UnitedHealth Group Incorporated (NYSE:UNH) Q4 2022 Earnings Call Transcript

UnitedHealth Group Incorporated (NYSE:UNH) Q4 2022 Earnings Call Transcript January 13, 2023

Operator: Good morning, and welcome to the UnitedHealth Group Fourth Quarter and Full Year 2022 Earnings Conference Call. A question-and-answer session will follow UnitedHealth Group’s prepared remarks. As a reminder, this call is being recorded. Here is some important introductory information. This call contains forward-looking statements under U.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 will also reference non-GAAP amounts. A reconciliation of the non-GAAP to GAAP amounts is available on the Financial & 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-K dated January 13, 2023, 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.

Andrew Witty: Thank you. Good morning, and thank you all for joining us today. Over the course of the past year, the extraordinary and dedicated people of Optum and UnitedHealthcare delivered strong, well-balanced growth, progress in developing our consumer-orientated capabilities and strengthened the many ways in which we deliver value-based care in multiple settings. Each of the five growth pillars we discussed with you at our November investor conference are powerful sources of opportunities on their own within large and expanding addressable markets. Yet what really unlocks the potential value we can provide to those we serve is the connectivity of capabilities across our enterprise. For example, this year, we expect 4 million people will participate in fully accountable value-based care provided by Optum Health, almost 1.8 million more than we served as we entered 2022.

We’re achieving this by connecting benefits, care and other services to support our patients. Many of these patients will have a Medicare Advantage plan offered by UnitedHealthcare, or one of the many other payers who are accessing Optum’s expertise and capabilities in delivering this kind of comprehensive care. We will serve these patients in clinic settings, in their homes, integrating behavioral care, supported by our data-driven clinical incidents and next best actions, and all coordinated to provide the right care when and where they need it. Pharmacy is another area in which we are more deeply connecting consumers with our services. We engage 1 million people every day, finding the lowest cost options, managing their specialty drugs, offering vital in-person clinical advice at our community pharmacies, providing complex medication treatments right in their homes, or simplifying access through digital solutions in order to make the process uneventful for them.

We believe this connectivity is a path to better outcomes for people and lower costs. It’s also driving growth. By the end of 2023, we expect to have more than 750 community pharmacies, nearly 200 more than we had at the beginning of 2020. We continue to see the impact these services have at a very local and personal level, helping providers deliver more complete care and better outcomes including medication adherence rates, which are about 90% compared to the 50% U.S. average. Our pharmacists are able to take the time to get to know their patients’ treatment plans and support their medication management, collaborating with other care providers. We’re guided in pharmacy by the principle of getting to the lowest cost for patients and clients.

A good example, as more biosimilars come to market, we’re positioned to offer patients their care providers and payers significantly more choices in how to secure the best prices for the therapies they need. In addition to biosimilars, we’re driving affordability and prescription benefits by combining formulary and cash market pricing to ensure consumers will always get the best economics. Our life-saving drugs program has made very significant progress since our announcements last year. This program offers zero dollar out-of-pocket cost to consumers for drugs such as insulin and epinephrine. Our goal has been to make this available throughout the U.S. And as of today, we’ve been approved in 48 states for our fully insured business. Moreover, 1/4 of our self-funded employers have now chosen to add this offering for their employees, and we expect that number to rise.

Getting to this point in such a short period of time was only possible through the work not just of our teams, but of state officials and others in the broader healthcare community and we’re grateful for their support. Looking to the year ahead, let me focus you on a couple of themes you can expect to hear from us. One is continued scaling of our commitment to American consumers. You should and will have — who should and will have an increasing influence over their care experience. Through our core innovations, product design, enhanced digital offerings and partnerships such as RVO Health and Walmart, you will see us driving this more broadly across the enterprise, becoming closer to the consumer, helping simplify their experiences and empowering their decision-making with greater transparency, speed, convenience and support.

You will also hear how we are amplifying our technology capabilities. 2023 will see the emergence of an enhanced OptumInsight, bringing to life the opportunities that the legacy organizations from Optum and change creates, an acceleration of how technology can be used to healthcare providers and ultimately patients within the overall health system. We start this year well prepared to deliver upon the objectives we shared with you in late November, and with a deep sense of responsibility to do so on behalf of the people we are privileged to serve. With that, I’ll turn it over to President and Chief Operating Officer, Dirk McMahon.

