Morning and welcome to UnitedHealth's 4th Quarter and Full Year 2018 Earnings Conference Call. A question and answer session will follow UnitedHealth's prepared remarks. As a reminder, this call is being recorded. Here is some important introductory information. This call contains forward looking statements under U.
S. Federal Securities Laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical different or present expectations. A description of some of the risks and uncertainties can be found in the reports that we filed with the Securities and Exchange Commission, including the cautionary statements included in our current and periodic filings. This call will also reference non GAAP amounts.
A reconciliation of the non GAAP to GAAP amounts is available on the financial reports and SEC filings section of the company's Investors page atwww.unitedhealthgroup.com. Information presented on this call is contained in the earnings release we issued this morning in our Form 8 ks dated January 15, 2019, which may be accessed from the Investors page of the company's what is right. I will now turn the conference over to Chief Executive Officer of UnitedHealth Group, Mr. David Wolfman. Please go ahead.
Good morning, everyone, and thank you for joining us today. At our investor conference just a few weeks ago, we provided an extensive and positive review of our business and expectations for 2019 and beyond. Our outlook today remains consistent with our view. We are strongly confident in the fundamentals of our business as we enter 2019, in our ability to invest, innovate and grow, and in the breadth of opportunities across healthcare available to a company with the unique capabilities we have built over time to deliver ever more value to society and consistent results for our shareholders. The results we reported this morning bear that out.
Full year revenues exceeded $226,000,000 growing 12% or $25,000,000,000 over 2017. 4th quarter and full year 2018 adjusted earnings per share were stronger than our investor conference outlook, with full year adjusted earnings per share growing 28% to $2.88 per share. Revenues, operating earnings and cash flows were in line with or ahead of the expectations of 2018 we discussed with you at that time. Austin's earnings were ahead and UnitedHealthcare's earnings were in line and virtually all businesses closed out the year with strong momentum. Overall medical costs remain well controlled and our positive forecast for 2019 remains consistent across all lines of business.
We continue to address performance pressures in a handful of Medicaid markets in the 4th quarter as we executed actions on both structural costs and rate recovery to ensure 2019 will see a return to stronger margin levels for this business. Our nation is early in an exciting healthcare innovation wave, one we expect to help lead, which will drive growth at UnitedHealthcare for years to come. Our approach to this wave has several characteristics, flowing critical health information to all healthcare participants by linking physical interactions to digital channels, supported by embedded proprietary clinical ontology and sophisticated data analytics designed to align and optimize performance. Engaging people and their health share both individually and at scale, a difficult but essential step in improving people's health and finances. A step supported by our consumer digital platform Rally now with 22,000,000 registered users on a multi payer platform and offering an expanded suite of services for UnitedHealthcare's Medicaid members as of January 1.
Applying high touch human interactions again, keenly at high volumes to improve the consumer experience and drive better medical care outcomes. This is supported by our rapidly growing team of clinicians like the physicians of Polyclinic in Seattle who joined us at the end of 2018 Evolving pharmacy care services by advancing market leading transparency, improved adherence and clinical effectiveness combined with distinguished consumer value ranging from point of care discounts that offer more affordable prescriptions and whole person medical pharmacy management to a simpler transaction experience through market leading digital support tools and services and introducing innovative, lower cost consumer centric health benefits designs and services such as Vyme, Colorado Doctors' Plan, Motion and Nexus CTO. This healthcare system will increasingly operate in a multi payer and value based context, with aligned incentives for care providers and consumers to make better healthcare decisions, leveraging deeply personalized information and clinical clients. This modern approach produces measurable value and looks and feels refreshingly different than traditional healthcare today. So, I hope you can see that we are energized by the opportunities ahead of us.
With that, let me turn to Austin's CEO, Andrew Witty, to discuss Austin's results and its unique market position and momentum heading into 2019. Andrew? Thank you, Dave.
Our focus is accelerating access to and integration of the individual strength of Optum to deliver better health care and more affordability across the whole of the health system. And leveraging our data analytics capability to increase care pathways with local care delivery and pharmacy care services, there's unique potential to improve patient molding and health while bringing health care costs and protective control. Our ability to use data to better understand the next best action or better option for treatment allows us to significantly affect both the outcome as well as the cost per mandate for our clients and patients. With the OptumRx, increasing impact of pre set MyScript and the growth of our infusion services illustrate how our expanded breadth of services gained significant market acceptance, growing share from diversifying our earnings stream. Our momentum in Promising Care Services was excellent in 20 18 with the same business rate in excess of 98% and several major new business awards from health plans and employer plans launches.
We expect this to continue given the early process signs in this year's earnings season for 2020 business. In care delivery, our clinical leaders are applying clinical screening support based on evidence based guidelines that promote dials and ensure the right care at the right time in the right setting. Today, 99% of OptumCare patients in our advanced form of Medicare value arrangement are in 4 star plans or better. And Austin Care's average net promoter score is nearly 80, evidence of outstanding clinical outcomes and patient experiences. We achieved significantly lower total medical costs by treating people healthier and avoided unnecessary hospital use, which translates to 30% lower cost for Medicare Advantage patients relative to original Medicare.
Our increased number of our group has been recognized for achieving lower costs to commercial customers as well. For example, our Reliant Medical Group was recognized as having the lowest local cost of care by the state of Massachusetts. We complement our medical group with high value ambulatory care services like our FDA surgery centers and Express Neighborhood Care Clinics, Priova infusion capability and Optimum households, all of which will help improve the quality, cost and experience of health care. As we move forward, we will continue to build out our comprehensive portfolio of care delivery services in key markets, including through our pending combination with the International Group. By 20 18,000,000 people in the U.
