Good morning. I'll be your conference operator today. Welcome to the UnitedHealth Group's Second Quarter 2018 Earnings Conference Call. A question and answer session will follow UnitedHealth Group's prepared remarks. As a reminder, this call is being recorded.
Here's 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 experience or present expectations.
A description of some of the risks and uncertainties can be found in the reports that we file 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 at www.unitedhealthgroup.com. Information presented on this call is contained in the earnings release we issued this morning and in our Form 8 ks dated July 17, 2018, which may be accessed from the Investors page of the company's website. I would now like to turn the conference over to the Chief Executive Officer of UnitedHealth Group, Mr.
David Wichtman. Please go ahead.
Thank you, and good morning, everyone, and thanks for joining us for our Q2 report. We are encouraged by how our businesses are advancing in service to customers, consumers, physicians and across the healthcare system at large. Encouraged, but far from satisfied. Continuous innovation and improvement in health care experience are critical to fulfilling our mission, helping people live healthier lives and helping make the health system work better for everyone. Consistency and high quality care, consumer experience and value build trust and loyalty.
These drive retention and growth and position us to deliver strong and reliable financial results in 2019, 2020 and beyond. First half twenty eighteen performance illustrates strong execution on this path. Compared to last year's first half, revenues of $111,300,000,000 increased 12.7 percent or $12,500,000,000 Adjusted cash flows from operations grew $7,200,000,000 and adjusted net earnings grew 28.2 percent to $6.19 per share. For the full year, our outlook for adjusted net earnings per share is increasing to a new range of 12 point $5.0 to
12
$15,500,000,000 which is the upper end of our previous guidance. Importantly, our enterprise wide Net Promoter Score is tracking to advance meaningfully again in 2018 after increasing 6 points in 2017. Our NPS is particularly strong or strongly improving across our government program customers and consumers within our care delivery businesses with network physicians and their practice managers and with customers and consumers at UnitedHealthcare Global and the pharmacy business at OptumRx. NPS across the employer health benefits base remains solid with upside opportunities to distinguish our performance among commercial market consumers. We believe emerging innovations around the next generation of digitally enabled, highly personalized services combined with more evolved consumer centric benefit offerings will further advance our MPS performance.
Quality continues to be strong and rising. Approximately 80% of our Medicare Advantage seniors will be served by 4 star rated plans in 2019 we are looking to improve on that strong base in 2020. For commercial benefits, we expect more than 40 local market health plans will be rated in the top HEDIS categories in 2018, up from just 10 2 years ago. And we continue to help create a better future for healthcare through venture investments, building new businesses organically, ongoing investments in innovation throughout our enterprise and open source innovation through partnerships and strategic acquisitions of businesses and capabilities. We look forward to sharing some of these and other innovations and developments with you at our Annual Investor Conference.
As you know, we apply core competencies in clinical expertise, technology and data analytics to serve people in differentiated ways across our operating platforms, focusing on our 5 long term growth pillars. Transforming pharmacy care services is just one of those pillars. Applying our core competencies in the pharmacy arena yields a better service experience, transparency, simplicity, lower costs, higher value and growth. And we do so engaging proactively with customers, manufacturers, distributors and retailers across the industry. UnitedHealth Group now has more than 5 years experience synchronizing medical care and pharmacy care for patients.
Over those 5 years, we have continually applied learnings to refine our approach, while hardening, scaling and expanding our services. Results in market share and NPS gains suggest we are the clear market leader in capability, experience and value. We deliver integrated pharmacy care services to employers and health plans on both a carve in and carve out basis. Health plans and employers continue to award OptumRx new business, while existing customers are retained at a high 90s percentage rate year after year. Here's how this integration of pharmacy and medical care actually works.
Optum's analytics engine processes administrative, demographic, clinical, lab, pharmacy and behavioral data to produce specific next best information at the individual consumer level and identify the highest value actions an individual is most likely to take. That likelihood is a critical element because an action not taken produces no value. We then deliver the insight to patients, consumers and physicians on a multichannel basis. Perhaps they need help adhering to a medication regimen or digital coaching to better manage a chronic condition or they would benefit from our digital weight loss and diabetes prevention program. This year, our customer advocates will help people in real time schedule hundreds of thousands of doctors appointments to close specific gaps in care.