Dirk McMahon: Thank you, Andrew. While the calendar shows we are two weeks into the new year, our team’s 2023 started many months ago; and in some cases, years ago. We have been laying the groundwork necessary to execute on our growth strategy and sustain our momentum heading into this year and beyond. To give you a sense of how this develops, I’ll step through some of the work that has been longue durée to ready our organization to serve even more patients and customers in this new year and provide greater value for consumers across a broad range of initiatives. Take the many new patients we will serve under value-based care arrangements in 2023, deepening our presence in existing areas and adding new regions. Our team’s preparations are extensive.

That’s because the transition to fully accountable care is not simply a matter of downloading a new app. The preparations include significant investments in clinical training, technology, network coordination and other activities to make certain we are ready to serve. These critical investments help us support both our current year needs and establish foundations for the growth into 2024 and beyond. Our ability to serve people effectively has expanded beyond the four-walls of the clinic with the rapid development of our in-home clinical capabilities. These services complement our clinic-based and digital offerings and bring high-quality care access to some of the most challenged and often underserved patients in this country. For instance, for value-based patients, our in-home services have reduced hospital visits by 15% versus fee-for-service, delivering comparable health outcomes and achieving an NPS of approximately 80.

Within health benefits, you’ve heard us discuss how our innovation in commercial products is adding new growth opportunities. One of those is Surest, a unique solution to employers and employees who are looking for first dollar coverage and high transparency into quality and cost. The momentum behind Surest is strong and building. Just two years ago, one in 25 national accounts offered Surest as an option to more traditional plans. Thus far in 2023, it is one in nine, and we expect it will continue to rise. Our offerings for seniors are another area in which we plan, invest and build capabilities to provide new and valuable offerings for an extended period. For example, we continue to expand the range of clinical services we provide via our HouseCalls initiative.

In 2023, we will increase the types of vaccinations offered, expand testing services and deploy even more real-time resources to address social determinants of health. Seniors place high value on being able to get care in their home. It comes with an NPS of 75 and is helping to drive improving retention levels as we head into 2023. In addition, our advocacy service solutions help members achieve better health. Our solutions led to a 42% increase in closing gaps in care, up to 15% lower ER visits and an over 10% increase in clinical program enrollment compared to customers who utilize standard offerings. Turning to health technology, let me offer a few early observations on our progress and long-term growth opportunities we see in this area.

With the completed change healthcare combination, we are accelerating our investments to bring this vision of a more intelligent and simpler health system to market as rapidly as possible. We will continue to innovate in and deliver the software, data analytics, technology-enabled services, revenue cycle management and advisory services our customers expect. And we are executing on the synergies of this combination with most of the financial benefit coming from complementary growth. OptumInsight is uniquely positioned to offer integrated, end-to-end technology analytics and services across the entire healthcare value chain. Along these lines, we recently reached two new comprehensive health system partnerships, with Northern Light Health in Maine and with Owensboro Health in Kentucky.

The services we provide typically feature a full breadth of our advanced solutions, including information technology, revenue cycle management, analytics and supply chain tools. The key here is that our comprehensive technology solutions are resonating in the market, and we expect to see increasing momentum across all of OptumInsight as we invest in and finalize our integration activities. With that, now I’ll turn it over to Chief Financial Officer, John Rex.

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John Rex: Thank you, Dirk. The investments and innovations Andrew and Dirk described and that we shared with you in November, speak to a company that has tremendous growth potential as we head into ’23 and well beyond. The opportunities to serve people more deeply are tangible and accelerating, building upon a foundation of strong growth in recent years, including our 2022 performance. Revenue in ’22 of $324 billion grew by more than $36 billion or 13% over the prior year, with well-balanced double-digit growth at both Optum and UnitedHealthcare. Fourth quarter adjusted earnings per share of $5.34 grew 19% and brought full year adjusted earnings per share to $22.19, growth of 17%. Our capital capacities remain strong. Cash flow from operations in ’22 was $26.2 billion or 1.3x net income.

We returned $13 billion to shareholders through share repurchase and dividends, and deployed over $20 billion in growth capital to expand our capabilities for years to come. Turning to the performance of our businesses. OptumHealth’s revenues grew by 32% in ’22 to $71 billion as we expanded the number of patients served under value-based care arrangements by about 1 million. Revenue per consumer grew by 29%, driven by the increase in value-based care patients and in the levels of care we are able to offer. Consistent with our comments in November, OptumHealth is off to a strong start in ’23 and will organically grow to serve an additional 750,000 value-based patients this year. OptumInsights revenues grew 20% to $14.6 billion in ’22. We concluded the year with a revenue backlog of $30 billion, an increase of $7.6 billion over last year.