S. With 3 or more chronic conditions, up from 30,000,000 in 2015. More fully leveraging data analytics across all of Optum, through digital and physical engagement with patients and physicians will be key to reducing cost and improving the value and experience for people in this increasingly resort intensive market segment. We are building platforms that are conveniently provided, ensuring the very best and most complementary information is available for each patient management division. Initiatives including the rollout of the individual health experts, adoption of emergency knowledge and full understanding of the implications of data Optum manages are key building blocks over the next year or 2.
Turning to Optum's financial results. Full year 2018 revenue surpassed $100,000,000,000 for the first time. Revenue growth of over $10,000,000,000 per year accelerated to 11% and 9% in 2017. But likewise, our operating margin was 1% in the cross sector portfolio, with our overall operating earnings growing more than $1,500,000,000 or 23 percent to $8,200,000,000 reflecting the leverage of Optum's sales businesses and putting us to generate strong baseline earnings position entering 2019. Looking ahead, 150,000 people are off to run incredibly enthusiastic about 2019 and our opportunity to longer term growth of performance.
We will continuously modernize our ways of working, seek solutions to improve value delivery for clients and the patients we serve and explore ways of aligning with others who strive in an accountable way to deliver quality care at lower costs. The team is through the 2 decades worth of strategic investments with strong business wins and pipeline and the many platform expansion opportunities we have in the United States alone, not to mention the global potential. As we continue to grow, invest and diversify, we are just beginning to realize this principle exists on which Boyakston's cross platform capability more fully on behalf of our customers and all of those details. Now, I'll turn the call over to Steve Helton, UnitedHealthcare's CEO.
Thank you, Andrew. UnitedHealthcare is growing through the relentless pursuit of better health outcomes, lower total cost of care and a better consumer experience for clients and consumers as measured through NPS. We achieved this triple aim through the breadth and innovative nature of capabilities that they described at the outset. And by translating those capabilities into innovative products, services and enabling technologies, which advance our mission as an enterprise. In 2018, together with our care provider partners and through digital and physical interactions with consumers, we helped close over $70,000,000 gaps in share.
That was 75% more than the 40,000,000 gaps we closed in 2017. Contracts with value based care features reached $74,000,000,000 in run rate spending with about 1 quarter of that in risk arrangements. Consumers who took healthy actions earned a remarkable $1,500,000,000 in incentives through their benefit plans. We provided $1,500,000 in home health assessments through the OptumCare off of the OptumHealth program, And our community health workers refer people to social services nearly 600,000 times, linking them to needed services with a total value of $1,250,000,000 Collectively, the value of these and other distinctive services helps us to grow. In 2018, UnitedHealthcare grew to serve 2,400,000 more people with revenues advancing by more than $20,000,000,000 to $183,500,000,000 UnitedHealthcare earnings from operations were $9,100,000,000 consistent with the outlook we provided in November.
Overall, medical cost trends remain well managed, predictable and consistent with expectations. We continue to manage operating costs diligently through a combination of business simplification, automation and operating efficiency. As we noted at our investor conference, the performance of our community and pay business in 2018 was mixed. We saw strength in serving individuals with the highest health needs, such as the dually eligible, while performance in the traditional TANF Medicaid business was pressured, particularly in a handful of states. Our performance improved in the back half of twenty eighteen with more work to be done, continued advocacy for sound rates, while reducing core medical and operating costs.
The Community and State team is fully focused and will deliver improved performance in 2019. We completed a strong Medicare Advantage enrollment season last month and are on track to achieve 2019 growth within the 400,000 to 450,000 range of expectations. We are thoughtfully advancing in areas like digital therapeutics, real time health information and artificial intelligence drive an even more distinctive consumer experience, all at lower costs. We're early in a wave of fresh product innovation for the commercial market with new on demand health benefits for large employers and new patient centric care resources organized around high quality local health systems, such as the program we launched on the front range in Colorado. We expect strength in the association health plan market and have an unprecedented focus on developing and cross selling specialty benefits.
To summarize, expectations for UnitedHealthcare's performance in 2019 were unchanged with what we outlined for you at the end of November. As we look at 2019, 2020 and beyond, we're strengthening our capabilities with customers across UnitedHealthcare and UnitedHealth Group. We have a multibillion dollar multiyear effort well underway to address medical and operating costs on a structural basis and improve value for customers. We're deploying new technologies to provide information to doctors at the point of care and are leaning into consumer centric services like the individual health record and rally and the innovative benefit designs and value based incentives they can power. And we believe UnitedHealth is supported by Optum is uniquely positioned to serve high growth, higher acuity markets like Medicare, duals and patients with complex and chronic conditions.
Now, I'll turn the call over to John Rex, UnitedHealth Group's Chief Financial Officer. Thank you, Steve. This morning, we reported full year revenues of $226,200,000 with double digit percentage growth in the Q1 revenues for all reporting business segments. For full year 2018 Optum revenues from customers unaffiliated with UnitedHealthcare were nearly 13%, our faster pace than affiliated revenues. This reflects the market's response as we position Optum and UnitedHealth Group to serve more people independent to pay our affiliation, even as we offer greater customer and consumer value through UnitedHealthcare.