Together, these services are helping clients advance quality, lower costs and improve consumer satisfaction. This integrated approach improves pharmacy adherence by 12%, while helping reduce hospital admissions and ERUs by 6%. Our digital PreCheck My Script service offers clarity, transparency and simplicity to the prescribing physician through their electronic medical record, while helping patients at the point of care. Already today PreCheckMyScript is integrated into the practice flow of physicians who treat as many as 5,000,000 OptumRx consumers over the next year and we will grow that figure aggressively over the course of the next 18 months. These people have a simpler experience at the pharmacy counter as a direct result of the real time pre authorization capacities and the formulary cost and coverage information delivered to their physician by PreCheckMyScript.
OptumRx continues to emphasize timely, convenient prescription delivery for consumers. Our specialty pharmacies have long used local hubs to provide same day and next day delivery with clinical support and counseling provided by pharmacists via modern telemedicine. We provide infusion services delivering specialty pharmaceuticals to patients in their homes over 350,000 times annually. And we have begun to apply these services more broadly through our OptumCare sites. Patients using maintenance medicines receive refills in advance of their refill date through our home delivery services providing value these prescription needs.
Finally, we are improving real consumer value as a leader in offering transparent point of sale discounts to consumers at the pharmacy counter. These meaningful discounts will be embedded in the basic benefit design for more than 7,000,000 UnitedHealthcare insured consumers. We are the only party incentive to reduce both the net cost of drugs for people and the total medical cost for customers, giving us a unique value role in the pharmacy supply chain. All of these capabilities appropriately manage pharmacy and medical cost trends, ensure the highest levels of patient safety, simplify the consumer's experience and improve value. Innovation, quality, service and performance across all five growth pillars will be critical to helping us fulfill our mission and doing our part to help the markets we serve advance care access while reining in growth in healthcare spending.
Now let me turn it to Andrew Witty for an update on our Optum business. Andrew, welcome to UnitedHealthcare.
Thank you, Dave. I'll start today by expressing my admiration appreciation toward all those whose work has created extraordinary Optum platform, which is frankly unlike any other healthcare business in the world. As a member of the UnitedHealth Group Board of Directors, I had the opportunity to get to know the company and its people. And now as Optum's CEO, I'm further impressed with the capabilities and talent we have at every level of this company and the breadth of opportunity for Optum to serve and grow in pursuit of its mission. Optum is vibrant and performing well.
This young company will continue the nimble market responsive approach it has embraced since its inception, enabling Optum to serve more people in more ways and producing consistent strong growth in revenues and earnings. In the Q2 2018, OptumHealth increased the number of people it serves by 7% to 92,000,000 and revenue per person grew 12 percent over last year as OptumCare grows and diversifies its businesses. Optum Insights backlog grew nearly 15% year over year on the strength of its technology data analytics, business process and advisory services. And OptumRx again filled over 3 percent more adjusted prescriptions as it continued to expand its market share. Overall, Optum's 2nd quarter revenue grew more by more than $2,000,000,000 over last year, growth of about 9% to nearly $25,000,000,000 OpFund's earnings from operations rose 21.5 percent, driven by strong revenue growth and 80 basis points of margin expansion due to both operating advances and solid fundamental expense disciplines.
Importantly, all three Optum segments expanded margins and grew operating earnings strongly. Now looking ahead, the differentiated value we deliver to customers positions us to sustain growth into 2019 and beyond. Digital Health is a UnitedHealth Group Growth pillar like pharmacy care services. Rally, part of Optum, has emerged as a market leading comprehensive consumer digital health platform. Fully implemented and operate in a scale with multi payer capabilities, Rally is our digital front door for the consumer.
Rally helps people easily select the best health benefits plan for their families, assess their health, pursue wellness and when care is needed, engage effectively with the healthcare system. Rally has now surpassed $1,000,000,000 in cumulative incentives paid to consumers, standing part in an early stage digital health marketplace. Consumers earn these incentives for taking real actions to improve their health, like receiving biometric screenings, working to stop smoking or selecting a primary care physician to just name 3 of many. By moving to digital coaching from legacy telephonic models, Rally tripled the number of individuals engaging in our programs, while creating much higher consumer engagement intensity and loyalty. As a result, our customers are avoiding 1,000,000 of dollars in downstream medical costs.
