Building a Giant – The American Prospect

This article is a co-publication with HEALTH CARE un-covered, a website about the health insurance industry. It is available at wendellpotter.substack.com.

“Things changed after Optum took over.” That was the statement of a case manager with naviHealth, a technology company that used predictive algorithms to manage post-acute care for Medicare Advantage patients. The company sought to limit unnecessary hospital stays and minimize waste, a problem that has plagued the U.S. health care system for decades.

After being sold to Optum, a subsidiary of the health care colossus UnitedHealth Group, naviHealth denied coverage for at least two elderly patients against their doctors’ advice, forcing them to accumulate tens of thousands of dollars in out-of-pocket expenses before they died, according to reporting from STAT News. Employees alleged that UnitedHealth executives pressured them to deny coverage or lose their jobs. The reports most recently led to a class-action lawsuit.

In short, naviHealth was transformed from a company meant to better manage post-acute care to a machine that maximizes profits. It was UnitedHealth-ified.

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NaviHealth is just one among countless companies UnitedHealth has swallowed up since its inception in the 1970s: health insurers, pharmacy benefit managers, financial services firms, medical data harvesters, physician groups, and more. UnitedHealth reached its enormous stature and influence by assimilating all these companies into one vertically integrated conglomerate that determines which doctors, hospitals and medications millions of Americans have access to, how much they’ll have to pay for treatment, and whether they will get coverage at all for medically necessary and often life-saving care.

This project maps out UnitedHealth’s business history as it expanded into a dominant force in nearly every part of the health care system. A number of UnitedHealth’s acquisitions were not considered “material to earnings” and consequently not publicly reported, but we have tracked down as many as we can. The picture that emerges is that of a company that uses its size and leverage to become one of the largest and most profitable corporations in U.S. history.

The Beginning

1970s and 1980s

UnitedHealth Group emerged during a period when policymakers were under pressure to control the rising cost of health care. They came to view the traditional physician reimbursement model called fee-for-service—in which patients and insurers paid for every test, treatment and procedure a doctor ordered without much question or oversight—as the culprit. Insurers’ and providers’ interests, they concluded, were simply not aligned. To address that misalignment, some industry executives and reform advocates pitched a model new to most Americans called a “health maintenance organization,” which would encompass a select number of doctors and hospitals that would be available to patients who paid a relatively modest monthly fee. Doctors would no longer put patients through unnecessary, expensive services, the thinking went, because that would mean less money available for compensation.

In 1973, then-President Richard Nixon signed the HMO Act to encourage the spread of the new model, shifting federal dollars from the pockets of doctors and hospitals to the pockets of this new type of insurance middlemen. With those funds available, Minnesota-based health care policy analyst Richard Burke, the founder of UnitedHealth Group, saw his entry point.

Initially, Burke established nonprofit HMOs in compliance with state laws that prohibited for-profit HMOs. But in 1974, he founded Charter Medical Development Corp. (Charter Med), a company that would manage services on behalf of HMOs and consequently not be subject to state nonprofit requirements. Charter Med would later be renamed UnitedHealth Group and become the largest health care company in the United States.

In the 1980s, HMOs were still in something of a trial run, yet UnitedHealth was surging ahead with acquisitions. It bought HMOs throughout the decade, many of which were considered too small to trigger public disclosure requirements, in addition to traditional fee-for-service health plans. UnitedHealth would also use this time to invent new ways of making money off its growing control in the insurance market and over patients’ access to the health care system, particularly their ability to obtain and afford prescription drugs. In 1984, its pharmacy benefit management (PBM) subsidiary was the first to grant insurance coverage to a medication in exchange for a rebate from its maker. Many pharmaceutical and legal experts today consider these rebates to be kickbacks or bribes that steer patients to higher-priced drugs. They are now a core revenue generator for PBMs and the basis of negotiations with drug makers over insurance coverage for medications.

Early acquisitions by the company that became UnitedHealth Group include:

1990s

A public backlash against HMO business practices led to some state and federal reforms. Patients and doctors were frustrated with the grip business executives had on health care decision-making and the HMO emphasis on restricting access to care. UnitedHealth was by no means immune to these critiques. But the company marched forward.

In 1995, it bought the national fee-for-service insurer MetraHealth—which had been formed when Metropolitan Life and Travelers combined their health insurance units—for nearly $1.7 billion, becoming the largest provider of health plans in the country and working with 40 of the Fortune 100 companies.

Along the way, UnitedHealth touted its ability to improve the quality of its services through a strategy of expansion. “Size gives us the resources to invest in computer and information systems at the local level,” then-CEO William McGuire said in 1998. “Right now, you can get a Zagat’s guide to help you pick a good restaurant, but there’s very little information like that on doctors and hospitals.” UnitedHealth had begun, and would continue, to place a strong emphasis on data-based services in its acquisitions and products. It would fold these businesses into a subsidiary created in 1996 called Ingenix, or what is today known as Optum.

2000s

The first decade of the 21st century was an exceptional period of growth for UnitedHealth. In total, it spent more than $22 billion on publicly reported acquisitions.

While other companies abandoned the Medicaid market, deeming it unprofitable, UnitedHealth expanded its footprint in the business of administering government-sponsored health benefits to the country’s poor. And despite offloading its pharmacy benefit manager business a decade before, UnitedHealth reentered the market when it purchased Pacificare for $8.8 billion in 2005. Other major insurers would later follow suit.