Balance and diversification can also be seen in our operating earnings performance, where Optum contributed 47 percent of full year 2018 earnings from operations of 17.30 points, dollars including 60% of the earnings in the 4th quarter. To put that mix in perspective, only 5 years ago, Austin contributed about a quarter of full year consolidated operating earnings. 4th quarter adjusted net earnings per share of $3.28 dropped full year earnings to $12.88 per share, 28% growth over 2017. Full year cash flows were $15,700,000 or 1.3 times net income, growing 15% over 2017. 4th quarter and full year cash flows reflect the $2,600,000,000 payment to the U.
S. Treasury on October 1 for our customers' portion of the federal health insurance tax. Our full year medical care ratio of 81.6% is consistent with the outlook we provided last January of 81.5%, up or minus 50 basis points and reflects well managed cost trends despite some margin pressures in parts of our Medicaid business, as Steve discussed. Medical reserve developed favorably in the quarter by $280,000,000 We continue to expect a 20 19 medical care ratio of 82.5 percent plus or minus 2 basis points, which reflects the impact of the health insurance tax deferral this year. The 2018 operating cost ratio of 15.1% was driven by extra cost management and strong growth in lower operating cost businesses, partially offset by ongoing investments to develop and deploy modern technologies and capabilities advance the value we deliver to people.
Turning to our balance sheet. Our full year return on equity was strong at 24.4 percent and our debt to total capital ratio was 40% at year end after placing $2,000,000,000 of debt in December. We repurchased $4,500,000,000 of stock last year and we raised our dividend by $0.20 back in June to an annual rate of $3.50 per share. Looking forward, we entered this year with strength, flexibility and momentum. And we continue to expect strong growth in adjusted net earnings to a range of $14.40 to $14.70 per share.
One last observation on quarterly earnings projection for 2019. The current first half, second half street consensus view appears to reflect our seasonal earnings pattern, which over time weighted to trend as roughly 48% weighted to the first half. In spite of that, our sense is that we expect to perform modestly stronger than the current Q1 consensus estimates would suggest. Dave? Thank you, John.
2018 was a strong year with advances in our businesses, improvements in service and net promoter scores and compelling financial performance. There is much yet to be done to fully realize the potential to reimagine healthcare for the benefit of society in the U. S. And globally. Inside this morning's business review, we touched on a number of initiatives, all forward leaning, all indicative of a restless and vicious character of this team and our efforts to advance performance in health care for those we serve.
With plans firmly in place, we are looking to perform strongly in 2019 and lay the foundation for continued growth in 2020 and the decade ahead. We have significant opportunities to diversify and strengthen the offerings we bring to people and to drive engagement, trust and loyalty across our broad customer base. And we will continue to advance personalized interactions with the people we serve and lean into clinical quality and healthcare delivery and our leadership in digital technology. Let me close now and open up the call to your questions. One question per person, please.
The first question from Justin Waite with Wolfe Research. Please go ahead. Thanks. Good morning. Appreciate all the color on the medical cost side.
I wanted to go back to the investor case and ask you about the hits. This is the first time in probably 5 years that you can spike out the hit at all as a moving part, either positive or negative. But I wanted to ask you whether this is indicative just the size, sales, diversification of the company kind of now being able to hit it 13% to 16% long term trend without worrying about whether the paper is coming or growing or flat year over year as we
look out to 'twenty and
beyond? Thanks. Thank you, Justin. As you know, the 13% to 15% growth rate is an average long term growth rate and we are committed to it. And I do think it was imperative that the scale and size of the company helps us maybe to spend a little bit less time on those reconciliations than maybe what you would have seen in the past.
But, John Rex, would you like to comment? Yes. Thanks, Justin. It's John. Yes, I have to start by saying I'd be remiss to diminish $2,600,000,000 of our customers' funds just having been paid for the health insurance tax.
That's still a very significant number for any company, I would say, and a burden for our customers. But you are correct in thinking that, Amit, the non insurance component of our enterprise continues to grow at a reasonable pace. And as that pacing increases and it continues to the
mix continues to shift. As a percentage
of our earnings mix in terms of the volatility that they're just coming in and out in any particular parts of the mix as a percentage of the earnings mix. But again, the niche would say that it's still very significant burden for Americans. And on that score, the health insurance taxes are expected to come back in 2020. And I shall recognize that it will increase the cost of health care by $20,000,000,000 for 142,000,000 Americans. That causes the average senior couples to see their premiums raised by $500 per year and for families with small business coverage, dollars 5 the same amount around $4.80 or so per year.
So our view is the outcome is unacceptable and because healthcare already costs too much. So we're going to continue to advocate for a repeal or deferral of this unnecessary task. We can't comment or speculate on the outcome, but we would take this opportunity to also applaud the bipartisan actions that have occurred across Congress, both in the House and this past year or so. And hopefully, we'll get this taken off the
track to continue as
we go through. Next question, please. Our next question comes from Matt Groch with BMO Capital Markets. Please go ahead. Yes.
I was hoping that you could talk about the factors that drove the medical care ratio to be a little bit higher than what we and I think the Street analysts had modeled. Is that purely the result of Medicaid? And I noticed in the press release that you had talked about that trend moderating. But in terms of impact on MCR, it seems particularly notable this quarter. Yes.
