Should the DOJ Break Up UnitedHealth Group?

Consider this: Aside from being the largest health insurance player in the country, UnitedHealth Group also

• Employs or contracts with thousands of physicians
• Owns OptumRx, one of the top three largest pharmacy benefit managers
• Has spent more than $41.1 billion on 25 acquisitions

For years, strategists have tried to analyze how UnitedHealth Group became such a juggernaut. The not-so-secret sauce appears to be not its insurance division but rather its Optum data analytics group. Over the years, the company has bought scores of businesses and almost always succeeded in closing the deals — UHG was briefly challenged by the government when it tried to acquire Change Healthcare in 2022 before the deal was sealed.

But finally, it appears that federal officials are taking notice of its size and the consequent effect on the marketplace. The Wall Street Journal recently reported that the Department of Justice is investigating UnitedHealth Group though the DOJ wouldn’t confirm it when contacted by MedCity News. Another federal agency has launched a probe into the recent Change Healthcare cyberattack. On Wednesday, the company announced that Change’s pharmacy network is back online, according to Reuters. But opinions vary as to whether UnitedHealth Group is a bad actor and should be broken up.

“I do think the DOJ is starting to wake up and see how vertical integration or vertical consolidation is affecting the healthcare industry. … When you have an insurer buying physician practices or hospitals, they’re paying themselves for the care that is being provided,” said Dr. Adam Brown, an emergency physician and founder of ABIG Health. “That creates a challenge for anyone who’s not underneath that umbrella. But it also creates a challenge for those stakeholders underneath that umbrella where they have inability to compete, negotiate for wages, benefits, etc.”

Brad Haller, senior partner of mergers and acquisitions at West Monroe, added that the investigation into UHG isn’t surprising “given its successful strategy in vertical integration. They are presumably well-equipped for such scrutiny, with expectations that the DOJ is focusing on sectors where it stands to gain the most.”

Citing people close to the matter, the Wall Street Journal reported that the DOJ is interviewing healthcare representatives “in sectors where UnitedHealth competes,” such as doctor groups. Investigators have also questioned the relationship between its insurance arm, UnitedHealthcare, and its health services arm, Optum Health. In addition, they’ve asked how UnitedHealth Group’s acquisitions are affecting competitors and consumers. The DOJ has also been looking into UnitedHealth Group’s pending $3.3 billion acquisition of Amedisys, a home care company, according to SEC filings from Amedisys.

UnitedHealth Group declined MedCity News’ request for comment. 

How big is UnitedHealth Group? The Minnetonka, Minnesota-based company has made several acquisitions over the years, including Change Healthcare, LHC Group and DaVita Medical Group. It garnered $371.6 billion in revenue in 2023, according to its fourth-quarter financial report, raking in profits of a whopping $22.4 billion. UnitedHealthcare’s employer and individual business line has more than 27.2 million members, while its Medicare and retirement line serves nearly 13.7 million people, its website shows. Its community and state line serves 8.1 million people and its global line serves 7.7 million people.

Optum Health is aligned with 90,000 physicians, according to an Optum representative. This includes physician practices owned by Optum, physicians who contract directly with Optum and other affiliates. UnitedHealth Group’s pharmacy benefit manager, OptumRx, also had the third highest PBM market share by total equivalent prescription claims managed in 2022 (22% market share), according to the Drug Channels Institute. It follows CVS Health’s CVS Caremark (33% market share) and Cigna’s Express Scripts (24% market share).

“Almost everything in medicine can be found within the walls of UnitedHealth. … My best guess is that the DOJ is looking at this question of the intersection of the different parts,” said Dr. Robert Pearl, former CEO of the Permanente Medical Group, who is currently a professor at Stanford University School of Medicine and Stanford Graduate School of Business, as well as a healthcare author and podcaster.

While Pearl said he can’t speculate for sure as to what the DOJ is investigating, he noted that Optum is a major differentiator for UHG compared to other major players in healthcare. He pointed to the recent crippling cyberattack of Change Healthcare, a software company owned by Optum that processes patient payments for healthcare organizations, as evidence of how a single company can disrupt an entire ecosystem. Due to the attack, billing and claims systems went down for many providers and pharmacies, leaving patients across the country struggling to get their prescriptions. The Office for Civil Rights within the Department of Health and Human Services launched an investigation into Change Healthcare because of the incident, focusing on “whether a breach of protected health information occurred and Change Healthcare’s and UHG’s compliance with the HIPAA Rules,” the agency announced Wednesday.

“To my knowledge, [Optum] is the largest by far data analytic company in the nation when it comes to healthcare. Everyone is dependent upon it,” he said. “And Change Healthcare is an example of that. … In this particular case, BlackCat, the ransomware company, basically hijacked it and brought the entire medical system to its knees for the past several weeks.”

While some say the investigation into UHG isn’t surprising, one expert is questioning why the government is investigating the healthcare giant since it allowed the company to get this big in the first place.

“The federal government let them do all these deals. … I don’t think their issue is United’s market share in health insurance. It’s likely all the other diversified businesses they have and that they are the largest owner of physicians in the country. These were all for the most part inorganic roll-ups that were approved by the federal government,” said Ari Gottlieb, principal of A2 Strategy Corp, in an interview.

What could come out of the DOJ investigation? Gottlieb is unsure but said there’s a chance the DOJ could focus on certain markets.

“The [DOJ] may just pick one area,” he said. “Maybe there’s too much market concentration that United has in Tuscaloosa or Toledo. … Maybe they have too much power when it comes to a chiropractic network. [UHG] is involved in so many different things. It’s hard to tell with certainty where the government’s concern is.”

However, Gottlieb noted that even if the DOJ finds an issue in this investigation and files a lawsuit against UHG, it could still take years for anything to come out of it. By that time, there may even be a new administration.

Brown of ABIG Health said that this investigation could lead to a “cooling” in the market on vertical integrations as scrutiny rises from the federal government. He noted the rumored Cigna/Humana deal that reportedly fell apart. He questioned whether these plans were ditched because of anti-competitive concerns.

Brown added that he believes there is a good rationale for breaking up UnitedHealth Group.

“Hospitals are struggling, more than 50% ended in 2023 in the red,” he stated. “The cost of healthcare for families and for patients are going up with benefits narrowing. Physician practices are struggling and oftentimes have to be acquired by private equity, hospital systems or by large insurers. … So for those reasons, I believe that you have to start looking at these insurance companies and breaking them apart from their insurance and their other type of entities.”

Haller of West Monroe, however, noted that “if the DOJ decides to file a lawsuit and wins, the repercussions could be detrimental for large healthcare provider groups and tech companies in the healthcare sector, which consider UnitedHealth and its rivals as potential partners for M&A.”

Pearl, meanwhile, is unsure what will come out of the DOJ investigation. But ultimately, he thinks it’s the healthcare system as a whole that needs to change, not just one company.

“I think UnitedHealth Group is the biggest so it becomes the target,” Pearl said. “But it is not intrinsically — from what I know about it — a more problematic company than any other company in healthcare. I think it is the broken system that everyone is trying to work around, plug holes and involve a lot of middlemen.” 

Photo: brazzo, Getty Images