March 26, 2023

DealBook: UnitedHealth to Buy Control of Brazilian Company for $4.9 Billion

UnitedHealth chief executive Stephen HemsleyDanny Moloshok/ReutersUnitedHealth’s chief executive, Stephen Hemsley.

8:52 a.m. | Updated

The UnitedHealth Group agreed on Monday to buy a 90 percent stake in the Brazilian health care provider Amil Participações for $4.9 billion, as the American insurer looked to expand in the fast-growing country.

Insurers like UnitedHealth have been hunting for growth opportunities overseas, hoping to counter tepid business prospects in their home markets. Even the rollout of the Affordable Care Act, which is expected to increase the number of customers, will not significantly drive profits.

With the deal, UnitedHealth is aiming to capitalize on the favorable demographics of Brazil, which is benefiting from a strong economy and a growing middle class. The number of policyholders for private health benefits rose 37 percent from 2005 to 2011. Even so, only a quarter of Brazil’s population has such coverage. By contrast, nearly 80 percent of Americans buy health insurance.

Amil is one of the country’s largest health care providers, with more than five million customers. It is on track to post revenue of $5 billion this year, 15 percent more than in 2011.

“Brazil has emerged as a consistently growing and evolving market for private sector health benefits and services,” UnitedHealth’s chief excutive, Stephen J. Hemsley, said in a statement. “Combining Amil, the clear market leader serving an underpenetrated market of nearly 200 million people, with UnitedHealth Group’s experiences and capabilities developed over the last three decades is the most compelling growth and value creation opportunity we have seen in years.”

Under the terms of the deal, UnitedHealth, based in Minnetonka, Minn., will first buy a 60 percent stake in Amil, and then acquire an additional 30 percent during the first half of 2013. After securing an estimated $600 million of Brazilian tax breaks, UnitedHealth said the proposed deal would cost around $4.3 billion.

Amil’s founder, Edson Bueno, and business partner, Dulce Pugliese, currently control around 70 percent of the business. They will retain a 10 percent stake in Amil. Mr. Bueno also will buy $470 million of UnitedHeath’s shares and hold them for at least five years, according to a company statement. Mr. Bueno will continue to run Amil and will also join UnitedHealth’s board.

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UnitedHealth’s Profit Increases, Beating Estimates

Net income climbed 21 percent, to $1.26 billion, or $1.17 a share, compared with $1.04 billion, or 94 cents a share, a year earlier.

Earnings were 13 cents higher than the average estimate of 20 analysts surveyed by Bloomberg. UnitedHealth reiterated a 2012 forecast for a profit of $4.55 to $4.75 a share.

Profit for UnitedHealth, which is based in Minnetonka, Minn., has exceeded the average estimate of analysts for 12 consecutive quarters, according to data compiled by Bloomberg. UnitedHealth, in the first full year after President Obama signed the health care overhaul into law, continued to save money on medical costs and enroll more people for care.

“United demonstrated excellence in growth and operating costs control,” said Sheryl Skolnick, an analyst with the CRT Capital Group in Stamford, Conn.

Fourth-quarter revenue rose 7.9 percent, to $25.9 billion, as the company added 175,000 members, UnitedHealth said. The higher membership was driven by increases in enrollment for Medicaid and Medicare, and growth in commercial membership, the company has said.

“They’re setting themselves up with a strong membership base for 2012,” Ms. Skolnick said. “To show any growth at all in either of those commercial business lines in the fourth quarter is impressive.”

UnitedHealth is expanding services including mobile technology and consulting. Last November, the company bought the XL Health Corporation, a provider of managed care for chronically ill Medicare members, to gain customers as insurers face heavier regulation.

Shares of UnitedHealth fell $1.62, or 3 percent, to $52.32.

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Learning to Be Lean

As one of the many outgrowths of the sweeping federal health care law, health insurers and employers must now pay the cost of screening children for obesity and providing them with appropriate counseling.

