Optum is paying $1.3 billion for the health care business of the Advisory Board Co., a Washington, D.C.-based research and technology firm, in a move that analysts say will give the company a better shot at selling consulting services to hospitals.
Health systems, hospitals and clinics already hire consultants and buy technology from both Advisory Board and Optum, which is the health services division of Minnetonka-based UnitedHealth Group.
But Optum officials say the actual services and client lists at the two companies are fairly distinct, which means each business will have a better chance selling to the other's customers.
Analysts on Tuesday cheered the deal, which has Optum absorbing Advisory Board's debt — and potentially gaining better access to the many C-level health care executives that have relied on Advisory Board over the years.
"The health care division of [Advisory Board] further diversifies Optum and complements OptumInsight with an opportunity to cross-sell," wrote Ana Gupte, an analyst with Leerink, in a note to investors. Advisory Board "has over 4,000 global members (including executives at hospitals and health systems) as clients."
Optum includes everything from urgent care providers and surgery centers to a pharmaceutical benefits management (PBM) company that sells services to health insurance companies. The Advisory Board acquisition will add to the portion of the company known as OptumInsight, which sells help with data and analytics to medical centers and clinics.
Advisory Board's health care business employs about 2,100 people. The consulting firm works with hospitals and other health care companies, mostly in the U.S., to develop industry best practices and boost efficiency.
Health care executives use the company's web-based dashboards to follow everything from their organization's success in collecting medical bills to the profitability of different service lines.
"By working together, The Advisory Board Company and Optum will provide deeper strategic insights and practical operational value to clients who are looking for ways to enhance care and respond to the changing market dynamics of the health care system," said Larry Renfro, the Optum chief executive, in a news release.
Optum parent UnitedHealth Group operates UnitedHealthcare, the nation's largest health insurance company, as a separate division.
There have long been questions about whether Optum would have trouble selling its PBM services to health insurance customers because of the company's connection to rival UnitedHealthcare.
Similarly, analysts Tuesday acknowledged — and downplayed — the chance that some hospital clients at Advisory Board might be suspicious of Optum due to its link to the health insurance giant.
Sheryl Skolnick, an analyst with Mizuho Securities USA, noted that the UnitedHealthcare connection hasn't stopped Optum from selling its "OptumOne" service that provides insights to hospitals and health systems on the cost of their patient groups in order to pinpoint potential savings from coordinating care.
"Optum's OptumOne technology/systems were in 50 hospitals five years ago," Skolnick wrote in a note to investors. "OptumOne is now in 650 — and it doesn't have the C-Suite relationship scale that [Advisory Board] does, in our view."
In her note to investors Tuesday, Gupte of Leerink wrote that UnitedHealth Group "has been successfully managing any confidentiality concerns across its [health insurance] and Optum businesses and we expect this to continue."
The acquisition announced Tuesday is part of a broader $2.58 billion deal that involves another company purchasing the education division at Advisory Board. The deal is expected to close by the end of 2017 or in early 2018 and is contingent on shareholder approval and certain closing conditions.
UnitedHealth shares closed at $196.73 Tuesday, up $1.64 or 0.8 percent for the day.