UnitedHealth reaches $100 billion milestone

  • Article by: JACKIE CROSBY , Star Tribune
  • Updated: May 7, 2012 - 6:06 AM

Company set a revenue record for Minnesota as it pushes beyond traditional insurance.

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UnitedHealth Group Headquarters in Minnetonka.

Photo: Glen Stubbe, Star Tribune

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UnitedHealth Group has grown from a big name in insurance to a health care colossus.

The Minnetonka-based company brought in more than $100 billion in sales last year, making it the first publicly traded company in Minnesota to reach that milestone. It joins an elite group that includes just 22 public companies in the United States.

United is the nation's largest health insurer, but now it is pushing hard into nearly every corner of the health care landscape. It runs 24-hour nurse hotlines, manages prescription drugs, sets up electronic medical records and even owns a bank that handles health savings accounts.

"United has been very aggressive in looking down the road and diversifying into these other lines of business," said Alwyn Cassil of the Center for Studying Health System Change. "As we move toward more government payment of health care through Medicaid and Medicare, there's going to be less and less traditional insurance."

The company's growth has been a boon for Minnesota. In the past two years, its workforce in the state has grown by about 21 percent. Nearly 15,000 employees are spread across the Twin Cities suburbs, Duluth and International Falls.

Even though for-profits aren't allowed to sell insurance in Minnesota, UnitedHealth has a huge business here. The company sells its services to every major health plan and health system in the state.

"People touch us every day in the state and don't even know it," said Andy Slavitt, group executive vice president of Optum, UnitedHealth Group's fast-growing health services division.

The company's hiring spurt has kept cranes and construction crews busy. At the company's headquarters campus off of Hwy. 169 in Minnetonka, UnitedHealth has built two additional buildings and paid for improvements to a highway overpass. In Eden Prairie, it took over the sprawling former ADC Telecommunications headquarters last year and relocated thousands of Optum employees.

In recent weeks, United broke ground on another 70-acre tract of land in Eden Prairie, where it plans two eight-story buildings and a parking ramp for 6,700 workers.

In all, the company reports that it spent more than $1.6 billion in wages, benefits, taxes and real estate in Minnesota in 2010.

"The direct impact on the economy is jobs, and the income those people spend," said Louis Johnston, department chair and economics professor at the College of St. Benedict and St. John's University. "But more subtle is the impact on higher and post-secondary education. With a corporation like UnitedHealth, there's a steady demand for educated professionals in a way that just having a branch office or factory doesn't provide."

This is the sixth straight year that UnitedHealth has ranked as Minnesota's largest public company. Only privately held Cargill is larger, posting annual sales of $119.5 billion in its last fiscal year.

The path to $100 billion hasn't been free of controversy. Rightly or wrongly, giant insurance players like UnitedHealth have been held up to represent everything that's wrong with the health care system: Raking in profits while setting unaffordable premiums, denying care, squeezing hospitals and doctors, and forcing people into bankruptcy over medical bills.

In 2009, UnitedHealth paid $305 million to settle a nearly decade-old lawsuit filed by the American Medical Association, which said it used faulty claims data to underpay doctors. United admitted no wrongdoing.

In 2006, then-CEO Bill McGuire became embroiled in an SEC investigation for backdating stock options, a practice that rewarded McGuire and other executives with inflated gains. The scandal forced McGuire out and cost the company $900 million to settle shareholder lawsuits.

Current CEO Stephen Hemsley, president during the McGuire years, still faces occasional protesters at his house and at speaking engagements. But observers say UnitedHealth is making an effort to reshape its image both nationally and in Minnesota.

"UnitedHealth is becoming more visible in ways we haven't seen from them before," said Keith Halleland, a Minneapolis attorney who specializes in health care. "They're talking to the governor and starting to get more active in meeting with Minnesota businesses. ... It's tied to business opportunities, but it helps their corporate exposure."

The 2010 debate over the health care overhaul was a significant catalyst. United came out swinging, as did all the national insurers. But within months, United changed its rhetoric and took a seat at the table.

"There was a realization that even if reform wasn't inevitable from a government perspective, it had to be inevitable from a business perspective," said Sheryl Skolnick, an analyst at CRT Capital Group. "You can't run a successful company in a market that is failing and an industry that is failing. They had to take some responsiblity."

Soon thereafter, United launched a Center for Health Reform and Modernization to harness Optum's claims data and health analytics. The aim, United said, is to help doctors, insurers, researchers, consumers and the government find ways to reduce health care disparities, modernize the health care system and figure out ways to deliver better care to more people at a lower cost.

"We want to play a role to bridge that transparency gap," said Simon Stevens, who runs the center and also is president of United's global health business. "One, to give doctors and hospitals the feedback information they need, because they want to improve and get it right. And two, to give information in a timely and actionable way to patients so they can make smart choices about their own care."

Branching out

UnitedHealth has a long history of growth by acquisition -- the company has bought 71 companies since 2000 -- and integrating various business units is an ongoing challenge. Last year, Hemsley finalized a major reorganization, streamlining the corporation into two distinct businesses, each the size of a Fortune 50 company.

UnitedHealthcare, the insurance arm, includes plans sold to individuals, businesses and the government programs of Medicare and Medicaid. One in five U.S. consumers are enrolled in one of the company's medical plans.

Optum includes wellness plans, health information technology and analytics, claims processing and other backroom administrative services. That side of the business is projected to bring in $30 billion in sales this year and grow to $50 billion by 2015.

Some speculate that Optum could be ripe for a spinoff, but Hemsley has argued that the companies are stronger together.

The health care law already is clipping insurers' profit margins by forcing them to take people with pre-existing conditions and to spend a bigger share of premium dollars on care. For United, Optum's services and technology offerings bring the promise of higher profits from untapped markets, without the regulatory burdens and volatility of insurance.

"The writing is on the wall. Their business practices as insurers are ultimately not sustainable," said Wendell Potter, a consultant for the Center for Public Integrity, former Cigna executive and industry whistleblower. "This will be the part of the company that will continue to thrive the most and provide the greatest return to the shareholders."

Having a stake in so many facets in the industry can bring controversy, especially between the caregivers and insurers, who have been traditional adversaries. Optum officials insist that they can keep distinct lines among business units.

So far, Wall Street agrees. The company's stock closed Friday at $54.72, up about 12 percent from a year ago.

"They have to tread carefully because there's a fair degree of suspicion and distrust about the megalithic monster company telling people what to do," said Skolnick, the CRT Capital Group analyst. "But when you look at what's going on at Optum, it's a symbol of the transformation of United into a different kind of company. We're in the early stages of the next chapter."

Jackie Crosby • 612-673-7335

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