Release Date: July 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) reported nearly $14 billion in revenue growth for the first half of the year, with strong contributions from across the enterprise, particularly from Optum.
- The company affirmed its full-year adjusted earnings outlook despite absorbing $0.60 to $0.70 per share in business disruption impacts related to a cyber-attack.
- UnitedHealth Group Inc (UNH) continues to see strong customer response to its offerings, including Managed Care Pharmacy Services and Medicare Advantage plans.
- The company is making significant investments in modernization and emerging technologies, including AI, which are expected to generate billions of dollars in efficiencies over the next several years.
- Optum Health's revenues grew by 13% to $27 billion, and the operating margin expanded over last year, indicating strong performance and growth potential.
Negative Points
- The cyber-attack had a significant impact, with total costs in the quarter amounting to $0.92 per share and full-year impacts estimated between $1.90 to $2.05 per share.
- The company provided more than $9 billion in loans and advanced payments to help providers mitigate the impact of the cyber-attack, which affected cash flows.
- The second quarter medical care ratio was impacted by about 65 basis points due to non-repeating impacts, including the cyber-attack and regulatory actions in South America.
- The company is facing pressures from the V-28 funding reduction in Medicare Advantage, which is a significant challenge for the business.
- There was a temporary suspension of some care management activities after the cyber-attack, which led to higher medical expenses and a disruption in ongoing business operations.
Q & A Highlights
Q: Just to make sure, expanding on John's comments of, if we're thinking about the -- you're thinking on MLR overall for the rest of the year, it sounds like beyond change, beyond Latin America, there's two items you're calling out. One is the Medicaid timing mismatch, which sounds like you think its short term. And then this upcoding, coding intensity comment. And I assume that's mainly in the insurance business, but maybe it's in Optum Health as well. Can you just give us a sense of how much those were impacting your thinking and how much is second quarter versus the impact in the back half on those?
A: (Andrew Philip Witty, CEO) Yeah, AJ, thanks for the question. Let me ask John to get right to it. (John F. Rex, President & CFO) Good morning, AJ. Yeah, and really kind of three items that we're talking to in addition to those two here, also the member mix component here, when they bring it all together, those additional items that we're looking at in terms of versus where we were and how we're thinking about it. I would say they're kind of roughly equivalent, in roughly equivalent zone in terms of their impact here. And then how they flow throughout the year, the rest of year, really, you'll see some of those elements, so as it relates to Medicaid impacts, pricing goes on over a period of say, kind of 12 months or so. So the pricing that occurs over the rest of this year into next year. So those elements in terms of catching up, that mismatch catching up with the acuity that we have in the remaining population occurs over a period. Certainly, we are addressing the elements we talked about in terms of what we're seeing in the coding upshift, and we're well underway in addressing those elements, but we'll continue to address them throughout the course of the year. The member mix is kind of member mix we have now at this point. And that really pertains just what the elements that I mentioned in my prepared comments about some of the benefit design impacts and how that impacted both our growth and also the type of membership that we were left with as we saw our full integration. That really last with us throughout the year. So -- but that was an element we also incorporated into our view for 2025 as we approach our bid for '25. Thank you.
Q: I want to focus for a minute on SG&A, which came in much better than expected. Can you maybe talk about the key component of where you're seeing cost savings, the durability? And Andrew, you touched a little bit about AI efficiencies there. Are you starting to see that in this quarter? And how much opportunity is there perhaps from an SG&A perspective when we think about AI?
A: (Andrew Philip Witty, CEO) Lisa, thanks so much for the question. I'm going to ask John to comment a little bit. Let me make a couple of kind of upfront comments and then maybe a couple of examples more specifically to help you a little bit on this. So to get your last point, we are running now hundreds of AI use case deployments. I'd say the first wave of those are essentially allowing us to do things much more quickly, much more reliably, much more efficiently than humans can do them. So an ability to navigate complexity to find answers within complex data sets and it's super important. And I'll give you a couple of examples of how that begins to help us as we go on. I think we are now -- you will also start to see as we roll through the end of this year and next year, those same kind of tools begin to be deployed in fundamental reimagination of business process. So one is essentially allowing an existing process to run more efficiently. The second is, can we actually take steps out of a process and really start to change things. I'd call out payment integrity as a front runner in that particular regard, and you'll start to see a lot of movement there over the next year or so, Lisa. And it's going to be, I think, Optum Insight '25, '26, '27 in terms of deployment of technology to change, many of the processes that we've been used to for decades is coming, and that's going to be exciting phase. If you look in the short run -- I'll give you a couple of examples, and this plays a little bit around the technology. I certainly wouldn't say that these are all generative AI examples, but they're certainly digitization examples, but they're certainly technology-enabled examples. So for example, we've we brought on this year, Optum Rx, a record number of clients. You've seen the growth. You can imagine the number of folks who have been signed up into Rx platforms. We actually spent 9% less this year in the onboarding of that record volume that we did the prior year, 9% less entirely due to digitization, technology efficiency deployed through the organization. Let me take you in another part of the organization, Optum Health. We've more or less increased our number of risks, fully-risk delegated lives within Optum Health by about 40% over the last two years. By the way, that's in excess of 1 million, almost a 1.5 million more lives over that period with zero increase in personnel headcount in the risk-based businesses. So zero increase in headcount in a business which has increased its served members by close to 40%. So those are just a couple of examples. You've seen that show off in those two examples, Optum, that's why you're starting to see that leverage flow through the Optum business line. And it's something we obviously expect to continue to sustain over many, many quarters and years. (John F. Rex, President & CFO) Good morning, Lisa. As you can -- I guess I'd start by, it is early in that journey in terms of that potential and opportunity for what we can do. And yes, it was a very strong quarter in terms of cost management. But let me just step back a moment here that you can imagine given how some of these businesses were built and the fragmentation of the system, there are duplicative functions, [there's even] uneven consumer experiences throughout that we're addressing. And as our businesses begin to scale, our ability to produce efficiency accelerates. A lot of time -- same time, we can improve those constant customer experiences and expand the breadth of best practices across a broader base. The comments that Andrew was offering in his answer to your question, it's just really a natural outgrowth as these businesses begin to move beyond what we have viewed the earliest phases to a more adolescent phase. That's what we're seeing. Very strong this quarter. Over the longer term, we can expect advancement. I wouldn't expect it to remain at this level consistently as we look ahead over the next few quarters, though. It was super strong quarter. But we are going to look to invest in many of these items that Andrew just articulated here, getting to a more modern streamline experiences as these businesses evolve further. So I wouldn't expect it to persist right at this level as we make those investments, and we're anxious and ambitious to make those investments.
Q: Looking at your bids that you submitted for
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
