UnitedHealth Expands Healthcare Delivery Business With Surgical Care Acquisition

UnitedHealth Group (NYSE:UNH), the largest health insurer in the U.S., has agreed to acquire Surgical Care Affiliates Inc. (NASDAQ:SCAI) for about $2.3 billion in a bid to expand its healthcare services portfolio. The price represents about a 17% premium to the company’s market value last Friday. The acquisition comes at a time when the fate of the Affordable Care Act is uncertain under the incoming administration, and hospitals may witness a fall in insured patients coming in for expensive procedures if the ACA is rolled back. ^[1]

Surgical Care will become part of UnitedHealth’s Optum business division, which covers services such as pharmacy benefits management (PBM) and health care services. Optum has been the primary growth driver for the company in the last few years, and it continued to drive results in 2016 as well. In the nine months ending September 30 2016, Optum revenues grew 34% y-o-y to about $62 billion driven by growth across all three sub-segments- OptumHealth, OptumInsight and OptumRx. 

Surgical Care Advantage

Surgical Care Affiliates Inc. is the largest independent surgical provider in the U.S., serving about 1 million patients a year at its 205 facilities through over 7,500 physicians. With Surgical Care, UnitedHealth will get a meaningful presence in the growing market of outpatient surgeries in the fields of ophthalmology, orthopedics, gastrointestinal (GI) surgery and pain management. Surgeries are among the most expensive aspects of health care across the world, and Surgical Care Affiliates specializes in performing complex procedures in outpatient settings, which the company claims enables treatment at lower cost and with lower recovery time. ^[2]

Surgical Care Affiliates is expected to generate $1.5 billion in revenue in 2016 at a growth rate of over 20% year-over-year, per Reuters’ compiled consensus estimates. The company operates in the $70 billion Ambulatory Surgery Centers (ASC) industry, which is about 14% of the total surgery market in the U.S. ($500+ billion), and is expected to grow in high-single digits going forward.

Optum: 2016 In Review

OptumHealth revenues grew by 20% y-o-y to $12.4 billion in the first three quarters of 2016, primarily driven by a 7% increase in customers served to 81 million as well as a 15% y-o-y increase in the average revenue per customer to $53.50.

OptumInsight revenues grew by 21% to $5.3 billion with its contract backlog growing from $10.4 billion at the end of December 2015 to $12.6 billion at the end of September 2016. The biggest source of growth was OptumRx, UnitedHealth’s PBM business, with revenues growing 41% y-o-y to about $45 billion in the first nine months of 2016. The increase in revenues was driven by growth in pharma care services and recent acquisitions- Catamaran and Helios.

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1. UnitedHealth’s Optum to Acquire Surgical Care Affiliates for $2.3 Billion, WSJ, Jan 9 2017 [↩]
2. SCA company presentation, Nov 2016 [↩]