Release Date: April 16, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- UnitedHealth Group Inc (UNH, Financial) reconfirmed its full year adjusted earnings outlook despite absorbing $0.30 to $0.40 per share in business disruption impacts related to Change Healthcare.
- Overall care patterns are consistent with expectations, and within the outlook shared in November, indicating stability in healthcare service utilization.
- UnitedHealthcare secured major Medicaid wins in Virginia, Texas, and Michigan, demonstrating the strength and competitiveness of its offerings.
- UnitedHealthcare's commercial benefits grew to serve 2 million more people in the first quarter, indicating strong momentum and consumer-centric product appeal.
- OptumRx experienced a record selling season and renewed its contract with the Department of Veteran Affairs, highlighting its continued momentum and service value.
Negative Points
- The Change Healthcare cyber attack resulted in significant disruption, with a total impact of about $870 million or $0.74 per share in the quarter.
- The cyber attack led to the temporary suspension of some care management activities, which had a financial impact and may have affected care provider operations.
- The full year impact of the cyber attack is estimated to be $1.15 to $1.35 per share, reflecting both direct costs and ongoing business disruption.
- UnitedHealth Group Inc (UNH) experienced a loss of revenues associated with the affected services of Change Healthcare during the service restoration period.
- The company had to implement additional claims reserves of $800 million due to potential disruption in claims receipt timing, indicating a cautious approach to financial reporting.
Q & A Highlights
Q: I just want to go back to your comment around your 3-year plan as it pertains to V-28. Does the 2025 final bid change anything around that plan? And how do I think about the impact in the quarter of V-28 in both OptumHealth as well as on the UnitedHealth side?
A: (Andrew Witty - CEO) The recent final rate notice from CMS for 2025 adds a little extra pressure on top of what was already anticipated from last year's changes. UnitedHealth Group has been preparing for these changes since February of the previous year, and the first quarter's strong performance in OptumHealth and Medicare Advantage business within UnitedHealthcare, despite the pressure, indicates a well-positioned strategy for the next three years.
Q: Can you just explain what medical costs you categorized as accommodations to support care providers, I think the UM management that you guys are talking about. What puts a certain medical expense in that bucket?
A: (Brian Thompson - Unit CEO) The accommodations included suspending inpatient level of care reviews and some outpatient prior authorizations. These adjustments were estimated based on long-standing practices and were a significant part of the quarter's adjustment.
Q: Congratulations on working through all this. Maybe just to make sure I understand a little more, the $800 million reserve that you're holding out, and you did comment that you didn't take any prior period development on the bottom line. How much of that is things that either from which 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?
A: (John Rex - CFO) The $800 million reserve is a prudent estimation to accommodate potential disruptions in claims patterns due to the cyberattack. UnitedHealth Group will continue to assess claims receipt timing over the next several quarters with a judicious view.
Q: First, I just wanted to quickly follow up on A.J.'s question here around the $800 million. Can you just be specific around is that conservative related to 2023, meaning you would have had up to $800 million of development that would have benefited the quarter? Or are you saying that you just took extra reserves that impacted Q1?
A: (John Rex - CFO) The approach taken was to not let any earnings or medical care ratio impacting development flow through into the quarter. The net view was that there was potential for favorable development, but a prudent position was taken to accommodate for claims not received due to the cyberattack.
Q: The business disruption costs that you projected beyond the first quarter are, I think, smaller maybe than most had expected despite the fact that we've heard commentary from stakeholders reducing their dependence on Change Healthcare during the quarter. What are you seeing different customers on that front?
A: (Roger Connor - Senior Key Executive) Good progress has been made on system restoration, with 80% functionality for the largest areas. UnitedHealth Group is confident in recovering the business due to the portfolio's differentiation, ongoing customer dialogue, and financial support provided to clients.
Q: Just want to go more -- a little bit 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 of visibility into claims versus the same time last year?
A: (John Rex - CFO) UnitedHealthcare is back to normal levels in terms of claims submission activity as of April 16, and the company feels good about the visibility and insights for finalizing bid submissions.
Q: I wanted to ask on the reported DOJ investigation. I'd be curious, as the company had kind of dialogue with the DOJ and do you have a sense of time line for what the next steps might be as we look about what -- for what the possible outcome of this process could be?
A: (Andrew Witty - CEO) UnitedHealth Group does not comment on matters such as DOJ investigations and it would not be appropriate to do so during the call.
Q: Commercial risk and ASO membership both came in above the high end of your initial guidance. Can you help us understand what drove the membership -- better membership results for each segment?
A: (Daniel Kueter - Unit CEO) The growth in commercial risk and ASO membership was driven by innovative products, expansion into new states, and individual and family exchange-based plans. The growth was broad-based across individual, local market, and national accounts segments.
Q: 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. So interested in hiring trends.
A: (Amar Desai - Unit CEO) OptumHealth continues to work with more providers and grow across various arrangements. There is no capacity constraint, and the company continues to see strong partnership and growth organically and through M&A activity.
Q: We wanted to understand a little bit better the $3 billion in IBNR. So setback of the envelope math suggest if 15% to 20% of claims from UHC run through change, post event, that would be like assuming 1/3 of the change related claims are. Is that in the ballpark of where your change completion factor assumptions were?
A: (John Rex - CFO) The $3 billion increase in IBNR is significant and reflects a prudent ongoing claims receipt assessment. UnitedHealthcare is at normalized levels in terms of claims receipts, and the company will continue to be judicious in assessing claims patterns.
Q: On capital deployment, you didn't change your expectations for share repurchases, but how should we think about the priorities more broadly, whether it's M&A or otherwise and your ability to be opportunistic on that front?
A: (John Rex - CFO) UnitedHealth Group will continue to take a balanced view on capital deployment opportunities, including share repurchases, dividends, and M&A. The company has a robust pipeline and the capacity to approach all opportunities strongly.
Q: Just back on the 2025 rate notice, I think you're if I'm hearing you correctly, it sounds like you're framing this is 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 seems like