Thank you, Matthew. The MTR impact in the quarter is almost consistent to Medicaid performance. We touched on it at the Investor Conference. I recognize it was in response to a question. But throughout the balance, throughout 2018, we have seen a pullback in our performance in our Medicaid business, in particular the TANF portion of it and in particular in a handful of states.
Those issues were, as we described in the script, it's really around both the funding in a handful of states. What some of which you probably recognize we're correcting throughout the year. And then also with respect to some of the costs, both medical as well as operating costs in those same core states. Rest of our Medicaid business, both the dually eligible and the opioid drug populations are performing quite nicely. And of course, if you could tell our office businesses are performing well as well as the remainder part of our UnitedHealthcare businesses, both the employer and the Medicare markets.
We did make considerable progress through 2018. I'd say the last half of our Medicaid performance substantially better than the first half. It just isn't quite at the par yet as we look into Q4. We have seen again nice progress throughout the balance of year and we expect 2019 to show considerable additional improvements as we move that business back to target margin range of 3% to 5%.
Thank you.
We'll take our next question from Charles Rhyee with Cowen. Please go ahead. Yes. I don't recall that you guys discussed it earlier, but I think in the report earlier that you guys had won a large VA contract. And maybe if you can kind of give us some details around that.
I mean, the headline numbers look very big, but I can't imagine that you'd be necessarily pushing all that. Can you give us maybe some color around how we should be thinking about that? I believe it's in the app and help. Maybe give some sense on how to think about that and when that ramp up and any color would be helpful. Thank you.
What you're referring to is the VA Teen Care Network contract, which was awarded at the end of last year, Bander Heights. Thanks, Charles and Dave. So, yes, we were pleased with the award of the VA Community Care Network Program to Optum Serve in the regions in which we bid, which were 3 regions. It's an honor to serve our veterans and I was really proud of my way to recognize the dedicated and talented Openserve team that is ready to deliver on this contract. With the award, Opens can now serve the VA's capability to provide timely and quality healthcare to more than 6,000,000 veterans in 36 states, 2 U.
S. Territories and the District of Columbia. And these contracts administer regional networks of high performing licensed health providers who will work together with the VA to provide medical, dental and pharmacy services to veterans who are unable to receive care at their local VA medical center. So we look forward to completing the government review process, which of course is underway, the normal review process, and ultimately getting to work serving our
military veterans. And this is
a really important step as you indicated. It's an important step forward for Optum Serve, which really has the potential to bring the full breadth of Optum capabilities to both current and former members of the Optum Services and the government. I It's also another it's a tremendous to not underscore the fact that it's this is another example of when there's tension in healthcare, particularly the government that they seek to have public private partnership. So in this case, the VA sought a partnership with the private sector to provide better service for the veterans and we are honored and pleased to be able to win these awards and to serve them. Is that a good deal of guidance?
Yes, it is. The contract is in implementation in 2019, so it actually is a drag to earnings. And it is a 7 year contract, so it will provide us returns on that investment through that 7 year contract. Our next question comes from Sarah James with Piper Jaffray. Please go ahead.
Thank you. I think yesterday one of the things that you talked about was the potential to double commercial specialty revenue. Can you give us an update on how that's tracking so far in 2019 and provide small details on the drivers? Sure. I'll take it to Marker, please.
Thanks. Good morning, Peter. I appreciate the question. Yes, we do and are very focused on deepening our penetration of our specialty block with Panalz Automotive because we think when we put together vision, dental, hearing and other assets, as you take more of a holistic approach to the person and drive their overall health outcomes. We made some nice progress in the oneone selling cycle to drive deeper penetration.
And I would tell you that we're in the early innings in the context of doubling it. Dental and Vision in particular are going to be the foundational parts of that, but we expect nicer contributions from hearing and we move forward as well. Thank you. Next question please. And we'll go next to Zach Zukat with Morgan Stanley.
Please go ahead. Hi, good morning. Thanks for the question. I appreciate the early selling season comments for the PBM for 2020. Just wanted to get a little more color in particular about the trends that you are seeing in the 2020 selling season, especially as I think you had mentioned last year, you won about 3 out of 10 clients on your Q2 call.
Thank you. As I think you noted, South America has considerable momentum on the top line and getting really strong market response. Thanks, John. Thanks, Zach. It's Tom Pennsy of Seltomarix.
I pay overall far differentiated Volley story as we designate the market. We've had good uptake this past selling season. We were very successful in selling over 7 new large relationships that's a mixture of both states, health plans, unions and a couple of large employers. We've also had good retention again. We've had retention of 98% for the 3rd year in a row, which we're very pleased to have.
And that links back to our strong stores around that promoter store for our clients as well as our consumers. In terms of 2020, we've already sold a couple of large deals and added some of our relationships for 1120. We have a very healthy pipeline as we go into the youth growing season. As you know, for the 2020 selling season, this time of year is focused more on the health plan. And so we are focused on that.
And then the margin players as well as the state that's for 2020 are just in the middle of that process. So we're optimistic and also we're really pleased to have that the first story behind value and stability is where we live in any market. Thank you. Next question please. We'll go next to Kevin Fischbeck with Bank of America Merrill Lynch.
Please go ahead. So I just want to go back to the MLR question, I guess, specifically on the Medicaid side. Wanted to understand 2 things. 1 is, is your commentary about the MLR and Medicaid today is it insane as it was back in November or you're highly likely forgotten to be better or worse from there? And then 2, systematically, it makes me feel strange that that could be the entire variance to MRR before, given its relative size.
