Passing a key corporate milestone, UnitedHealth Group is on track to have a banner year, while trying to reshape large swaths of American healthcare.
On Friday, October 17, 1984, UnitedHealth Group became a publicly-traded company, ten years after it was founded by a management analyst to run Minnesota's new, state-created nonprofit HMO. This year, the company is planning to bring investors a healthy return, as it rides the wave of health reform, launches new business models and counts some 45 million Americans covered in commercial, Medicare and Medicaid plans, and a few million others around the world.
In the first nine months of 2014, United has earned more than $4 billion, with an overall medical cost ratio of 80 percent. For next year, the company is planning to sell subsidized private plans in almost half of the state insurance exchanges, up from four this year.
"Over the past five years, our commitment to affordable, quality care has become ever more integrated," said CEO Stephen Hemsley. "Modern plan designs harness greater patient responsibility with online tools and consumer engagement services that help people make better choices and decisions to get the right care, at the right facility, for the right cost."
UnitedHealth's rise over the past two decades, from the operator of a dozen HMOs to the largest health insurer and health company in the country, has been a barometer for the evolution of American healthcare -- and an influence on it, leading a charge into managed care, a financing transformation for providers and patients that remains controversial today.
In the early 1970s, Richard Burke, a recent management Ph.D, came to Minnesota to study healthcare markets and delivery systems for the InterStudy think tank, and he soon turned his analysis into a business, using UnitedHealth to run the state's nonprofit HMO, Physicians Health Plan.
As CEO in the late 70s and early 80s, Burke implemented new controls on healthcare utilization, with networks, prior authorization, lower prices and an emphasis on avoiding acute hospital care -- all of which earned criticism from doctors, eventually sparking a revolt of 4,000 doctor members of the Physicians Health Plan.
Richard Reece, MD, a Minneapolis pathologist and critic of UnitedHealth's practices, told the Minneapolis Star Tribune in 1987 that Burke's management of UHG represented a power shift away from physicians and providers in patient treatment decisions. Burke believed that there was "a glut of physicians and hospitals and there is something noble about United HealthCare rationalizing medical care, reducing hospital beds."
Amid healthcare inflation and economic uncertainty in the late 1970s, Burke also anticipated a demand for affordable benefits from large employers, landing a large group HMO contract with Honeywell. He also made an early, 1980s foray into information technology to control drug costs and sell data-based financial services to healthcare organizations.
Burke stepped down as CEO in 1988, selling his 1.5 million share control to Warburg, Pincus Capital, and remains as non-executive chairman of the board, in 2013 earning $600,000. (He also sits on the board of Meritage Homes Corporation and a consumer finance firm, and briefly owned the Arizona Coyotes hockey team between 1996 and 2000.)
While Burke's aim to manage healthcare earned the distrust of some doctors and lasting critics of for-profit insurance, his long-term successor named in 1991 turned out to be a physician, William McGuire, MD, a pulmonologist who was chief operating officer at the Colorado-based Peak Health Plan that UHG acquire in 1988.
McGuire's 15-year tenure saw the company grow in insurance membership, with numerous multi-billion dollar acquisitions of MetraHealth, AmeriChoice, Oxford Health Plan, and PacifiCare Health Systems. In 2005, the year before he stepped down, McGuire earned more than $100 million, as the company's stock price hit what was then a high.
UHG's current CEO, Stephen Hemsley, came to the company in 1997 after working at Arthur Andersen, and was chief operating officer in 2006 when McGuire left amid a federal probe into employee stock options compensation. Hemsley oversaw the aftermath of that incident and went on to see additional regulatory scrutiny of UHG, including allegations in New York of paying below the cost of certain medical services, which led to a $50 million settlement in 2009.
Under Hemsley, though, United has maintained its huge membership across private and public plans, and also diversified into healthcare and consumer technology through its subsidiary Optum, which this year is on track to contribute one third of the company's cash flows from operations.
Now, with the market for public exchange plans growing, UnitedHealth could be the largest single insurer of subsidized Americans if it remains in 24 states, at the same time that it pursues new payment models across clinical areas, including episode-of-care oncology reimbursement, and offers new consumer-facing wellness products.
One big bet is in digital health: the company recently made its healthcare locator app available to everyone, free, with information on hospitals, emergency rooms and urgent care facilities and average local prices for 520 services.