versus historical averages? And within that, can you specifically talk about what you're assuming for MA?

Speaker 16

That would be great. Thank you.

Speaker 1

John, would you like to start there?

Speaker 2

Yes, Ann, good morning. So the components that I would call outliers are the similar components that we've talked about for a while here in terms of trend outlooks. So in particular, still go back to outpatient care for senior, what we've seen in orthopedic, cardiac, those kind of categories primarily have been the big factors. I think you just brought up a really important point though. So the percentage growth in those was much bigger last year.

Speaker 2

You're coming off an environment where both the supply side had been constrained and the willingness of seniors, in particular consumers, to access that environment had been constrained for a couple of years. So those percentage factors were quite significant. You heard us talk about very significant levels on those double digit levels up last year as we looked at those. The way we look at those really though is because you would expect that start normalizing in terms of the percentage change. So you really look at that in terms of the number of units consumed per patient served.

Speaker 2

And so you look at those levels, that's what we're talking about. We're seeing those kind of continuing at those levels. They're continuing at those levels in terms of the number of units consumed, delivered and those but those percentage levels, of course, would start normalizing out a little bit in terms of what you'd seen. So that continues to be the area. It's outpatient care for seniors.

Speaker 2

It's those categories that we'd call real outlier areas versus our historical levels of trend factors. The other historical levels of trend factors remain much closer to kind of our traditional views that we've always had as a company. In the quarter, other things you look at just to get indications and by the way, we've kind of vastly expanded all those areas. 1st fills, you've heard us talk about that a lot. Also 1st fills in the quarter, an indication about patient care, physician visit activity, kind of normalized in there also in terms of stabilizing for us and the many other factors of the company historically looked at.

Speaker 1

Thank you. Thanks, John. And maybe I'll ask Brian maybe to give you a little bit more from a UHPC perspective. And then maybe Heather also from an Optum perspective in a second, just maybe reflect a little bit on the work you're doing in terms of how we obviously medical trend is one thing. Then there's a question of how well we're able to engage with folks to actually help them manage their cost and maybe come to you in a second Heather on some of the word that you're leading at Optum.

Speaker 1

So Brian first.

Speaker 5

Sure. I think John said it well. The first headline is what we're seeing is what we plan for. But as he alluded to some of those elements we plan for them to be elevated year over year. And I don't want to lose sight of unit costs.

Speaker 5

We've talked for some time that multiyear provider group and hospital contracts renew a little later than perhaps the inflation we've seen and that is up year over year. The biggest driver was the outpatient. We're really pleased to see that in line with as John explained. But also we've been able to see increases in specialty Rx. We've planned for those.

Speaker 5

Those are in our pricing appropriately, etcetera. And we've certainly worked hard to create more access in the behavioral space. So all of those elements are modestly up, but up as we had planned for. And they'll hopefully sound familiar to you because we spoke to all of these at our investor conferences we ended the year. So I think that's what I would summarize or add to John's commentary.

Speaker 5

Heather?

Speaker 17

So I would say incredibly consistent on the Optimum side. So maybe just focusing on the medical first. So I mean, I think you've heard us say this. When you look when we came out of last year looking into this year, our focus was on the behavioral health, those outpatient size consistent with UnitedHealthcare. And what was very important for Optimum Health was using that capacity that Amar explained in our physicians as well as those wraparound services and our investments to ensure that we were looking at those care patterns.

Speaker 17

So we feel really good about coming into this year. That work we've done, John referenced engagement with particularly those most complex numbers, 75% already engaged. And that PCP engagement, that member engagement is incredibly important, whether it's with our PCP directly or it's with some of our own care management wraparound services because it identifies affordability opportunities incredibly quickly. It also identifies chronic disease that needs to be managed and it gets them connected to primary care quickly. So that's our focus for the year and that's why we feel good about that, our ability to control utilization on the medical side, particularly.

Speaker 17

And again, what we'll remind you is a reduced funding environment as we go into this year. So that's what brings us, that's what brings that value based care proposition, incredible value to all of our payers. On the pharmacy side, I call it same things. For our clients, specialty trends is a focus and we bring those products and solutions and that's why we've seen growth on the PBM side and our pharmacies around our clinical model and the continued innovative products that we're bringing to bear. So you're seeing that pull through in the diversified growth and strength of performance in the Alta Marix side as well.

