In UnitedHealth Group’s first public appearance since the killing of a top executive, executives acknowledged public dissatisfaction with the health care system, but were quick to shift the blame to drug companies and hospitals.
The killing of UnitedHealthcare CEO Brian Thompson led to a wave of frustration and disappointment at health insurance companies, of which UnitedHealthcare is the largest. The company’s stock has lost nearly 14% of its value since the Dec. 4 killing.
UnitedHealth CEO Andrew Witty said the health care system “must be less confusing, less complex and less expensive” — before he can build a full defense of his company, which has always dominated more the system, from insurance to drug benefits to medical care.
“Essentially, health care costs more in the U.S. because the price of a single procedure, visit or prescription is higher here than in other countries,” Witty said on the earnings call, where the company announced more than 400 billion dollars income. and $14.4 billion in net profit last year. “The bottom line is that price, more than usage, drives system costs higher.”
Thompson, who ran the company’s health insurance unit, was a regular voice on earnings calls. UnitedHealth has not yet announced his replacement.
UnitedHealth is facing intense scrutiny not only from angry members, but also from regulators and lawmakers who believe the company has gotten too big and powerful and has used its physician networks as a way to save more money. from the Medicare trust fund.
Witty took an indirect shot at hospitals, saying there are “participants in the system who benefit” from higher prices, even as others work to fix the problem. He said patients would benefit from visiting cheaper places for care, but it threatens revenue streams for “organisations that depend on charging more for care”. That’s a reference to long-standing efforts in Congress, fiercely opposed by hospitals, to equalize Medicare payments for some services provided in hospital outpatient departments with those provided in doctors’ offices.
Witty, who was once the CEO of pharmaceutical giant GSK, also specifically called out his former industry for their pricing practices. He used GLP-1 drugs as an example, saying list prices in Europe can be a tenth of what they are in the US.
Healthcare prices in the US are indeed higher than anywhere else in the world and the main reason why the country spends $5 trillion a year on healthcare. But a core function of insurers and pharmacy benefit managers, owned by companies like UnitedHealth, is to negotiate prices.
By Witty’s own logic, that means UnitedHealth and its rivals haven’t done a very good job.
This is especially the case in commercial workplace coverage in America, where hospitals, drug companies, physician practices, and others who sell products and services are able to charge insurers several times more than government programs like Medicare and Medicaid.
In fact, reporting by STAT found that UnitedHealth medical groups are often paid higher commercial rates by UnitedHealth insurance companies than other practices in the same areas. This can be a way for the parent company to keep higher profits, which leads to higher costs for patients and employers and raises competitive barriers for other doctors.
Witty defended pharmacy benefit managers, an industry that is under intense scrutiny from antitrust regulators and members of Congress. PBMs like UnitedHealth’s Optum Rx are supposed to negotiate lower drug prices from pharmaceutical firms on behalf of customers such as health insurers and employers, and in return put those drugs on approved lists for coverage. Lawmakers and regulators have accused them of shirking that responsibility to enrich themselves.
Optum Rx will pass 100% of drug rebates to consumers and employers by 2028, Witty said. “This will help to make more transparent who is really responsible for the price of drugs in this country: The drug companies themselves,” he said.
However, this difference could potentially mean nothing to those paying for prescription drugs. It’s unclear how Optum Rx determines what the drug discount is — and whether it keeps things like “good faith service fees,” “manufacturer administrative fees” and other money that acts as a discount but is kept by PBM. The announcement could also serve as a lobbying point to avoid potential PBM reforms from Congress.
On the financial front, the fourth quarter was a rare setback for the healthcare giant, with revenue falling short of Wall Street’s expectations even as revenue beat them. UnitedHealth stock was down 4.7% by midday Thursday.
UnitedHealth’s insurance arm is struggling with the same trends that continue to haunt all insurers that offer government plans. In Medicare Advantage, the Biden administration’s changes are reducing the benefit. And people on Medicaid tend to need more care after states phase out their programs for people who no longer qualify starting in 2023.
UnitedHealth’s medical loss ratio, a closely watched metric that shows how much premiums spent on medical care, came in at 85.5% in 2024. That’s higher than the 83.2% the company reported in 2023 and higher than both Wall Street analysts and UnitedHealth itself had predicted for 2024.
Federal law requires insurers to spend 80% or 85% of premiums on medical care, depending on the type of plan, but insurers aim to keep medical loss ratios as low as possible.
John Rex, UnitedHealth’s chief financial officer, explained on the call that 70% of the loss was due to problems with Medicare Advantage and Medicaid. On the former, he said UnitedHealth’s Medicare Advantage enrollees needed more care and the company didn’t grow its membership as expected because of benefit design changes in the 2024 market. On Medicaid, he said that the state payment rates are not in accordance with the health needs of the members.
The remaining 30% was split evenly between high-cost drug coverage and an “aggressive change” in hospital coding, Rex said.
Rex also said UnitedHealth, which is already the largest Medicare Advantage insurer, plans to increase membership in that program by as many as 800,000 people this year. In 2024, 54% of Medicare beneficiaries had chosen Medicare Advantage plans over traditional Medicare.
Witty and Rex also repeated the claim that Medicare Advantage saves money for consumers and taxpayers — a line they’ve used several times in the past — but it’s incorrect.
Experts from the Medicare Payment Advisory Commission found that the government paid Medicare Advantage plans about 108% of traditional Medicare payments in 2024 on average. And when accounting for Medicare Advantage insurers’ coding practices and ability to attract healthier people, that figure jumps to 132%.
UnitedHealth’s $14.4 billion net profit figure was 36% lower than in 2023, due to higher medical costs as well as costs from the Change Healthcare cyber attack.