As Dirk noted, we are advancing our investments to more rapidly unlock the positive impact OptumInsight can have for care providers and patients. We expect to make a significant portion of these important investments in the first half of the year. Optum Rx revenues grew 9%, approaching $100 billion for the year, driven by continued strong sales and the expansion of our pharmacy services businesses. Both customer retention and new customer wins were among the highest Optum Rx has ever delivered, laying a strong foundation for continued market-leading growth. At UnitedHealthcare, full year revenues of nearly $250 billion grew 12%. Our strong 2023 Medicare Advantage member outlook is consistent with the objectives we shared with you in November.

We expect to serve up to 900,000 more people in ’23 across our individual, group and dual special needs offerings, our 8th consecutive year of above-market growth. This consistent performance underscores the product innovation, benefit stability and high-value seniors have come to rely on from us. Our Medicaid growth outlook for ’23 incorporates an expectation that states will resume eligibility redeterminations early in the second quarter. Our objective is to ensure that people will have continuous access to benefits. And when all redetermination activities are eventually completed, we expect to serve even more people than we do today across our state-based commercial and exchange-based offerings. Within our commercial offerings, we expect to serve about 1 million additional people in 2023.

Our new and innovative products continue to gain momentum with employers and their employees, which will lead to increasing growth in this market over the next several years. In sum, while this year is just getting started, the early performance we are seeing across our businesses further validates our confidence in the 2023 growth and performance objectives we shared with you just six weeks ago. Now I’ll turn it back to Andrew.

Andrew Witty: Thanks, John. As we head into 2023, we’re determined to build upon the momentum we’ve just described this morning, further advancing our mission and delivering sustainable earnings growth of 13% to 16% over the long term. And with that, operator, let’s open it up for questions. One per caller, please.

Q&A Session

Operator: We’ll take our first question from the line of A.J. Rice with Credit Suisse.

A.J. Rice : The company seems to be taking a lot of momentum across the board into ’23. I wonder when you step back and look at the swing factors that say would push the company towards the higher end of the range that you’ve offered in EPS or towards the lower end, what are some of the biggest swing factors in your mind, potential positives or challenges?

Andrew Witty : A.J., thanks so much, and Happy New Year to you as well. I appreciate the question. Yes. So first off, we do feel that we’re bringing a ton of momentum into 2023. We feel across the board last year, very strong performances. Most of our businesses closed out the year actually a little ahead of where we were anticipating even when we were at the investor conference. So strong from that perspective. As we look into this year, I think real standout for me maybe call out just two or three points. One is just the membership roles and just the scale of growth in our membership. If you look at UHC performance during ’22, you heard us talk about that just now, we’re anticipating, frankly, another 1 million plus. I wouldn’t be at all surprised if we didn’t exceed ’22 numbers by the time we get to the end of ’23.

That is a huge plus and signals a tremendous amount of engagement from the marketplace in our product set across all lines of business, whether that’s in the government books of business in the MA platform, our determination to make sure that we look after folks in Medicaid as they go through redetermination cycles and, of course, in our commercial books where you’ve seen tremendously strong growth. So that’s really an area which I think is building for us a lot of confidence as we go forward. And then you go across to Optum, and let me just call out record selling seasons coming through from our Optum Rx platform. That’s building a tremendous amount of pipeline growth for us within our business over the next several years. OptumHealth, of course, really rapid growth of value-based fully capitated lives.

You’ll see by the end of ’23, we’ll be looking after — well, more than double the number of folks we were looking after at the end of ’21. That’s an extraordinary expansion, and we expect that to continue to grow hard. OptumInsight, this year will be an emergence of a new OptumInsight. That’s a business where we know we can do better. We’ve known that for a long time. We’ve been itching to get going on the integration of change and OptumInsight, which we’ve now been able to do. We really leaned into that in the fourth quarter. You’ll see that flow through very rapidly in the first couple of quarters of this year. That’s going to give us a whole new cycle of product innovation. We expect that to be a big source of lift as we go forward, backed up by an increasing momentum of being able to sign up these very large health system partnerships.

You’ve seen us do two since the investor conference in November in addition to the ones we already have. I remind you, these are very large scale, very sticky, multiyear relationships, really substantial sources of energy for the organization. So that really drives all of our momentum. I think where we land in the ranges we’ve given you is all about our ability to execute and making sure that our organization is focused on every single day, making sure we get every transaction right. We look after every patient in the right way. We make sure that we’re looking after every consumer approach that we receive in the right way. And so execution is going to be what determines where we come out. The raw material in terms of the momentum for the company is just extraordinary as we look into 2023.

A.J., I appreciate the question. And maybe next question, operator, please?