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.