With about one in three children in the United States obese or overweight, according to government statistics, the need for such programs is clear. But, experts say, creating them will be challenging. Other than intensive hospital-based programs, few proven models exist for helping children and adolescents achieve and maintain a healthier weight, and researchers do not even fully understand the factors that contributed to the rapid rise in childhood obesity in recent years. “If this were easy, if there were clear outcomes for success, we would be investing in these,” said Dr. Samuel R. Nussbaum, the chief medical officer for WellPoint, one of the nation’s largest health insurers.

While there are many community efforts aimed at getting every child to eat better and exercise more, including Michelle Obama’s “Let’s Move” initiative, there is also growing demand for programs that help children who are already seriously overweight. WellPoint and the UnitedHealth Group, another large insurer, are experimenting with new approaches, and even Weight Watchers says it is working to develop a program for children and teenagers. Drug companies and medical device makers are also testing some products on children.

Adults have a difficult enough time losing weight, and the issues are even more complicated with children and teenagers, experts say. Children are still growing, and the goal of any program may be to help them grow into a healthier weight rather than to actually lose pounds. Experts also say that to be successful, programs need to focus on the family as a whole, changing what everybody eats and how much time they are all active, not sitting in front of a computer screen or television.

UnitedHealth’s pilot program, aimed at these family dynamics, was conducted in partnership with the YMCA of the USA and the YMCA of Greater Providence, R.I. The sessions at the Y, with young children or teenagers talking about their struggles with food and exercise, are intended to be a friendlier, more cost-effective alternative to hospital programs.

Accompanied by a parent, the children meet for 16 hourlong sessions, initially once a week. Led by a coordinator who has been trained at a Y or other community setting, the children and parents learn about what foods they should favor, why children may be overeating and how to balance what they eat with how active they are.

In Rhode Island, parents like Dana Morel said the program was appealing because there were few other options. “There really wasn’t anything like this,” said Ms. Morel, who enrolled her son, Ryan, after hearing about it from her local Y. “That’s why we jumped on this.”

Ryan, now 11, said he was initially reluctant to go to the meetings but was won over by the woman leading the group and the promise of $150 in gift cards if he filled out the paperwork (The use of gift cards was limited to the study.)

Ryan, who weighed 122 pounds, lost 30 of them as he learned to make better choices about what he ate and to recognize that he sometimes ate because he was bored. He learned to limit his portions and substitute turkey burgers for cheeseburgers.

Already active in sports like soccer, the leaner Ryan said he has become a better player. “I’m faster,” he said. “I don’t lose my breath as quickly. I can run.”

The early results of UnitedHealth’s efforts are promising, according to the insurer, which said that 84 percent of the 155 children and teenagers who completed the program had an average 3.5 percent reduction in weight after six months. Parents also lost weight, according to UnitedHealth. The insurer says it is expanding the program, even as it continues to study its longer-term impact.

Raytheon, a military contractor, started offering the sessions to its employees in Massachusetts and Rhode Island as part of a pilot program. “We are always seeking out innovative ways to help our employees and their families live healthy lifestyles,” Keith J. Peden, a Raytheon executive, said in a statement.

UnitedHealth is now working with Texas and Louisiana to offer a similar program this year for children enrolled in Medicaid under the insurer’s Medicaid plans.

“There’s not a lot of programs, especially programs that children are interested in participating in,” said Dr. Rodney Wise, the medical director for Louisiana’s Medicaid program. The state, which suffers from one of the country’s highest rates of obesity, is asking all the health plans serving Medicaid to address the problem.

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4 Insurers to Provide Researchers With Claims Data

Aetna, Humana, Kaiser Permanente and the UnitedHealth Group plan to supply information on more than five billion medical claims, representing more than $1 trillion in spending, to a newly created nonprofit group, the Health Care Cost Institute.

About $2.6 trillion is spent each year in the United States on health care, an amount that is expected to increase by about 80 percent in the next decade.

While Medicare has made its data available to researchers, with certain confidentiality restrictions like prohibiting identification of individual doctors, information from private insurers has been largely piecemeal.

“Our perspective is that the nation needs greater transparency about what is driving health care costs,” said Simon Stevens, an executive vice president for the UnitedHealth Group.

