Reprinted from HEALTH PLAN WEEK, the most reliable source of
objective business, financial and regulatory news of the health insurance
industry.
By Patrick
Connole, Managing Editor
November 2,
2015 Volume 25 Issue 39
Industry sources tell HPW that
UnitedHealth Group is on the verge of buying Helios, a privately owned provider
of workers’ compensation and PBM services to large health insurers and
third-party administrators (TPAs), handling more than 7 million prescriptions
per year. While the reported price tag of $1.6 billion to $1.7 billion raised a
few eyebrows, sources say the logic of such a move, if it comes to pass, makes
sense considering UnitedHealth’s laser-like focus on growing its Optum unit to
even greater heights.
UnitedHealth would not comment on the
possible purchase of Memphis, Tenn.-based Helios from its current owners Kelso
& Company and Stone Point Capital LLC, first reported by Bloomberg on Oct.
28. HPW learned from an industry source the deal could happen in the
next few weeks, while news reports suggest the deal could be announced in the
next few days.
“The price startles a little,” Henry
Loubet, senior vice president and chief strategy officer for Keenan in Oakland
and former CEO of UnitedHealthcare’s Western operations, tells HPW. But
the prospective move, which he has no prior knowledge of, is a nod to the fact
that workers’ comp is a good niche for making money in a less-regulated sector,
he says.
“I believe that in the broader health
care space, there is an underappreciation of the whole workers’ comp medical
opportunity and that this may be an indication that more health companies are
paying attention to workers’ comp,” Loubet explains. “United continues to focus
on its Optum brand and opportunities outside the health plan area.”
UnitedHealth Seeks Workers’ Comp
UnitedHealth’s move on Helios comes
after it paid $12.8 billion for PBM Catamaran in a deal that was announced on March
30 (HPW 4/13/15, p. 1) and closed on July 23, and which brought an
immediate boost to Optum’s bottom line. In its latest quarterly results filed
on Oct. 15, UnitedHealth said Optum experienced a robust third quarter with
revenues up 61% year-on-year to more than $19 billion out of the $42.5 billion
the overall UnitedHealth Group accumulated. To put that Optum number in
perspective, Aetna Inc. on Oct. 29 said its revenues for the third quarter of
2015 were just under $15 billion (see story, p. 1).
PBM Space Could Be an Optum Sweet Spot
Other observers agree a Helios buy
would support UnitedHealth’s overall strategy. “It seems to make sense. They
add PBM business to their now growing PBM base (it is hard for an insurer to
sell its own PBM services to other insurers), but the workers’ comp element
takes that problem out of the equation,” Bill Sullivan, principal consultant
for Specialty Pharmacy Solutions LLC, tells HPW. “Also, bundling
workers’ comp into the United menu of solutions expands their base and it looks
like Helios had built a pretty strong presence in that category.”
And the Wall Street view is much the
same. Top UnitedHealth analyst Sheryl Skolnick, Ph.D., managing director and
director of research for Mizuho Securities USA, tells HPW the acquisition
is “kind of interesting since it is also focused on the middle-market employer,
similar to Catamaran.”
She also says Helios has a technical
bent much like Catamaran and would seem to be a good match in that regard with
the Catamaran platform as a base. “They want to be big and fully at scale in
that business,” she adds.
UnitedHealth Was Not Always Comp Crazy
The Catamaran acquisition put Optum
into the workers’ comp business in a sizable way. That is because right before
UnitedHealth consumed the PBM, Catamaran purchased Healthcare Solutions, which
serves as a workers’ comp PBM and claims management resource for workers’ comp
and auto insurance carriers, TPAs, health plans and self-insured employers.
That was not always the case, though,
according to a Sept. 3 posting in the Managed Care Matters blog. Writing on his
blog well before anyone mentioned Helios, Joseph Paduda, the Madison,
Conn.-based principal of Health Strategy Associates, said UnitedHealth
previously had avoided workers’ comp but that changed with Catamaran coming
into the fold.
“Catamaran (now OptumRx) has
substantial share in the workers’ comp PBM space, with total Rx revenues likely
in the $650 to $750 million range, spread among its network rental business,
PBM Cypress Care, Ohio BWC services and other governmental work. Adding
Healthcare Solutions’ other services pushes total work comp revenues closer to
the billion-dollar mark,” he wrote. While UnitedHealth had some bad experiences
in the workers’ comp space in the 1990s and had sold off related business over
the last few decades, the business is more appealing now.
Paduda noted that the health reform law
put even more regulation on the back of health plans. “In contrast, work comp
regulatory risk, while significant, is limited to what individual states do. If
one state makes a change, it has zero impact on the others, thereby minimizing
regulatory risk.” He says other “nice things” about UnitedHealth’s workers’
comp business include that it “is a fee business, without insurance risk;
margins are pretty healthy, a lot higher than group/governmental programs; it
has scale; when all the dollars are combined it’s a substantial player; minimal
investment is required as the businesses are mature and operating pretty
successfully with experienced management and solid brands.”
No comments:
Post a Comment