UnitedHealth said to be near $1.5B deal

  • Article by: BLOOMBERG NEWS
  • Updated: July 27, 2010 - 6:13 PM

The acquisition of a Pennsylvania medical services company would continue UnitedHealth's drive to expand.

UnitedHealth Group Inc. is nearing an agreement to buy medical services firm Executive Health Resources Inc. for about $1.5 billion, according to three people with knowledge of the talks.

UnitedHealth would add the Newtown Square, Pa.-based company to its Ingenix database management and consulting unit, said the people, who spoke on condition of anonymity because the talks are private.

It may be an all-cash transaction, one of the people said, though an agreement could be days away and may still fall apart.

Minnetonka-based UnitedHealth, the largest U.S. insurer by sales, is seeking acquisitions to expand its health services units, used by doctors and employers to manage medical costs, Chief Executive Stephen Hemsley said last week on a conference call.

Executive Health, founded in 1997 by Chief Executive Robert Corrato and backed by Abry Partners, provides hospitals with teams of outside physician advisers to improve regulatory compliance and efficiency.

"Strategically, it makes sense for United," Collins Stewart analyst Brian Wright said. Facing declining profit growth in its core insurance business, "they've got to look outside those areas to produce meaningful growth."

A spokesman for UnitedHealth declined to comment.

Executive Health Resources would be UnitedHealth's fifth acquisition in 2010 of a closely held company outside its insurance unit, which accounted for about 75 percent of its earnings last year, according to Bloomberg data.

The acquisitions, all announced without financial terms, include Picis Inc., a medical software maker; QualityMetric Inc., a patient survey firm; Wellness Inc., which operates workplace wellness clinics; and ChinaGate, a Shanghai-based contract researcher that conducts drug trials for pharmaceutical companies.

UnitedHealth generated $357 million in earnings from operations from its health services units in this year's second quarter, about 20 percent of its total operating profit, Hemsley said on the company's conference call. He said he wants to double that percentage in the coming years.

UnitedHealth shares fell 69 cents, or 2.2 percent, to close at $30.78.

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