So I don't know if there's anything else that you would highlight on medical costs. And you're talking about variance to 3 days or Yes. Yes, exactly. Okay. Well, what I'll do is I'll comment on the medication and then maybe just ask John Rex to comment on the MLR, to make sure that we're fulsome in our efficiency on that.
We're in exactly the same position or pre close to the same position we were with Medicaid when we in November and tell me to bring it up was the commentary, I believe the question that was asked, I believe you asked actually was where we may not be performing to our fullest potential. And I gave you a few examples, this one being on how our business is performing. And it is isolated to TANF. It is pretty much isolated to 5 markets. I couldn't tell you what these 5 markets were as of late to 2018.
The only thing I'd suggest is that over the last 45 days 60 days, our teams have continued to make very nice progress and are remediating these issues. On plan as we look to 2019 for improved results. And we do in fact see nice progress with respect to those. And it is a leading contributor to the MLR view. But, John, do you have anything further to add?
Sure. Kevin, this is John. So, maybe a good start as you kind of achieved at the question that we fully sponsored. So, to characterize the results, it's highly consistent with what we laid out at the end of the year. So UnitedHealthcare's full year operating earnings of $9,100,000,000 was just slightly ahead of the estimates we provided at that time.
And I would be kind of 81.6% full year, consistently approximate 81.5% to be tied at that time also. So I'd say that consistent with the outlook that we had as we were as we were or started to visit with you at the end of November, so in that line. So beyond P and S, as we've discussed, the Benefits business is performing well, at least in line with our expectations of medical costs, well contained overall. And I would suggest that $280,000,000 in favorable development in 4Q also is a reasonable indicator of that. Okay.
Great. Thanks, Gavin. Next question please. And we'll go next to Steve Tanal with Goldman Sachs. Please go ahead.
Thanks a lot guys. I appreciate all the color. I have an answer here. I'm sorry to beat this one, but I just kind of use my question to follow-up here. And maybe could you comment specifically on sort of puts and takes on the commercial side and then Medicare both sort of really on the trend?
And specifically, maybe I would love to know if commercial medical cost trends sort of tracked within the 2018 full year guidance range in the Q4. And then if Medicare and CI was sort of right in line with your expectations as well, or if anything, is anything worth calling out there? That would be great. Dan Schumacher? Sure.
Commercial. Yes. Good morning, Steve. With regard to the commercial cost trend, a year ago, we decided to arrange which we narrowed at the Investor conference in November to 5.5% to 6%. And I would tell you that on the year we landed squarely within that.
So very pleased with where our costs came in from a commercial perspective as well as then how that translates into in line with our earnings expectations. And I would just point out that within our commercial box, we obviously have a seasonal diet for the Q3. And that's a shift that's really driven by the type of products as the market is buying as well as the pace of which deductibles are increasing year in and year out. And so that also contributes to how you look at the performance in its progression over the course of the year. And that's what we can do.
And Medicare had a very strong quarter in the Q4 and that came in line with expectations, if not a little bit ahead. And we'll go next to Ana Gupte with Leerink Partners. Please go ahead. Hey, thanks. Good morning.
So my question was about the vertical consolidation with the field closing signals moving their book up to Express. You're looking forward into the new competitive landscape. Can you talk tonight about OptumRx with $200 in savings after share on base 2,000. How are you preparing for share gains while maintaining cost ratios and margins going forward in a possibly bundled commercial and PCM environment? We're just running our business, Donna, and we did very well.
As John pointed out, we've seen strong outperformance in growth. And I think you track back the last 2 years and then leaning into 2019 and now leaning into 2020, you continue to see a nice response to OptumRx offerings in part because it goes well beyond traditional DPM and operates a pharmacy care services business. The collaboration between it and UnitedHealthcare is long and well established, but not new, meaning that the 2 of them worked very collaboratively together on a wide range of opportunities. Of course, that Pharmacy Care Services business is available on a multi payer basis as well. But we have a strong competitive offering.
We work with and deeply respect the new and emerging competition. And we're not going to underestimate it, but we also remain highly confident in our own capacities to compete and continue to grow and manage our business. Thank you. And we'll go next to Scott Fidel with Stephens. Please go ahead.
Hi, thanks. Just interested as the market continues to debate the overall structure of the economy exiting 2018 into 2019. You've got a lot of sort of key points on that in terms of how the overall economy is progressing in both the unit healthcare and the Optum businesses. So just interested maybe in some of the more economically sensitive areas what you are seeing in terms of trends in the Q4, particularly in the Q4 relative to the Q3? Two questions, Scott.
And I was thinking a little bit about this, both on the there's been a lot of economic sentiment, if you will, but also political sentiment in healthcare. And I was evaluating that over the course of the last leaseback timeframe for a year, which has been nearing the past 21 years or so. Going back on, we've grown our revenue base to the total $12,000,000,000 as we're trying to $226,000,000,000 which we just reported today. What I find is particularly healthcare as well as economic cycles is that's been an attempt to drive private sector expansion And we've seen that through Medicare Advantage. We've seen that with the introduction of Part D, managed Medicaid, dual Medicaid expansion, exchanges, the ACA broadly.
And then also what we discussed this morning was to the VA and how they have sought public private partnership and to respond to the needs of veterans. One thing that's true through these political shifts and economic shifts is that healthcare products are always in demand. So, whether it's an economic expansion or recession or whether there's a liberal or conservative administration, UnitedHealthcare positioning tends to be unique and very well regarded. We manage a portfolio of diverse healthcare businesses and they serve large and diverse end markets. And we tend to grow regardless of economic cycle or administration.
