Mea culpa: UnitedHealth says mistakes will be overcome

In an unusual display of self-flagellation, UnitedHealth Group Inc. on Tuesday acknowledged missteps that alienated doctors and drove away customers, and it promised to do better.

America’s biggest health insurer said the missteps would cost it half a million members in the first quarter of 2008. It predicted a turnaround later in the year as it strives to improve customer service and to roll out new types of health plans.

“We are not satisfied at all with 2007,” Chief Executive Stephen Hemsley said at the company’s annual investor conference in New York. Hemsley took the helm of the Minnetonka-based company a year ago after CEO William McGuire was ousted in a stock-option scandal.

During the half-day conference, Hemsley and his executives stressed reconciliation with doctors and insurance brokers, admitting that they had forced new technology and other business practices too quickly in new markets such as California, where UnitedHealth recently bought a big insurer, PacifiCare.

Amid all the conciliatory talk, executives trotted out numbers showing that despite the fumbles, the insurer expects double-digit profit growth next year.

For 2008, UnitedHealth said it expects between $82.5 billion and $83 billion in revenue, up from $75.5 billion this year. It reaffirmed its 2007 earnings forecast of $3.49 to $3.50 a share and said it expects $3.95 to $4 a share next year.

While enrollment in its commercial plans is expected to shrink 500,000 in the first quarter of 2008 from 25.8 million members now, it is expected to rebound to 25.5 million by the end of 2008.

That loss is expected to be offset by growth in Medicare and Medicaid members — 5.6 million in 2007 to 5.9 million in 2008 — and other areas such as pharmacy benefits and behavioral health.

UnitedHealth stock closed 30 cents lower at $54.33 in a market that was generally down.

Envisioning what’s ahead

In laying out his vision for UnitedHealth, Hemsley stressed its reach from bread-and-butter medical insurance for companies and individuals to newfangled plans for Medicare recipients and fast-growing ancillary businesses in health information technology, banking and pharmacy benefits.

“No other company is as entrenched in the American health care system to the breadth and depth that we are,” he said.

At times, he sounded less like an insurance executive than a doctor, with his advocacy of “the right treatment at the right time at the right place.”

Of course, UnitedHealth has clashed in the past with actual doctors and patients over the definition of what’s “right.”

At PacifiCare, imposition of new technology led to “physician resentment, network disruptions and operational overload,” said David Wichmann, an executive vice president overseeing UnitedHealth’s individual and employer markets.

Wichmann directly addressed an issue that has dogged the company for years: the length of time it takes to resolve billing issues.

He said the company hopes to shorten the average time from five days — the worst in the industry — to two days. Among other things, he said, the company is bringing call centers back to the United States after physician complaints about dealing with overseas operators.

Counting on Medicare

The wide-ranging discussion Tuesday included how the policies of the next administration in Washington might affect UnitedHealth’s Medicare fortunes. With the first baby boomers set to hit Medicare rolls in 2010, UnitedHealth is banking on that segment for growth.

Simon Stevens, the executive who oversees that business, said a new marketing alliance with AARP would help UnitedHealth sell its Medicare plans. He said the company is poised to introduce new products for pre-retirees from 50 to 64 and expanded end-of-life care services.

The ongoing erosion of employer-sponsored benefits also is prompting new moves. An upcoming purchase of benefits administrator Fiserv Health will help UnitedHealth customize benefits and offer new types of health plans such as voluntary employees beneficiary associations, known as VEBAs, and Taft-Hartley trusts, which are self-insured health funds. This is an area where UnitedHealth has fallen short.

“We were far too rigid and it cost us in the marketplace,” Hemsley said.

Executives talked up the promise of new products such as “Edge,” aimed at small businesses, where members who choose a preferred tier of higher-quality, lower-cost providers are rewarded with lower copays. Another new plan, “Vital Measures,” offers credits to members for achieving body mass, cholesterol, smoking and other health goals, lowering their deductible.

The merger problems with PacifiCare have not dampened the company’s appetite for acquisitions, with Fiserv and Sierra Health Services of Nevada joining the company’s stable this year.

“We fully intend to continue to use [mergers and acquisitions] as an effective tool,” Hemsley said.

Swanson prevails in appeal

Separately, in the ongoing inquiries into the backdating of stock options for top executives, the Minnesota Court of Appeals said Tuesday that UnitedHealth must comply with a request from Attorney General Lori Swanson for information.

UnitedHealth lawyers earlier had argued that Swanson’s use of a civil investigative demand was inappropriate, and they challenged her to sue the company instead.

Chen May Yee • 612-673-7434