Tag Archives: Optum Health

SPI Premium Insight: Optum’s Date With Destiny as EMIS Acquisition Decision Looms

By tomorrow, Optum Health must respond to the UK’s Competition and Markets Authority (CMA) objections over its planned acquisition of EMIS. If approved, the £1.24B ($1.52B) deal for the UK’s leading primary care EHR vendor promises to have wide-reaching implications for the NHS. 

The Signify View 

The CMA’s principal objections to the acquisition, announced last June, revolve around its potential impact on the competitive landscape of the UK’s drug Clinical Decision Support (CDS) and population health management (PHM) markets. 

To completely address CMA concerns, Optum realistically has two options: sell its UK drug CDS business, or exit from its UK PHM activities. But is either option viable? Investors we have spoken to about this in recent days speculate that United Health/Optum is so fixated on getting the EMIS deal done that it will offer to ‘sell its UK business’ to assuage CMA objections. The question is: what does this actually mean? 

Match Making 

To answer this, it helps to consider why Optum is so ‘fixated’ on EMIS. We wrote shortly after the acquisition was announced (see this Insight) about the magnitude of such a deal, and its potential ramifications for the NHS and UK healthcare. 

We can understand why acquisition would be agreeable for both parties. As part of United Health, Optum has a massive US insurance and provider network footprint, and would bring unparalleled scale, portfolio breadth and financial heft to the table.  

EMIS, meanwhile, sells its EHR solution to an estimated 55% of UK NHS GP practices. The company also leads UK community pharmacy IT, inpatient EDIS and community EHR markets, and provides the patient-facing digital front door, booking management system and virtual care platform for many primary care practices via its Patent Access business. Revenues continue to grow at mid- to high single digits, and in the last three years the company brought its EMIS-X analytics platform to market, supporting Primary Care Networks (PCNs) and Integrated Care Systems (ICSs) in addressing care management analytics and PHM.  

Optum has, to date, achieved limited traction for its PHM products in the UK. But the combination of EMIS-X, Optum’s US PHM products (which, largely, have not yet been localised for the UK market) and EMIS’ broad UK footprint offers several synergies and routes to market for both companies.  

The Objections 

In the CMA’s objections document, two (of many) points stand out. One relates to the UK’s drug CDS/Medicines Optimisation (MO) software market. Here, Optum’s ScriptSwitch business and competitor First Databank are shared beneficiaries of a £100M ($123M) contract with NHS Shared Business Services for medication cost-optimisation CDS solutions used in primary care. 

The CMA is concerned that Optum and EMIS would wield excessive power over the market by bringing together ScriptSwitch’s cost optimisation tool with EMIS’ clinical safety-focused solution. Many EMIS EHR customers already buy this solution, and the CMA considers that this large installed base could dramatically alter market dynamics. 

A second key objection raised by the CMA makes for more uncomfortable reading for Optum. The CMA notes that the NHS Health System Support Framework, and other frameworks such as GP Futures, mandate open APIs and free data sharing. The CMA argues that, by buying EMIS (which effectively holds 55% of primary care patient data), other vendors will be denied the opportunity to custom-integrate their technologies to the degree they need to, despite the regulations enforcing data sharing.  

This could have the effect of pushing up costs to the NHS. Reinforcing this point, vendors we speak to speculate that Optum could exploit loopholes in these frameworks to block data sharing and aggregation, should it acquire EMIS. Vendors have a vested interest in flagging such concerns: Oracle Cerner, Graphnet, Patients Know Best, Orion and InterSystems have all benefitted from PHM contracts to date and would view an Optum-EMIS portfolio as a competitive threat. This is especially true given EMIS’ massive installed base of customers (to which the combined entity will be looking to upsell their PHM solutions). 

While the CMA acknowledges that Optum is a small player in the UK PHM market at present, it is mindful of its potential should it have a vehicle (i e EMIS) to localise and scale its solutions. 

Hard Sell 

From Optum’s perspective, the most obvious response is to offer to sell ScriptSwitch, which has been steadily losing share to First Databank’s more innovative cost optimisation solution under the NHS Shared Business Services contract. Optum would need to invest to make the product more competitive and, with the five-year contract up for renewal at the end of 2023 (and no guarantee it would be renewed), Optum will feel ScriptSwitch is a suitable sacrificial lamb. 