We have a unique portfolio of competencies in data technology as well as clinical insights and our ability to manage clinical interactions continues to advance across this business, which is reinforcing that capability in our business. And our aligned services have never been positioned to produce greater value for society for clients, consumers. You can hear us talking a lot more around societal return in the triple lane and then also becoming more of a consumer oriented company, which is really what MTS implies. So just to wrap up, this is a very scaled and proven model with a deep management team with strong continuity that's largely 95% domestic. So we really don't have tariffs as to other global concerns.
And it has a long runway for growth. It has five well defined high performing growth pillars that are going to need an $11,000,000,000 global market in 2025. So we like the opportunity that is presented and we believe that whether political sentiment or economic sentiment, today helps us will continue to provide distinctive results and returns for the core society as well as our shareholders.
Okay. Thanks.
And we'll go next to A. J. Rice with Credit Suisse. Please go ahead. Hi, everybody.
I was just going to ask, I know at the Investor Day, you guys roll talked quite a bit about the initiative around specialty pharmacy and the and the acquisitions as well as infusion in your product in MedExpress and then some community centers. Can you just sort of update us on where you're at today in rolling all of that out and sort of a timeframe over how you would where you might look at next year or so and what does that mean for you
financially? Andrew, really? A. J, thanks very much for the question. Make a
couple of comments and I'll ask Jonathan to give
you a little bit more. So, I was just cutting through with the progression of the difficulties that you described. I think within the pharmacy services, the quality of the health and health and the runs we're seeing. These high quality ambulatory care facilities at the time you described really being embraced strongly in the marketplace. We continue to expect to roll out and extend those networks over the next several years.
I would just make a further point though. I think it's really important to think about Optum really as a portfolio of provider networks. So, if you think about it, it's not just about these ambulatory tech care services, large FDA, like infusion centers, like MedExpress. It's those things complement it by such a strong medical provider network in key markets across the U. S.
And what you're going to see over the next few years is our journey to bring to life the value of that network, our really comprehensive presence that we've now beginning to establish in a series of important markets. We think that that can really deliver substantial, convenient, quality, lower cost, better service for the patients we serve as well as the planned and confidence that we serve. And with that, Angel, let me just
hand over to the
most edited VP of Jean. Thanks, Andrew, and
thanks, Yaniv, for the questions, Jonathan. In terms of those businesses around Specialty Infusion, we really like that space. We have a very differentiated offering in the market, focused on decreasing the total cost of care and also improving the consumer health. We've got focused programs clinically that handle a patient through their whole course of treatment. We've done a great job of transforming the consumer experience as well as the provider experiences of post partnership between the consumer and the provider as we manage the product cost of treatment.
We continue to grow extensively in the external market, taking business both directly with planned sponsors but also continuing in the open market. So, more than a quarter of our business comes from the open market, people selecting our services as their preferred offering because of our NPS and our outcome. We added we're now over 50 sites in terms of those businesses. We think we have a significant expansion. We're looking at more of a dozen in this coming year and we'll have them in the future.
All in for Mark, portfolio of Sonoske shows that we have over 500 sites that you add in to one other department. So, strong performance and strong opportunity.
And we'll
go next to Frank Morgan with RBC Capital Markets. Please go ahead. Good morning. I think you actually commented about this a little bit at the Investor Day with regard to the loss of the Cigna book of business. I think you commented it would be a revenue hit, but really not a profit hit.
And just any additional color on why that is? And does that also assume any type of operational deleveraging with that loss revenue? Frank, good morning. John Rex here. So yes, you're absolutely correct.
I did comment that I would expect your confidence in terms of potential for that business to transition over the next couple of years. And these pads clearly is the expectation here. As I commented, it would have impact on revenue and discount as that transitions. And that really depends on the timing. And that timing isn't completely certain yet in terms of the pacing of that.
And we're going to work with our customer in terms of meeting their needs on that piece. I did also comment it wouldn't have any impact on our earnings outlook for 2019 and that continues to be the case. It doesn't have any impact on our earnings outlook. So that should be determined in terms of how it impacts our revenue and fixed revenue with our customer segment. Thank you, Frank.
Next question please. We'll go next to Josh Raskin with Nephron Research. Please go ahead. Hi, thanks. Good morning.
Here with Eric as well. And question on Optum. We widened about 2.5 years ago, you guys had a couple of really big wins, summer 2016 with Sal Pershing, Texas Employees, etcetera. And I know a lot of that all kicked off from Oneone-seventeen and multiyear deals on all of those. But you probably have close to 2 years of data on it at this point.
And so I'm curious what that data is showing in terms of the impact of synchronization. There's some target financial targets in those contracts. So kind of how you're tracking on those? And when do you think you have come to market with a little bit more of a definitive study on here's what the world looks like in these accounts prior to the synchronization and here's what the effect is looking like under the OPTIMRx contract? Thanks, Jeff.
It's John Franz with OptumRx. I'd say, given the details on some of the customers, I'd say, overall, we're continuing to execute very well with our customers. That story around customization, which we sold to those customers couple of years ago is part
of our broader story to
market today. So, today when we talk about going to market, we talk about how we're negotiating lower cost of care for drugs, how we're focused on lowering the cost of care, including the health outcomes as well as kind of coming to consumer experience. That is our core value story. When we talk about the $20,000,000 to $100,000 of value that we deliver for our highest deployment clients, that is part of our overall book of business in terms of how we serve our customers. So we actually have a lot of good data that is then leveraging to our story in the market today.