The insurers say they will not have access to the aggregated pool of private data and the data will not be accessible to the public. The new institute will provide claims information to qualified researchers seeking to analyze the data, and it will make public twice-a-year summaries that identify changes in health care prices and use of medical services. These summaries might examine specific areas like maternity care or orthopedic claims, according to Martin Gaynor, a health economist at Carnegie Mellon University who will be chairman of the new institute’s governing board.

Highlighting certain trends could also serve to put pressure on individual fields where prices seem abnormally high, or expose areas where demands for services have not been met. The insurers are providing start-up financing for the group.

“This is the first time that the claims data paid by carriers will be available to produce public reports and for researchers to be able to use the data,” said Roy Goldman, a vice president and chief actuary for Humana.

The claims data, which will not include any identifying information about patients and will not specify the doctor or hospital providing care, represents health care spending since 2000 and will be updated at least twice a year, according to the institute. The claims will not be made available for commercial use, partly because officials want to prevent their use by any insurer negotiating with hospitals and doctors.

Still, researchers say the new information will allow them to get a better sense of how the nation’s health system operates. “It’s the same doctors, it’s the same hospitals, but we only have the half the information,” said Katherine Baicker, a health economist at the Harvard School of Public Health, who is not involved in the project.

The data could provide answers about the differing cost of hip replacements, or how commercial prices affect insurance premiums. The claims data will include the price, volume and intensity of care being delivered to people with private coverage from one of the four insurers. Medicare data will be used to compare cost information with private health plans.

The lack of private market data has been “a source of frustration for researchers,” said Mr. Gaynor, who noted that Medicare represented only a third of people with insurance and offered little information about the care being delivered to people under age 65 who were not covered by the program. He says he hopes to persuade additional insurers to contribute their information to offer an even more complete view of the private market.

One of the critical differences between Medicare and private health plans is the variation in price that the commercial insurers pay to different hospitals and doctors for the same medical services. While Medicare generally pays a fixed price, with some adjustments for where a hospital or doctor is located and the like, private insurers may pay very different rates, depending on the characteristics of the individual market and hospital or doctor. “There’s huge variation across geographic markets,” said Mark Duggan, an economist at the Wharton School at the University of Pennsylvania. “It does not line up with Medicare.”

Researchers are also hoping that the institute analyzes the data relatively quickly. Some note that the release of Medicare data is often a year or more behind an emerging trend.

For example, looming Medicare cuts are expected to have an effect on the prices being paid by commercial insurers, an uptick in costs that would most likely be detected early on by the institute if the data were being monitored in real time.

While the data does not allow researchers the ability to focus in on a single hospital system or physician, it should enable them to draw important comparisons between different types of programs and between care provided under Medicare or commercial insurers, said Alan Garber, a health economist at Harvard who is also a member of the institute’s board. “You can’t answer every question well, but this is a great start,” he said.

Researchers say the data should help them to begin to answer fundamental questions about why health care is so expensive and to help determine whether the main culprits are higher prices, high use of services or some combination of factors. “At the end of the day,” said Jonathan Gruber, a health economist at M.I.T. who is also a board member, health care “is the biggest and fastest-growing sector of the economy. We can’t know too much.”

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Health Insurers Making Record Profits as Many Postpone Care

The UnitedHealth Group, one of the largest commercial insurers, told analysts that so far this year, insured hospital stays actually decreased in some instances. In reporting its earnings last week, Cigna, another insurer, talked about the “low level” of medical use.

Yet the companies continue to press for higher premiums, even though their reserve coffers are flush with profits and shareholders have been rewarded with new dividends. Many defend proposed double-digit increases in the rates they charge, citing a need for protection against any sudden uptick in demand once people have more money to spend on their health, as well as the rising price of care.

Even with a halting economic recovery, doctors and others say many people are still extremely budget-conscious, signaling the possibility of a fundamental change in Americans’ appetite for health care.

“I am noticing my patients with insurance are more interested in costs,” said Dr. Jim King, a family practice physician in rural Tennessee. “Gas prices are going up, food prices are going up. They are deciding to put some of their health care off.” A patient might decide not to drive the 50 miles necessary to see a specialist because of the cost of gas, he said.

