UnitedHealth Has 2,694 Subsidiaries and Affiliates. Is It Too Big to Manage?

UnitedHealth, he said, seeks to move “beyond a transaction-based health system to a model that is designed to be proactive to help keep people healthy over the course of their lifetimes.”

Whatever UnitedHealth’s stated ambitions, the company has become so complex that it is difficult for regulators and enforcers who would rein it in, said Reed Showalter, a senior fellow for the Vanderbilt Policy Accelerator, a think tank within Vanderbilt University. He calls it “weaponized complexity.”

“You end up with this game of whack-a-mole because these companies are so big and they can hide unfairness and harms in so many different ways through their subsidiaries.”

The Prospect has previously detailed UnitedHealth’s relentless, single-minded, half-century search for profits. One industry analyst describes how the company has used its vast store of wealth to pull more and more rivals under its control.

“This is not a care delivery ‘system,’” said Jeff Goldsmith, who has followed the company closely for decades. “United is a profit-mining enterprise. They used profits to buy profitable companies.” But Goldsmith cautioned that this merger spree has stopped, with uncertain implications for UnitedHealth’s future.

Acquiring Profits

Established in 1974 to handle overhead and doctor salaries for then-popular health maintenance organizations (HMOs), UnitedHealth set its sights throughout the 1980s on rival insurers as part of a drive toward horizontal integration, Goldsmith said. More recently, UnitedHealth targeted health care providers and health data systems as a way to vertically integrate.

The company sought out profitable links in the health care delivery chain and avoided low-margin businesses like hospitals.

Roughly 1 in 10 physicians work for UnitedHealth; the company controls about 20 percent of the prescription drug market through pharmacy benefit manager (PBM) Optum Rx, and collected $300 billion last year providing insurance for patients.

Besides the eye-popping number of subsidiaries, UnitedHealth has a staggering 400,000 employees.

“Most patients do not realize their physician might also be employed by their insurer. It raises trust and ethical issues. How does United balance tensions between controlling costs and quality? They don’t say,” said Seth Glickman, a former insurance and health system executive. He now is a researcher and advocate for reform in the health care finance space who helped author the Sunlight Report.

“Can the CEO or the board really understand all that is happening?” asked Lawton R. Burns, a professor of health care management at the Wharton School of Business at the University of Pennsylvania. “When you get to this size, you run into issues of governance.”

In the light of some transactions, UnitedHealth resembles a financial services company more than an insurer. Its Optum Bank lends to independent physician practices and has nearly $15 billion in deposits. Optum Ventures, its venture capital arm, has more than $2 billion in assets.

Potter’s Sunlight Report uncovered UnitedHealth’s disparate holdings by drilling through required filings to state insurance regulators, known as Schedule Y.

Buying Spree

In 2010, the company controlled just 149 individual entities. By 2023, that number had ballooned nearly twentyfold. Nearly 80 percent of the acquisitions over that period were health care providers, according to the report. The remaining 20 percent consisted largely of international acquisitions and administrative enterprises that helped consolidate UnitedHealth’s vast health data system and PBM, and specialty insurance providers offering coverage for everything from workers’ compensation to dental plans.

As the company’s holdings grew, so did revenue, and it seemed like the business plan was working. Beginning in 2010, total revenue increased from $94 billion to $400 billion, while net income rose from $4.6 billion to $15 billion, according to securities filings. Meanwhile, investors saw share prices skyrocket from $30 per share to $530 a decade later.

While the overall growth numbers have been impressive, more and more UnitedHealth revenue has come from the company doing business with its own subsidiaries.

In 2010, roughly $18.3 billion of Optum revenue came from businesses it owns, according to SEC filings. Today, that number has increased nearly tenfold to $151 billion, according to an analysis of securities filings..

Unmanageable

With its vast and sprawling network of medical interests, it’s not just UnitedHealth’s size that worries Goldsmith, but its unmanageability.

“To create real synergies in this space, you have to make it easier for doctors to practice medicine and improve the patient’s experience. That hasn’t happened,” he said, noting that UnitedHealth has a net negative view among consumers.

“You have all these moving parts,” he said. “But the nerve endings are not reaching all the way to the fingers and toes.”

There is a fine line between a business that operates profitably at a large scale and one that struggles to manage its distinct parts, said Professor Burns at Wharton.

“The country has over 60 years of business history with conglomerates, and that history isn’t very glowing,” he said, noting that health care is particularly difficult to scale nationally.

“There is a reason that the largest hospital groups and provider networks are regional and not national,” he said. “It turns out, when it comes to health care, people prefer a local-based culture.”