So, we actually are coming with strong confidence in our ability to execute. And we're in the market now with things around drug trends and how we can actually reduce drug trends. We're actually out there with the cost of care guarantees in the market. And that's because we've done the and we've been in the market for 5 years with this inventory and we're executing well and we're on the next generation of it. So, we're what's happening, how we're performing.
Thank you for the question, Josh. Next question, please. We'll go next to Ralph Giacobbe with Citi. Please go ahead. Good morning.
We're seeing MLR higher by about 90 basis points in the 4th quarter year over year normalizing for the shift. Is that on Medicaid? Is it a pretty massive uptick for a company your size? And you just haven't seen this magnitude of pressure from others in the space. So I guess I'm just trying to get a sense if it's unique to specific markets you're in that I was on and if it's unique to you in terms of adverse risk within those populations.
Just trying to reconcile that and maybe if you could help just with where your pretax margins are within medicines at this point and what kind of improvement you do expect to change from 'nineteen? Thanks, Ralph. We're not seeing the same that you are on the MLR kind of. So, why don't we just circle back with you separately on that as it relates to the Medicaid business that is profitable. It's not at our target margin range of 3% to 5%.
I'd like to see us get into the bottom end of that range in 2019. We'll definitely be within that range probably in the 20 20 period. And we continue with confidence that that's based upon the great advocacy actions that we've taken so far as well as another potential engagement and operating cost initiatives that we put in place. Also, I want to let you know this business functions very effectively. It has mid-60s NPS scores for a traditional Medicaid population in the dual, it's in the 70s.
Oftentimes number 1 in terms of quality scoring in its local markets. It's referenceable by all the states. So, overplay Medigate here, we have a short term issue that will take us a little bit of time to work our way out of. We again have been working on this most of 2018, came more acute in the first half, really in the second quarter. We've been working hard on it since.
And you've probably seen some of those reactions flow through. You can probably see that in some of the best for the filings, some of the improvements that we've faced. And the eCall to be able to recognize where they are and how isolated it is and our capacity and as a company to be able to turn that around. So we have a lot of confidence in where we're at. It's led by Heather Steenposser, who's a fantastic leader.
And we will her team will continue to make good progress on this through 2019. Thank you, Ralph. Next question please. We'll go next from Gary Taylor with JPMorgan. Please go ahead.
Hi, good morning. Yes, MLR will be the theme of the day. I apologize. Maybe a little help just hinting about seasonality in your MLR and the kit sets change. So when we look at Q3 to Q4 in 2016, MLR was pretty flat and 'seventeen was up 50 bps in this quarter, up 110, but more like 170 if you exclude the prior year development.
So it does seem like there's been a trend where you've seen more of an increase in 4Q even as the year has come in line. So would you attribute most of that to just some of the seasonality in the commercial business that you've talked to with higher co pays and deductibles over the years? Is there something else in the line of business mix that might be contributing to higher MLRs in the 4Q? Dan? Thanks, Gary.
This is Schumacher. So maybe provide a little bit of context on the commercial seasonality. As you look sort of Q1 to Q4, the change in that capital ratio generally is somewhere in that 6%, 7%, 8% zone as you move from the 1st to the 4th quarter. But I'd tell you, if you look 'seventeen versus 'eighteen, there's probably been somewhere around a 1 point shift in that as you look at greater concentration in offerings that drive consumption towards the Q4 as well as the increase in the average deductible. If you look inside of our average deductible increase in the last 2 years or so has been in the 8% to 9% zone.
So those are the contributing factors that kind of push the consumption and the realization of that towards the Q4 and I think that's what you're seeing
We'll go
next to Lance Wolf with Sanford Bernstein. Please go ahead. Yes. I wanted to ask a question on the cross sells and the specialized benefits focus mid half. Just related to that, you spoke about their full vision and kind of additional coverage as being an area of focus.
I want to understand how much of a focus was cross sells of PBM, stop loss and other care management solutions as well? Okay. Dan, do you want to take that? Sure. Thank you, Lance.
Obviously, our ambition is to serve the needs of our clients. And we know that when we have the opportunity to really combine the full capabilities of our enterprise, taking our knowledge and know how with respect to medical offering, underpinned by high performing care delivery assets, both profit Care as well as 3rd party, bring in our advocacy and navigation competencies from OptumHealth, know how and intelligence from Optum Insight and then had a chance to take on the ancillary offerings that really contribute to the overall SM well-being of a person that we have our best results and outcomes. So we are no doubt very focused on trying to combine both our medical and our pharmacy, take on stop loss, add in better management, advocacy, navigation in support of people along with the ancillary services. And we're making some nice progress in that regard. And we've got a lot of upside, frankly.
As you look at penetration rates, particularly upmarket. In pharmacy, we've got a lot of room to be able to serve our clients in a more fulsome way. Thank you, Brian. Next question please. Going next is Steve Worimi with Cleveland Research.
Please go ahead. Hi, good morning. Thanks for taking my question. Moving off the MLR for a bit. My question is just overall around some of the new commercial initiatives you've talked about, which is Vyme, Colorado Doctors and Justice ACO.