But Dr. King said patients were also being more thoughtful about their needs. Fewer are asking for an MRI as soon as they have a bad headache. “People are realizing that this is my money, even if I’m not writing a check,” he said.

For someone like Shannon Hardin of California, whose hours at a grocery store have been erratic, there is simply no spare cash to see the doctor when she isn’t feeling well or to get the $350 dental crowns she has been putting off since last year. Even with insurance, she said, “I can’t afford to use it.” Delaying care could keep utilization rates for insurers low through the rest of the year, according to Charles Boorady, an analyst for Credit Suisse. “The big question is whether it is going to stay weak or bounce back,” he said. “Nobody knows.”

Significant increases in how much people have to pay for their medical care may prevent a solid rebound. In recent years, many employers have sharply reduced benefits, while raising deductibles and co-payments so people have to reach deeper into their pockets.

In 2010, about 10 percent of people covered by their employer had a deductible of at least $2,000, according to the Kaiser Family Foundation, a nonprofit research group, compared with just 5 percent of covered workers in 2008.

Doctors, for one, say patients’ attitudes are changing. “Because it’s from Dollar 1 to Dollar 2,000, they are being really conscious of how they spend their money,” said Dr. James Applegate, a family physician in Grand Rapids, Mich. For example, patients question the need for annual blood work.

High deductibles also can be daunting. David Welch, a nurse in California whose policy has a $4,000 deductible, said he was surprised to realize he had delayed going to the dermatologist, even though he had a history of skin cancer. Mr. Welch, who has been a supporter of the need to overhaul insurance industry practices for the California Nurses Association union, said he hoped his medical training would help him determine when to go to the doctor. “I underestimated how much that cost would affect my behavior,” he said.

Dr. Rebecca Jaffe, a family practice doctor in Wilmington, Del., said more patients were asking for the generic alternatives to brand-name medicines, because of hefty co-payments. “Now, all of a sudden, they want the generic, when for years, they said they couldn’t take it,” she said.

The insurers, which base what they charge in premiums largely on what they expect to pay out in future claims, say they still expect higher demand for care later this year. “I think there’s a real concern about a bounce-back, a rebound, in utilization,” said Dr. Lonny Reisman, the chief medical officer for Aetna.

Because they say they expect costs to rebound, insurers have not been shy about asking for higher rates. In Oregon, for example, Regence BlueCross BlueShield, a nonprofit insurer that is the state’s largest, is asking for a 22 percent increase for policies sold to individuals. In California, regulators have been resisting requests from insurers to raise rates by double digits.

Some observers wonder if the insurers are simply raising premiums in advance of the full force of the health care law in 2014. The insurers’ recent prosperity — big insurance companies have reported first-quarter earnings that beat analysts expectations by an average of 30 percent — may make it difficult for anyone, politicians and industry executives alike, to argue that the industry has been hurt by the federal health care law. Insurers were able to raise premiums to cover the cost of the law’s early provisions, like insuring adult children up to age 26, and federal and state regulators have largely proved to be accommodating.

But 2014 and 2015 are likely to be far more challenging, as insurers are forced to adjust to the law’s greatest changes, like providing coverage to everyone regardless of whether they have an expensive pre-existing condition. “I think they’re going to go through a winter,” said Paul H. Keckley, executive director of the Deloitte Center for Health Solutions, a research unit of the consulting firm Deloitte.

And while the slowing down of demand is good for insurers, at least in the short term, the concern is that patients may be tempted to skip important tests like colonoscopies or mammograms. The new health care law will eventually prevent most policies from charging patients for certain kinds of preventive care, but some plans still require someone to pay $500 toward a colonoscopy.

In recent times, insurers have prospered by pricing policies above costs, said Robert Laszewski, a former health insurance executive who is now a consultant in Alexandria, Va. The industry goes through underwriting cycles where the companies are better able to predict costs and make room for profits. “They’re benefiting from a very positive underwriting cycle,” he said.

“Maybe managed care is finally working,” he said. “Maybe this is the new normal.”

Still, he emphasized, health care costs, even if they are rising at 6 percent or 7 percent a year, are increasing at a much faster pace than overall inflation. “We haven’t solved the problem,” Mr. Laszewski said.

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