Speaker 1

Thanks so much, Heather. Just one number Heather just shared with you there, which I'm very pleased of and it's a significant improvement year over year is that 75% engagement of the most complex members in OptumHealth. And just for that, that means 3 out of every 4 most complex, most disadvantaged folks in the country have had a direct engagement with us in the 1st 3 months of the year. That's a great rate of touch, opens the door then for us really getting to know those folks, helping the system, helping bring the system to support the many of people, particularly those who are trapped in their homes have just not had access to that kind of care opportunity. That engagement is the first step of doing that.

Speaker 1

We really believe that is a key to how we not only deliver an effective care delivery from a cost point of view, but also make sure they get the very quality that they deserve. So really pleased to see that step up year over year. I think we have time for one last question. If we could take that question, please, Jennifer.

Operator

Yes. We'll go to our last question from Jessica Tassen with Piper Sandler. Few more details maybe on the

Speaker 1

Sorry, we missed the beginning of your question.

Operator

Sorry about that. I'm interested in a few more details maybe around the launch of Change 2.0. If you could talk a little about what payer receptivity to reconnection has been, whether Change retains its legacy data rights post breach? And then just any change or updated thoughts on kind of the long term thesis on change for something like a real time, transparent payments and decision support network? Thanks so much.

Speaker 1

Thanks very much for the question. Let me ask Roger to kick that one off.

Speaker 8

Yes. Jessica, thanks very much for the question. First of all, on your first part, that Change 2.0, again, we're just confident in terms of our ability to reconnect. I mentioned the level of functional restoration

Speaker 5

that we have.

Speaker 8

You can imagine now the next stage of this is working with payer and provider and to reconnect them in a safe way and an appropriate way. And all of the conversations that we're having with them are positive as we work through it. As I mentioned, there's still work to do, and that's going to take a little bit of time, but we're continuing to work through that functionality. I think it's important also to recognize where Chain sits in the overall OptumInsight portfolio. Chain Healthcare was about 15% of our projected revenue for this year.

Speaker 8

And when you look at that means I've got thousands of people who are continuing to work on other products outside of change, not impacted by this. And their underlying performance this quarter has been strong. If you adjust for the change out of that business, its earnings actually grew by around 10%. But what we haven't slowed either, as you mentioned, is our innovation agenda. The excitement of the change portfolio across the Optum Insight portfolio is what we can bring to this market to transform it from an innovation point of view.

Speaker 8

And the real time settlement work that we're doing plus work that we've been doing with OptumHealth on value based care and provider risk enablement, that's all still going ahead. So in terms of our innovation agenda and the performance of the underlying business within OptumInsight, we're very positive.

Speaker 1

Roger, thanks so much. And yes, absolutely, Change Healthcare, important acquisition for the group. And I think important for the country that we own Change Healthcare without UnitedHealth Group owning Change Healthcare. This attack would likely still have happened and it would have left Change Healthcare, I think, extremely challenged to come back because it was a part of UnitedHealth Group. We've been able to bring it back.

Speaker 1

We're going to bring it back much stronger than it was before. And secondarily, all of the reasons that we were interested in bringing the change health care capabilities and customer connectivity closer to UnitedHealth Group still absolutely holds fast in terms of the potential innovation around things like real time settlement, clinical decision support capabilities, all of those products of the future, service of the future, which ought to be characteristics of a modern health care environment, those are all the reasons why we believe change in health and UHG were better together. The cyber attackers unfortunately created another true validation of why that was the right thing to do because it meant UHG was in position to resolve this much more quickly than I think would ever have been imaginable in a standalone situation. Everybody, for all of your questions this morning. It's been a bit more of a complex quarter for sure this time around, but one that's also showed the depth and breadth of our company's capabilities.

Speaker 1

We're recovering quickly from the changed health care attack and are a stronger, more capable company as a result. We're continuing to build our business based on the 5 strategic growth pillars that we're relentlessly focused on. And we're steadfastly confident in our ability to achieve our 13% to 16% long term growth objective as we look to the years ahead. We very much appreciate all of your time and attention this morning. Thank you.

Operator

This does conclude today's conference. We thank you for your participation.

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Earnings Conference Call
UnitedHealth Group Q1 2024
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