Already 1 third of our wellness coaching customers have moved to new approach and more than 90% of their coaching engagements are digital compared to an entirely analog experience only 1 year ago. OptumInsight continues to grow steadily, working actively with payer customers large and small, supporting our efforts to maintain and improve clinical quality, administrative accuracy and payment integrity. Our artificial intelligence capabilities in areas like natural language processing for clinical information are embedded in our product sets and have proven valuable to both payers and care providers. Today, care providers who deliver care to nearly 1 third of all Americans use Optum Performance Analytics, deepening and enriching the clinical data sets we use to improve performance of healthcare systems and the health of people. At OptumCare, we're creating the structure to advance more modern and locally effective clinical and administrative models for the benefit of physicians, patients and customers.
OptumCare actively advances the practice of evidence based medicine and meaningfully improves consistency in care quality, while sustaining NPS scores in the range of 80 and offering more convenient sites of service for applicable procedures and examinations at more than 500 locations nationally. Savings are more than 50% compared to less effective sites of care. This business is early in its growth curve. And like digital health, we see it as another important long term growth pillar for the enterprise. Finally, as you heard Dave say, the value being delivered in pharmacy care services is translating into high NPS and continued client retention rate in the high 90s at OptumRx and new wins, including 3 new health plans for 2019.
We're already hard at work with prospects for 2020 even as we further strengthen capabilities for 20 19. In sum, our businesses are growing and performing well today and preparing for next year. And we believe our investments in people, technologies and processes position us to grow for years to come. I'm energized by the potential Optum has to make a meaningful difference in healthcare. And now, I'd like to turn the call over to Steve Nelson, UnitedHealthcare CEO.
Thank you, Andrew, and welcome. UnitedHealthcare grew to serve 2,200,000 more people over the past 12 months. All in, our revenues advanced more than $5,000,000,000 over last year to nearly $46,000,000,000 in the quarter, growing at a 12% pace with Medicare and Retirement revenues growing nearly 13% and community and state by more than 17%. Our commercial business continues to serve nearly 27,000,000 people with steady growth of 50,000 people in risk based offerings this quarter, while the public and senior sector grew to serve 60,000 more people. We also experienced minor attrition in our fee based products in the Q2 similar to the Q2 of last year.
The pricing we are receiving for risk based products remains with our expectations and commercial medical cost trends remain steady, also in line with expectations. And we're performing well on managing administrative costs across UnitedHealthcare. In total, our 2nd quarter earnings from operations of $2,400,000,000 grew 7% over Q2 last year. Looking forward, we are progressing well on 2 more enterprise growth pillars, consumer centric benefits and global, as we improve our total cost of care position and simplify the consumer experience. In consumer centric benefits, we continue to align our approaches with value based care delivery, care delivery supported by modern digital resources and data empowered human and digital advocates who help people navigate the system and achieve their health and care objectives.
This modern integrated approach increasingly enables greater personalization, better information flow and improved consumer experience and value as measured by NPS. For example, in our Medicare products, value based care is driving 5% increases in key screens, a 13% lower rate of emergency room use and a 3% increase in the number of seniors with regular doctor visits, all of which ultimately impact cost, satisfaction, consumer attention and growth for our business. It's all about helping people at the moment they need it and then making it as simple as possible for them to make the best decisions to improve the effectiveness and quality of their care, affordability and overall satisfaction. These themes hold true whether the person making that decision is a patient with a medical issue, a healthy consumer focused on prevention, a physician treating a patient or a business executive understanding value drivers and their health benefit offerings. Looking ahead, we expect to continue to see strong growth in serving those with higher acuity needs like seniors, dual special needs, long term support services and the chronically ill.