I was wondering if you can give us any perspective on potential membership gains from the the ARRIMs either in 2019 or 2020? Sure. Thank you, Steve. Maybe just to step back a little bit, from our perspective, we are and as you caught it, we're excited about our efforts to deliver greater value for people. And I think as Dave mentioned, we're on the forefront of a labor innovation and you named some of those.
We see some modest contributions from those efforts in 2019 and increasing efforts in 2020 and beyond. Nexus has been around a little longer and more evolved. We had about 75,000 for 2018. As we turn into the year, we will increase that nicely. And by the end of the year, we expect to more than double that.
As it relates to Colorado Doctors Plan and Bind as an example, I would say they're on the early end of it. So, again, smaller contributions to our enrollment tables in 2019 and growing contributions in 2020. Again, like the suite of offerings for bringing to market as well as the interest from a client perspective. Great. Thank you, Steve.
Next question please. We'll next from Steve Valiquette with Barclays. Please go ahead. Great. Thanks.
Thanks for taking the question. So from the January 2019 Medicare Advantage membership data that just came out overnight, I know some investors look at the sequential trends versus December, others look at the year over year growth trends. I know it's early, but we're targeting that every 1st January of 2018, that you're going through its total Medicare Advantage membership almost 10% and the individual MA membership was up almost 11%. So I guess the key is that one case hypothetically suggests that this is trending slightly above the midpoint of the growth. You kind suggest of 2019 back in November, which is obviously positive.
I guess in the face of winter temperatures, I think there could be a bias to the upside for your MA and SG and A growth in 2019. Brian Thompson, Durbin. Sure, Steve. Hi, Brian Thompson. Thanks for the question.
2019 is up to the start that we had expected, with a strong start from our vantage point. I'd say what AEC suggests is a performance certainly in line with our full year range. To share our growth. I just suggest the share gain again, which would be the 5th year for us, competitively, which we're certainly very pleased with. I think as we talked about in the past, we've been to an environment where we provided an opportunity to really grow meaningfully.
I think we took advantage of improving our benefits, but we
would also suggest that we
were very cautious and very difficult in that regard and establish our benefits and mission and our capabilities for 2019 with guide for long term stability, but certainly cognizant of the potential return of the health insurance tax in 2019. So, we're really pleased about positioning. And again, I think it aligns really nicely with what we got expected clearly as well as parts to 2019. We'll go next to Michael Mitchell with Evercore ISI. Please go ahead.
Thanks. John, can you just break down the favorable reserve development into year versus anything prior year? I think prior year was lower negative than past quarters. So is that pattern consistent and this quarter's development is all underlying 2018 performance? Sure, Michael.
John Rex here. Yes, we had $280,000,000 of total favorable development for Q. That breaks down $170,000,000 current year, dollars 110,000,000 prior year. I'd call the table development, which is really indicative of cost containment efforts across our business and across the enterprise. I don't know how material I put it in the context of $125,000,000,000 in medical spend overall.
And it continues to be our objective to manage that well to improve accuracy. We have increasing level of electronic data exchange, it's early to capture our cost and really more ability to intervene. So we should have increasing accuracy with that. And as it relates to kind of our cost containment efforts, some of those, they roll across in different forms. Some of them are very near term.
Some of them take a little bit longer to achieve. So some of them feel a little bit more in terms of prior year. Thank you. Michael, next question please.
And we'll
go next to David Lowery with Jefferies. Please go ahead. Hi. Thanks for squeezing me in. A question on John Rex's EPS cadence commentary.
I understood you to say the 48% as I've done in the past, but more in the Q1. So I just wanted to clarify that you are comfortable or you are guiding that to the 48% in the first half, but more than in the Q1. Is that how we are to interpret your comments? Thanks for the question. Here's how we view it.
So, year to year, individual quarters can often be impacted by several factors. Call those out as hence such as the pacing of when weekends and holidays fall. As we all know here, the calendar is fairly stable. So it's just typically a matter of differences in quarters. And as you would realize, those variations are most impactful to UAT Benefits businesses.
So in 2019, the Q1 had slightly fewer work days than the Q1 of 2018. Given the timing of share based compensation awards and how that impacts our pass rate. We generally also expect the Q1 to have the lowest pass to pass rate of the year. Perhaps we're not getting overly prescriptive and maybe you're right about the kind of 48% mix in terms of how we see the first half playing out and
that is still consistent.
But without getting all those pieces and without knowing all your models, I'd suggest something roughly in the range of a 1% shift of your full year earnings outlook would be more appropriately recognized in the Q1? Again, thank you. All right. Thank you, David. Are there any other questions?
It occurred. We have no further questions. I will turn the floor to you, Mr. Lichtman, for final comments. Okay.
Well, thank you. I appreciate all the questions today. To sum up, the Company delivered strong performance in the Q4 and full year 2018 I'd like to give a genuine value to the people we're privileged to serve and to the society at large. I'd like to take this opportunity to thank the 300,000 people of the UnitedHealth Group, operating in UnitedHealthcare for their good work. We are confident in the fundamentals of our businesses and expect to deliver solid operating and earnings performance in 2019.
The opportunities ahead in 2020 and beyond are exciting. There is a remarkable potential for us to serve more people in more ways every day, growing our businesses in the U. S. And worldwide and continuing to provide consistent, reliable results for you, our shareholders. Thank you.
And this will conclude today's program. Thanks for your participation. You may now disconnect.