Reviewing Optum’s Contribution To UnitedHealth’s Growth In 2014

UnitedHealth’s Optum line of business has registered robust growth over the past few quarters. Optum’s contribution to the company revenues has shot up from around 20% in 2013 to nearly 30% through the first nine months of 2014. ^[1] Optum provides healthcare services to individuals, employers, governments and other companies. The Optum division has three subdivisions, namely OptumHealth, OptumInsight and OptmRx. Optum’s total revenues have grown by 25% to over $35 billion during the first three quarters of 2014, compared to the same period in 2013. This makes it by far the company’s fastest growing business.

In this article we briefly discuss the performance of the three Optum subdivisions for the first nine months of 2014. We have a price estimate of $89 for UnitedHealth’s stock, which is at a slight discount to the current market price.

See Full Analysis For UnitedHealth Group Here

Three Main Product Lines

Optum has three primary business lines: 

OptumRx offers pharmacy benefits management (PBM)  services to more than 14 million people nationwide by processing over 300 million retail, mail and specialty drug prescriptions annually. Responsible for processing and paying prescription drug claims for its clients, OptumRx has posted the fastest growth rate among the Optum segments in 2014.

Revenue for the first nine months of 2014 grew by about 35% year-over-year to around $23 billion. According to the company, this jump in revenues was largely driven by an increase in the number of customers serviced in UnitedHealth’s public and senior markets. Sourcing of UnitedHealth’s commercial pharmacy benefit program to OptumRx as well as an increase in specialty pharmaceutical revenues added to the sharp rise in revenues in 2014.  The division’s EBIT margins also improved 100 basis points to over 3.6% in 2014.

OptumHealth primarily provides health and wellness services to over 61 million individuals across the U.S. One of the fastest growing and promising businesses for UnitedHealth, it has added more than $8 billion in revenues during the first nine months of 2014 compared to $7.3 billion for the same period in 2013. This increase in revenues came on the back of expansion and growth of integrated care delivery services. EBIT margins for OptumHealth are in excess of 9%, compared to around 6% for the company overall.

OptumInsight provides software and information services as well as advisory and outsourcing services to clients such as hospitals and physicians. OptumInsight also caters to government bodies, as well as biotechnology, pharmaceutical and medical device companies. Revenues for the first nine months from this business of $3.7 billion are up by 6% compared to the same period in 2013 due to the growth in Optum360 revenue management and government exchange services. However, a reduction in hospital compliance services partially offset the growth. EBIT margins have been over 16% for the business in 2014, a little lower than 18% in 2013 due to changes in product mix and increased investments.

UnitedHealth’s Push For Increasing Optum’s Growth

UnitedHealth has made efforts in 2014 to strengthen its fast-growing Optum division. In the past few quarters, the company has increased investments in OptumHealth and OptumInsight in preparation for future growth. The company recently increased the number of participating members in its research and innovation center Optum Labs. ^[2] UnitedHealth also announced the acquisition of MedSynergies, a healthcare service provider. Optum should also benefit from the likely addition of around 93,000 healthcare providers in the U.S. which are currently served by MedSynergies. In our article UnitedHealth’s MedSynergies Acquisition To Aid Optum’s Growth we discussed the deal in depth. Going forward, we expect growth in private health insurance and Medicare to aid in further growth of Optum as the company sources services for those divisions’ customers to Optum.

View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research

1. SEC 10-Q Filing, October 11 2014 [↩]
2. Four New Partner Organizations Join Optum Labs Research Collaborative, UnitedHealth Press Release [↩]