Tuesday, November 17, 2015

UnitedHealth Group May Invest Deeper Into Workers’ Comp PBM Through Helios Buy


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.”

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