But selling ScriptSwitch does not address the CMA’s more weighty objections about the impact of the acquisition on the UK PHM market.  

As mentioned previously, Optum is a small player in UK population health at present. It sells a handful of PHM tools to ICSs and PCNs under the NHS Health System Support Framework, partners with some PHM vendors and provides some consultancy services, but little else of note. 

Yet the UK integrated care/PHM market is of great strategic interest to the American company. 

For example, ICSs have signed contracts, leveraging the NHS’ approximately $600M Health System Led Investment (HSLI) programme, for data integration platforms supporting the development of regional shared or integrated care records. Although neither Optum nor EMIS have featured significantly in major shared care record contracts over the last three-plus years, Optum has been involved from an IT consultancy/system integration perspective throughout. EMIS, meanwhile, has been developing its EMIS-X Analytics portfolio of solutions designed specifically for PHM and analytics used by ICSs, PCNs and other agencies involved in supporting a multidisciplinary approach to integrated care. 

Optum will also hope to overcome the challenge of localisation and replicate in the UK the success it has had with its PHM IT solutions in the US, which generate hundreds of millions of dollars in revenues. Combining with EMIS’ expanding local solution set will, in its eyes, help it achieve that. 

Between a Rock and a Hard Place 

This places Optum in a quandary. Ultimately, the fate of the EMIS acquisition will boil down to Optum’s ability to overturn the CMA’s objections. While selling ScriptSwitch is the easy (and most palatable) option for Optum, the CMA might think differently. 

Addressing CMA objections around population health will be far harder. It is unclear how ‘selling Optum UK’ would address this. The CMA’s concerns relate to future PHM products offered by Optum in the UK, not only current solutions, which presumably refers to PHM products the company currently sells in the US and could localise for the UK. This is a substantial business for Optum and one it will not sell to address the CMAs concerns. It’s on this point the decision is likely to pivot. Perhaps Optum can make a credible case to the CMA that it can establish some sort of framework agreement on open access to its data. Outside a strong commitment to continue to provide EMIS data to other PHM providers this appears to be the only option. 

Optum will also be well aware that it is just another actor in the long-running ‘US companies profiteering from NHS funding’ show. A £1BN-plus acquisition of a successful UK technology firm by a profit-driven US healthcare insurer/provider was always going to re-stoke the fires of debate around large US organisations extending their tentacles into the NHS. There will almost certainly be an element of political grandstanding at play here, too.  

Tomorrow, the CMA will have its responses, and it will not be long before Optum’s finds out if its fixation with EMIS becomes business reality.  

Signify Premium Insight: Optum Health a Master of its own Destiny in Fully Accountable Care

In a recent earnings call with investors, UnitedHealth CEO Andrew Witty revealed that its healthcare services unit, Optum Health, plans to treat four million people in fully accountable care models this year. 

While this is nearly double the 2.2M people Optum Health treated in fully accountable care in 2022, it is a realistic ambition. With a large (and expanding) network of primary care practices, specialists and diagnostic chronic care outpatient centres in the US, Optum Health is a success in its own right. The fact that its ambitions are supported by UnitedHealth (the number one US medical insurance company) and Optum Insights (a top risk stratification population health management (PHM) tech vendor) within the United Health family presents a formidable ecosystem. This will drive more Optum Health customers towards fully accountable, value-based care (VBC) in 2023. 

The Signify View  

The unique interconnections between provider (Optum Health), tech vendor (Optum Insights) and insurer (UnitedHealth) is a ‘dream ticket’ to true VBC for Optum Health’s primary care customers. This continues to put the company at a significant advantage over other providers, who must rely on either acquiring the technology and payer services to deliver fully accountable care, or establish strategic partnerships.  

As fellow primary care providers scramble to acquire the technology – spending large sums in the process – to propel themselves further into VBC, Optum Health will retain its competitive advantages for now. The company’s goal to serve four million people in fully accountable care in 2023 is sound. 

Revenue Boost 

Serving more people, more comprehensively is UnitedHealth’s underlying growth mantra in 2023 and one which also underpins Optum Health’s revenue performance. It reported double digit year-on-year revenue growth in Q4 2022 of $47.9B ($182.8B for the full year). Furthermore, in 2022 Optum Health says it increased revenue per patient by 29%, attributing this partly to the ‘expansion of VBC arrangements’. 

