UnitedHealth brought in record revenue of $91.9 billion in the first quarter, up 15% year over year and ahead of consensus analyst estimates, as a result of double-digit growth in payer arm UnitedHealthcare and health services business Optum.
The Minnetonka, Minnesota-based healthcare giant — the first industry heavyweight to report first quarter financials — increased its 2023 earnings guidance on Friday following the results.
UnitedHealth’s growth, which resulted in a profit of $5.8 billion in the quarter, up 12% year over year, was “stronger than normal,” Jefferies analyst David Windley commented in a note.
Insurance business UnitedHealthcare reported revenue up 13% year over year to $70.5 billion. Its membership increased by roughly 2 million people compared to a year ago to close the quarter with 52.9 million medical members.
The payer posted growth across multiple business lines, including Medicare Advantage and Medicaid membership — two key growth priorities. UnitedHealth called out new Medicaid contract awards in Indiana and Texas, while CFO John Rex said on a Friday morning call with investors the payer is excited to offer Medicaid products in North Carolina once the state’s Medicaid expansion is completed.
CEO Andrew Witty said UnitedHealth is still working through the implications of recent changes to the Medicare Advantage program. Earlier this month, the CMS finalized a 3.3% increase in MA payments for 2024, and said it would phase in new technical risk adjustment changes over three years.
UnitedHealth is “optimistic” in its ability to manage the changes and expects to continue MA growth in 2024, Witty said, noting the three-year phase-in gives the payer a chance to minimize its impact on the business.
“While we remain concerned about some of the potential unintended changes of the risk adjustment models ... we do appreciate CMS’ decision to phase in the changes,” Witty said.
Meanwhile, Medicaid redeterminations, which were paused during the COVID-19 pandemic, have resumed, freeing up states to remove beneficiaries no longer eligible for the safety-net insurance coverage from their rolls.
Management said the payer is working with state partners to provide beneficiaries with alternative coverage options, and redeterminations could even be a net positive for UnitedHealth as the payer recaptures members in commercial plans.
“We expect to be serving more people in our benefit programs when this process is completed,” Witty said.
UnitedHealthcare plans to eliminate 20% of its prior authorization volumes starting in the third quarter, and remove most authorization requirements for providers that have demonstrated high-quality care over time. That should nix another 10% of authorization volumes, and UnitedHealth plans to look for other areas to remove documentation burden over time, according to UnitedHealthcare CEO Brian Thompson.
“We’re constantly reviewing our prior authorizations but we need to balance what we reduce with clinical quality,” Thompson said.
Optum’s revenue of $54.1 billion in the quarter was up 25% year over year. The segment reported operating earnings of $3.7 billion, up 19%.
The segment’s revenue per customer grew 34% year over year, mostly due to growth in lives served under value-based arrangements. Optum has been working to transition commercial lives into the more lucrative arrangements and is investing millions in its clinical network, care coordination and at-home capabilities.
Value-based care unit Optum Health is currently serving 70,000 more patients under fully accountable value-based arrangements compared to the end of 2022, Witty said. The unit expects to have more than 4 million patients in the arrangements by the end of this year.
“Optum results looked solid, with Optum Health driving the bulk of the upside with segment earnings exceeding our estimate,” SVB Securities analyst Whit Mayo wrote in a note on the results.
