The new chief executive of UnitedHealth Group’s fast-growing Optum division told investors Tuesday that digital health is a key part of the company’s future as he touted a United-backed business that soon will open a new office in Minneapolis.
For several years, UnitedHealth has been developing a digital health platform called Rally, which includes online and mobile tools that subscribers use to compare insurance benefit options, search for health care providers and participate in employer wellness programs.
Rally has now exceeded $1 billion in incentives paid to consumers for health-promotion activities that range from smoking-cessation efforts to picking a doctor, said Andrew Witty, the new Optum CEO, during a conference call to discuss second quarter results at UnitedHealth.
“Rally is our digital front door for the consumer,” said Witty, the former chief executive at pharmaceutical giant GlaxoSmithKline who arrived at Optum this month.
Shares of Minnetonka-based UnitedHealth Group fell more than 2 percent Tuesday as investors looked past strong second-quarter earnings to disappointing data on medical-cost trends.
The giant health care company runs the nation’s largest health insurer, UnitedHealthcare, plus its division for health care services called Optum. At the end of last year, UnitedHealth Group employed about 260,000 people worldwide including about 18,000 in Minnesota.
During the second quarter, profit at UnitedHealth jumped by 28 percent and adjusted earnings per share breezed past expectations by 10 cents, but analysts had expected even more after a recent survey showed relatively low hospital utilization, said Ana Gupte, an analyst with Leerink. Whereas analysts expected the “medical loss ratio” at UnitedHealthcare to come in at 81.8 percent for the second quarter, it was slightly worse than expected at 81.9 percent — meaning medical costs were slightly higher than expected.
“This was a bit of an expectations-game reaction that has caused the stock to trade lower,” said Steven Hamill, an analyst with Winslow Capital Management in Minneapolis, via e-mail. “I focus more on the total growth delivered and future outlook for growth. United’s quarter looked great along those lines ... particularly the Optum services business.”
Optum’s businesses include the Rally platform, and its development comes as other health insurers also focus on digital health, with a division of Indiana-based Anthem Inc. and Connecticut-based Cigna separately announcing initiatives in late 2017.
The systems are meant to help reduce health care costs by increasing patient adherence to prescribed treatments and engagement in their well-being, said Victor Camlek, a research manager with Frost & Sullivan. They also can help patients to manage their lifestyles and make choices that can reduce the potential for developing chronic conditions, Camlek said.
About 18 million people with UnitedHealthcare benefits are now registered with Rally, said David Wichmann, the UnitedHealth Group chief executive, during Tuesday’s conference call. It’s become a tool that people can use to find physicians and other care services, Wichmann said, and will be part of UnitedHealth Group’s future plans for individual health records.
Rally was developed out of technology from Audax Health Solutions, Inc. Optum acquired a majority stake in that company in 2014. The business now employs about 1,000 people across six locations, including an office in Minneapolis.
Last week, developers in the Twin Cities said Rally would take space in the Millwright office building located in the East Town district of downtown Minneapolis.
“While we will have a limited number of employees moving from our existing Minneapolis office, the opening of our new office in Minneapolis is less about shifting of jobs, and more about potential organic growth,” UnitedHealth Group said Tuesday in a statement. “Minneapolis is a great market to recruit top talent in various fields from design to engineering.”
For the second quarter, UnitedHealth Group posted earnings of $2.92 billion on $56.1 billion in revenue, which was about 12 percent ahead of revenue during the year-ago quarter.
Earnings from operations grew by nearly 7 percent during the quarter at UnitedHealthcare compared with an earnings growth rate of nearly 22 percent at Optum. Second quarter revenue grew by 16 percent to $5.94 billion at OptumHealth, which has a growing network of clinics, surgery centers and urgent care outposts.
Optum also runs a large pharmaceutical benefits manager, which handles the pharmacy portion of insurance benefits, plus a health care data and consulting business.
Second-quarter adjusted earnings per share of $3.14 exceeded the $3.04 per share expected among analysts surveyed by Thomson Reuters. It was the 16th consecutive quarterly earnings beat.
On Tuesday, UnitedHealth Group said it now expects adjusted net earnings to a range of $12.50 to $12.75 per share, up from a previous range of $12.40 to $12.65 per share. UnitedHealth shares closed Tuesday at $250.29, down 2.6 percent. Year-to-date, shares are up about 12 percent.