It is little surprise, then, that Optum Heath feels it can support its customers in bringing another 1.8M more people into fully accountable care this year. The majority of these people will already be on UnitedHealth’s insurance plans (both government-backed Medicare Advantage and commercial plans), a large, neat, ready-made patient pool for Optum Health’s customers. Optum Health says fully accountable care for these people will be provided in both clinics and at home, CEO Wyatt Decker telling investors on the earnings call that the company sees ‘significant opportunity’ in harnessing home health to drive its VBC ambitions. Optum Insights’ PHM technology will be central to supporting this.  

Note of Caution 

While Optum Health’s optimism around its 2023 plans is justified, it will be mindful of the stuttering journey from pure fee-for-service contracts to fully accountable care in the US since 2015. A November 2022 report by alternative payment models think tank, the Health Care Payment Learning & Action Network (HCPLAN), sheds light on this journey. It shows that nearly 60% of all reimbursement remains part of a traditional fee-for-service model. There was modest growth from 2015 (when 77% of reimbursement was in fee-for-service contracts) until 2019, but has stubbornly flat-lined since (see chart below). 

Risk and Less Reward 

While Covid was partly responsible for this plateauing, there has been another force at play.  

Prior to 2018/2019, providers tied into VBC contracts were paid a lump sum to care for their populations. They were incentivised for providing care ‘under budget’, sharing any savings they made with the payer or government. If the provider came in ‘over budget’, it could simply recoup the excess from the payer or government. In these ‘one-sided’ risk deals, there was effectively no risk to the provider. In 2018, nearly two-thirds of providers were on these ‘one-sided’ risk contracts. 

The risk profile of fully accountable care contracts began to change in 2018/2019, largely driven by changes in CMS rules, forcing the transition to two-sided models at a much accelerated rate. Many deals now require healthcare providers to assume ‘two-sided’ risk. They are still incentivised to reduce the costs of healthcare provision as per the upside risk-only contract. But if they come in ‘over budget’, they must absorb a significant amount of this cost themselves. Around 50% of providers are now on a two-sided risk contract but, for many, the removal of the ‘comfort blanket’ of ‘one-sided’ risk has been challenging, and has slowed the transition to fully accountable care over the last three to four years. The graph below shows the increasing share of two-sided risk providers are now taking on. 

At the same time, the overall direction of travel is towards fully accountable care and reducing the costs of providing healthcare. The value of the global VBC IT market is expected to reach $11.3B in 2025 (with the US accounting for 80% of this), from $6.8B in 2021. This will support the speeding up of the transition to VBC, as more providers see the potential upside from VBC outweighing the financial burden they might now take on in two-sided risk contracts. 

Competitive Threats 

Optum Health is, of course, not the only provider navigating this environment, and there are plenty who see the wider potential of VBC despite having to take on more risk. In our headline predictions for digital health in 2023 (see Insight here), we state that Walgreens, CVS and Amazon are examples of new entrants to this market. We predict that they will become household names in primary care provision this year, swallowing smaller health systems and independent practices and scaling rapidly as a result. 

Even more significantly in the context of the VBC journey, the large US retail pharmacy chains are now also acquiring risk stratification, analytics and workflow tools to support PHM. These provider-technology relationships (much like the Optum Health-Optum Insights relationship) are vital to VBC, and will accelerate the transition in 2023. 

We also predict that Big Tech will move into the digital health mainstream on the back of VBC. Amazon’s HealthLake data aggregation tool has the potential to disrupt in 2023, and the company will pursue more acquisitions during the year to flesh out its portfolio. Similarly, VBC will be the springboard for Google’s digital health strategy. 

Master of Destiny 

The upshot is that many healthcare providers are now jostling for position, assembling the components needed to deliver fully accountable care. Optum Health was a pioneer in this, and in UnitedHealth and Optum Insights has a complete, unrivalled package other providers will struggle to match for the foreseeable future. 

Where most providers are feeling their way into 2023 with acquisitions and new partnerships, Optum Health’s relationships with UnitedHealth and Optum Insights are mature and strong. In a world where providers are taking on additional risk in their VBC contracts, there is more pressure than ever to manage populations and costs. New market entrants must put their faith in new relationships to navigate this new normal. 

Big retail and big tech are knocking on the door, but this should present few real headaches for Optum Health for now. If any company can substantially move the dial from fee-for-service to fully accountable care after a three-year lull, it is Optum Health, a master of its own destiny.