UnitedHealth profit increases 56 percent in fourth quarter

By Rachel Newman

UnitedHealth Group Inc. reported a 56 percent increase in profit in the fourth quarter of 2016, driven by continued growth of its health services business and a nearly 16 percent increase in revenue from premiums.

The Minnesota-based company reported a fourth quarter profit of $1.9 billion, or $1.96 diluted earnings per share, compared with $1.2 billion in the year-ago period. Earnings per share adjusted for acquisition-related expenses came to $2.11, four cents above analysts’ expectation of $2.07.

UnitedHealth added more than two million medical members in the fiscal year, which helped drive the increase in premiums in the final quarter.

“The market has been stable with strengthening employment rates helping us grow within existing customers,” David Wichmann, president, said in a conference call with investors.

The company’s Optum pharmaceutical and pharmacy benefit management units drove revenue growth and improved operating margins, said Ana Gupte, an analyst for Leerink, in a research note. The quarterly results are a “good set-up for 2017,” Gupte said.

UnitedHealth net earnings from 2012 to 2016 (Rachel Newman/MEDILL)
Graph of UnitedHealth net earnings from 2012 to 2016 (Rachel Newman/MEDILL)

In January, UnitedHealth announced that it will acquire Deerfield, Ill.-based Surgical Care Affiliates for $2.3 billion. The company operates 205 outpatient surgical facilitates across the country.

SCA will be added to the company’s Optum business, which seeks to grow its ambulatory care portfolio, Renfro said in a conference call with investors.

Strategic partnerships with Walgreens Boots Alliance Inc., CVS Health Corp. and AllScripts Healthcare Solutions Inc., as well as new contracts with the Department of Veterans Affairs, contributed to Optum’s revenue growth, said Optum CEO Larry Renfro in the conference call.

UnitedHealth expects to take a $350 million operating charge in 2017 due to the liquidation of Penn Treaty American Corp., a financially distressed long-term care insurer based in Pennsylvania.

Though the company is not affiliated with Penn Treaty, state laws require that health insurers be assessed a share of the funds needed to protect Penn Treaty policy holders, Wichmann said.

UnitedHealth’s earnings report comes amid political uncertainty about the future of the Affordable Care Act. Last spring, the company announced that it would pull out of many state Obamacare exchanges, including the exchange in Illinois.

In a conference call with investors, CEO Steve Hemsley spoke in favor of “robust state-based health care markets” as well as “flexible Medicaid available to eligible as well as paying beneficiaries” and “well-structured and managed high risk pools.”

Following the earnings release UnitedHealth stock fell 2.5 percent and then rebounded to $160.66 per share at the close of trading, down 0.7 percent from Friday’s close.

Walgreens Pharmacy on State Street. UnitedHealth’s Optum unit partnered with Walgreens, which contributed to UnitedHealth’s revenue growth. (Rachel Newman/MEDILL)