This was also the era when insurance executives and their political allies began pointing the finger of blame for rising health care costs at patients. They argued that Americans were driving up health care spending by overusing medical goods and services (because costs were offloaded to insurers) and consequently needed to have more “skin in the game.” Insurers responded by creating so-called “consumer-driven” health plans that featured high deductibles and other out-of-pocket requirements. In 2003, the Medicare Prescription Drug, Improvement, and Modernization Act (MMA) established tax-advantaged health savings accounts (HSAs) to incentivize patients to enroll in high-deductible plans. This worked out well for UnitedHealth, which bought Golden Rule Financial, a pioneer of HSAs, for $500 million in 2003. The MMA also renamed and jumpstarted insurers’ fledgling private Medicare plans, marketed until 2003 as “Medicare+Choice.” The law rechristened the plans as “Medicare Advantage” and increased rates paid out to them. UnitedHealth today is the No. 1 contractor for Medicare Advantage.

Among its more unconventional ventures, Ingenix, which would become Optum, continued to grow its information technology business by purchasing more software companies working at the center of the health care financial system. These acquisitions brought what were previously independent firms facilitating reimbursements between insurers and doctors under the roof of one of the most powerful insurers in the country.

It was also at this time that UnitedHealth started to employ physicians directly through the $2.6 billion acquisition of Sierra Health Services, which owned Nevada’s largest multispecialty physician group, Southwest Medical Associates. Although critics said it would be an inherent conflict of interest for a for-profit insurer to employ doctors competing with those it’s supposed to negotiate with and compensate, antitrust enforcers at the Justice Department allowed the merger to go through following the company’s divestments of certain Medicare Advantage assets. They did not impose conditions on Southwest.

UnitedHealth acquisitions during this period included:

2010s

The 2010s were marked by former President Barack Obama’s aspirations to create a universal health care system—a lofty goal that ultimately led to the enactment of the Affordable Care Act (ACA). While it fell well short of universal coverage, the ACA did ban some prevalent business practices insurers used to avoid paying for care, including refusing to even sell coverage to people with pre-existing conditions. But it also opened vast opportunities for private sector control of the U.S. health care system. Among the Obama administration’s new priorities were the widespread adoption of electronic health records (through subsidies to medical centers) and a national health insurance exchange, both of which UnitedHealth positioned itself to benefit from. In 2010 alone, it bought at least four large health care IT vendors working in these fields—Picis, Axolotl, A-Life Medical, and Executive Health Resources, the last of which it spent $1.5 billion to acquire. UnitedHealth didn’t end up just benefiting from the administration’s plan to set up an exchange, it played a central role in setting it up after buying QSSI, the company that won a $145 million government contract to develop it. And its acquisitions did not stop there. Later, in 2019, it would spend $3.2 billion to acquire Equian, a payment processing service that managed more than $500 billion in claims a year and served nine of the 10 largest health care payers.

The ACA also incentivized UnitedHealth to expand further into the physician market. First, it required insurers to spend more of their premium revenue on actual medical care, known as the medical loss ratio (MLR), restraining the profits they could make. UnitedHealth, always willing to push the boundaries and legally obligated to prioritize its shareholders’ interests, discovered it could recoup its losses by profiting off the provision of medical care. The money it generates when its doctors care for its insurance members does not count towards the MLR, providing UnitedHealth an incentive to buy physician groups and steer patients to them at the expense of competitors. It now employs more than 90,000 doctors.

The Trump administration, while not endorsing the “continuum of care” vision of its predecessor, took a relatively hands-off approach to antitrust enforcement against health care conglomerates. In 2019, for example, the Federal Trade Commission scrutinized UnitedHealth’s $4.3 billion acquisition of DaVita Medical Group, one of the country’s biggest physician groups, but ultimately green-lit the deal with a slap on the wrist. Today, UnitedHealth, the largest insurer, is also the largest employer of doctors in the United States.

In total, between its buyouts of health care data companies and medical groups, UnitedHealth spent at least $33 billion on acquisitions during the 2010s.

2020s

The Biden White House has departed from previous administrations by pursuing a far more robust antitrust strategy. UnitedHealth, however, is testing the government’s willpower to prosecute mergers and acquisitions and courts’ reliance on arguably outdated economic theories upholding the merits of consolidation. Its data-mining arm achieved something of a regime change when it spent $13 billion to buy Change Healthcare, a kind of intermediary that reviews claims from patients’ doctor visits and checks for any errors. While it would seem to be an inherent conflict of interest for such a company to be financially tied to either end of the transaction, the federal judge presiding over the Justice Department’s merger challenge was persuaded by the suggestion that a monopolist would not seek to undermine its competitors out of fear of harming its reputation.

UnitedHealth’s medical services division has also made serious headway into home health and hospice care, again via acquisition. With a pending $3.3 billion deal to buy the second largest home health provider, Amedisys (after closing a $5.4 billion acquisition of the third largest home health company, LHC Group, earlier this year), UnitedHealth is now in a position to oversee health care, insurance, and all the backend work that comes with them, from the beginning to end of life.

It’s not hyperbole to describe UnitedHealth as the bulk of our country’s health care system—and its $85 billion in publicly disclosed acquisition spending played a big part. United gained its foothold on the system through its relentless path of acquisitions, and each additional business it purchases is, and has been, used to leverage its control of the health care industry.

The immense and growing market power of a company like UnitedHealth calls for critics to consider the harms of any one subsidiary or business practice within the context of UnitedHealth’s broad interests and control. In other words, how could UnitedHealth use naviHealth’s claims denials, for example, to advantage a primary care practice or pharmacy it owns over independent ones? Without such a nuanced analysis, UnitedHealth essentially has the green-light to march forward and entrench its dominance, to the detriment of everyone else—from patients who can’t get their post-acute care approved to those responsible for footing earth-shattering bills.

For additional resources on UnitedHealth’s acquisitions, see our spreadsheet here.

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