Goldsmith put it more bluntly. “United does a terrible job providing services,” he said. “If you can’t meet my needs as a patient and if you can’t connect with all those talented docs that you acquired, you don’t have anything. You just have a bunch of assets that are depreciating in value. That is a recipe for a shrinking company.”

In response, UnitedHealth’s Dr. Wyatt Decker said, “Optum aligns with and employs physician practices to advance solutions to expand access to care, improve affordability, enhance the care experience and achieve better health outcomes.”

Medicare Profits

Regulators and investors are beginning to ask whether UnitedHealth’s vast provider network wrongly boosted its popular insurance program for seniors.

UnitedHealth controls roughly 30 percent of the Medicare Advantage market, and it enrolls more seniors than any other operator. Many of UnitedHealth’s acquisitions have solidified the company’s power to not only treat ailing seniors but also determine how sick they are for the purposes of reimbursement.

Roughly one-third of the acquisitions tallied in the Sunlight Report are related to a single deal: UnitedHealth’s $5.4 billion acquisition of home health provider LHC Group in 2022.

UnitedHealth has used home wellness visits and medical codes in health records to exaggerate the poor health of seniors, which boosts payout from the government, The Wall Street Journal reported last year. Medicare Advantage patient evaluations are known as “risk adjustments,” and UnitedHealth has defended the integrity of the practice and its Medicare Advantage program generally.

The company continues to do so. “[Medicare Advantage] plans are regularly audited for accuracy and compliance, and we consistently perform at the industry’s highest levels. We have advocated that CMS conduct audits for every plan, every year, and remain supportive of that proposal,” said UnitedHealth’s Dr. Decker.

The Journal followed up with a report in May of this year that the Justice Department is now investigating whether UnitedHealth engaged in criminal Medicare fraud. On July 9, the Journal reported that federal agents interviewed former UnitedHealth doctors and a nurse practitioner about the training and software used to capture lucrative medical conditions.

If UnitedHealth did use its vast provider network to boost its Medicare Advantage revenue, that business model could now be under threat. For now, UnitedHealth must try to squeeze efficiencies out of a disparate provider network and try to mollify doctors who might chafe under UnitedHealth’s control.

“You can try to get all these doctors on the same reporting system and have them help develop a business strategy,” Goldsmith said. “But United is still dealing with a pretty disaffected workforce.”

Bigger Is Better?

Some investors who are unfazed by UnitedHealth’s stock sell-off said they still believe in the company’s strategy, particularly the practice of acquiring health care providers.

“If you own providers, you have more touch points to keep the patient out of hospitals. That’s how you can control spend,” said one hedge fund manager whose portfolio is 20 percent health insurers, including UnitedHealth.

Insurers have traditionally paid doctors for the care they deliver, a model called fee-for-service. UnitedHealth has been a proponent of value-based care, which pays providers more when they can prove the patient got better after the treatment.

“These guys are positioned for the adaptation of value-based care,” said the hedge fund manager, who declined to be named discussing investment strategy.

Value-based care has principally been limited to Medicare Advantage plans. “But it will increasingly be adopted on the commercial side,” the hedge fund manager said, referring to employer-funded health insurance.

Some analysts disagree and argue that UnitedHealth’s buying binge has only created a bloated, unmanageable company. Yet UnitedHealth’s strategic vision remains the same.

“Our strategy and structure are the right ones for this era,” Stephen Hemsley told investors on the day he took over for his second stint as CEO this May, after Andrew Witty stepped down. “We have made meaningful progress through value-based care approaches … I believe and expect we can also be in the forefront of modernization and innovation across the health system.” (Hemsley, while UnitedHealth’s chair, reportedly sold tens of millions of dollars in stock right after the Justice Department informed the company of an antitrust investigation in 2023, and right before it was disclosed in the media.)

Future Unclear

One reason for UnitedHealth’s earnings shock was a sudden uptick in medical expenditures among Medicare Advantage members. “The medical costs of many Medicare Advantage beneficiaries new to UnitedHealthcare remained higher than expected,” the company acknowledged in May.

“It’s unclear whether United simply mispriced their insurance book or made other correctable errors, or whether there are more structural issues from a business perspective,” said Hayden Rooke-Ley, a senior fellow at the Brown University School of Public Health and the American Economic Liberties Project. UnitedHealth’s drive to control more health care providers might not lower costs for consumers or improve health outcomes, but it can still be profitable, he said.

“Whether this playbook will continue to be successful will have a lot to do with whether policymakers and regulators continue to encourage this vertical consolidation—or start to question it.”

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