UnitedHealth Group (UNH) Latest Acquisition Gives Competitive Advantage

Today’s post is contributed by Andrew of Wallet Squirrel, a passionate dividend investor ninja. Andrew is a professional blogger who helps millennials find creative ways to earn extra money for retirement.

After UnitedHealth Group’s subsidiary Optum recently purchased the Advisory Board for $1.3 billion, we took a harder look at one of the nation’s largest insurers and started to piece together their plan to become the complete healthcare package.

Who is UnitedHealth Group?

UnitedHealth Group (UNH) has a market cap of $184 billion according to Yahoo Finance and operates two large subsidiaries, United Healthcare & Optum.

United Healthcare, which at its core is one of the nation’s largest healthcare insurers, along with an international presence. You’ll see the name United Healthcare along with other of the large insurers like Wellpoint (WLP), Aetna (AET), CIGNA Corp. (CI) and others. They provide health benefit plans for individuals, national employees, public sector employees, military personnel and more.

Optum at its core is a healthcare data analytics firm. They provide 3 services, Optum Insight (health information, technology, services and consulting), Optum Health (population health management and healthcare delivery) and OptumRx (pharmacy care services). However they have a number of subsidiaries under them including OptumBank, Optum 360, Optum 360 Coding, Optu Care, OptumLabs, OptumRx. I’ll focus on OptumCare in a bit.

Now why did Optum buy the Advisory Board for $1.3 billion?

The Advisory Board has partnerships with 4,400 healthcare organizations and provides data, research and consulting to these facilities. Optum want’s to leverage those relationships and control more big data (source). UnitedHealth can now utilize the AB’s clients to incrementally bolster its provider network and expand its user base of its Optum Insight software which analyzes the big data of Optum’s and the AB’s network (source). Here is a video on how they use data to lower cost on multiple fronts.

Now Optum will control one of the largest healthcare consulting firms (Advisory Board) and has access to all of their data. In a time where big healthcare data is worth big money.

The biggest challenge with the acquisition will likely be to Advisory Board clients who entrust their data to the Advisory Board and may rely on its research in their pricing negotiations with big insurers like UnitedHealthcare (source). Yet Optum maintains that they’re separated from UnitedHealthcare, at times advising hospitals and insurers that complete directly with UnitedHealthcare.

So at this point, UnitedHealth Group owns a large insurer network, and a large amount of analytical data to create predictive models to lower costs and provide competitive advantages.

Other Significant Acquisitions

In the last couple years, Optum’s subsidiary OptumCare has been making other additional large acquisitions into the care provider realm. Meaning they are purchasing the facilities that people are actually getting their healthcare services from.

Some of these acquisitions are:

  • MedExpress – Owned by Optum has 141 urgent care centers around the country and growing. This acquisition happened in 2015 and since then these facilities have continuously popped up over 11 states at a time where outpatient procedures and checkups have been popularized by lower cost and convenient locations within local neighborhoods. To give you an idea the Urgent Care Market across the county has increased 14% to 9,300 centers since 2008.
  • New West Physicians – Owned by Optum, in 2017 New West Physicians, one of metro-Denver’s largest physician practices with 120 health-care providers was acquired. These type of physician practices have been common acquisitions across multiple states including ProHealth Physicians of Connecticut in 2016, and a number of other states.
  • Surgical Care Affiliates – Owned by Optum in 2017, Surgical Care Affiliates operates 190 ambulatory surgery centers and surgical hospitals, most as joint ventures with physicians and health systems. Now those over 1 million patients that Surgical Care Affiliates serves per year, will in some way be touched by UnitedHealth Group.

Now at this point, UnitedHealth Group owns are large insurer network, a large amount of analytical data and the actual facilities where people get healthcare treatment.

Conflict of Interest?

Currently UnitedHealth Group has gotten away with these acquisitions that some have started to question. Traditionally patients have wanted to get the best healthcare possible from their doctor and insurers want to save costs every way they can. So what happens when the insurer now owns the doctor, insurance and the big data needed to influence the entire process?

Future of UnitedHealth Group

If current acquisitions are an indicator of future planning, I can see the UnitedHealth Group lowering their operating costs in a number of ways since they would own the entire patient process. They would own the facilities that patients go to get healthcare, the insurer who pays those healthcare facilities and the big data needed to inform future decisions. There is huge cost saving measures here that will provide a direct competitive advantage over their competitors in every sector.

Disclosure Andrew of Wallet Squirrel doesn’t own any positions of UNH in his portfolio, but as a dividend investor, he may purchase UNH at a 1.53% dividend in the future.

About the Author : Andrew writes for Wallet Squirrel, a fun finance blog focused on helping people find creative ways to earn extra for retirement. His unique “every day Joe” approach to investing provides a welcoming, and often humorous approach for beginning investors.

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