UnitedHealthcare Global just completed the 1st full quarter with BenMedica, which is growing and performing well serving the people of Chile, Colombia and Peru. Strong year over year improvements in business performance were made in Brazil as focused efforts over the past half decade have strengthened Brazilian clinical and business alignment. These efforts have been instrumental in improving earnings in that region and will continue to gain momentum going forward. Amil's recent recognition as the most innovative health insurance company in Brazil was informed by advances in technology, consumer experience and product design and investments in primary care delivery and new models for paying for care. Our young South American business is well positioned with strong assets, a stabilizing business environment and a long runway for growth.
Now I'll turn the call over to John Rex, UnitedHealth Group's Chief Financial Officer.
Thank you, Steve. The well balanced quarter we reported this morning includes consolidated revenues growing 12% over last year to more than 56,000,000,000 dollars Our earnings from operations exceeded $4,200,000,000 growing nearly 13% on steady operating margins. Adjusted earnings increased 28 percent to $3.14 per share and our cash flow from operations grew to 4,000,000,000 dollars Turning to details, we continue to expect our 2018 medical care ratio to run-in the range of 81.5 percent plus or minus 50 basis points, with commercial trends well within our range of expectations of 6% plus or minus 50 basis points. In the quarter, our consolidated care ratio of 81.9% reflects the impact of the health insurance tax, offset by changes in business mix and reserve development, both compared to last year. This quarter's favorable development was principally due to favorable cost true ups from the Q1 2018 business.
Our 2nd quarter operating cost ratio of 15% increased only 40 basis points over last year, despite including about 1 percentage point cost increase from the return of the health insurance tax and higher investments in innovation and business development. We offset that pressure with strong revenue growth in lower operating cost ratio businesses like Medicare and Medicaid and operating expense discipline across the board. Turning to our balance sheet, we continue to maintain distinctive strength and flexibility. Return on equity for the Q2 exceeded 24% and our debt to total capital ratio was 40.8% at June 30. In June, the Board of Directors raised our shareholder dividend by 20% to an annual rate of $3.60 per share.
And we continue to deploy capital to further diversify our company through focused merger and acquisition activities and for our long standing share repurchase program. We are optimistic as we look ahead to the second half of twenty eighteen and into 2019 and strive for continued performance improvement, while taking a realistic and prudent view of the future. As Dave mentioned, we now expect 2018 cash flows from operations to approach $15,500,000,000 and adjusted earnings in the range of $12.50 to $12.75 per share, growth of 24% to nearly 27%.
Thank you, John. We think about the numbers shared with you today as the result of serving millions of people, 1 person at a time, 1 health system at a time. We continue to advance value, simplicity, affordability and quality. Doing so in differentiated ways increases our value and sustains our growth. Growth provides even more opportunities to fulfill our mission and deliver long term performance for the people we serve and our shareholders.
As we pass the midpoint of this year, we begin to shift focus to the year ahead when we expect our enterprise to continue to innovate, grow and perform strongly for society and for our investors. We expect to grow revenues, earnings and cash flows broadly across the expense of our uniquely diversified and increasingly global healthcare portfolio. We won't get into specifics now, but at this distance we see more tailwinds than headwinds. As was the case heading into 2018, the tailwinds in our businesses are largely generated internally coming from strong and diversified growth across our five distinct pillars, all aimed at achieving our long standing mission. To achieve this growth, our businesses will continue to make deeper investments in quality improvements, technology deployment, delivery system optimization, consumer centric financing mechanisms and other innovations to improve the value individuals receive from the health system.
These investments will also serve to lower our cost structures, improve debate surrounding coverage expansions and healthcare costs to continue into next year. Additionally, the return of the health insurance tax in 2020 will cause higher premiums and lower coverage levels for people and we will be advocating on behalf of our customers and consumers for a delay or outright repeal of this tax. As solid as our performance may seem, we are not satisfied given our organization's capabilities and capacities to serve. Despite strong top line growth and results, we are not performing at nor consistently growing to our full potential. This has and will continue to be an area of intense focus for our business leaders.
Perhaps even more critical from my perspective, we must work enterprise wide to improve our speed and agility, so the pace of innovation and change better reflect our restless drive to deliver even more value to those we serve and unleash the full transformative impact of this enterprise. We'll provide some initial direction on 2019 in our Q3 earnings call followed by a full review at our Annual Investors Conference on Tuesday, November 27. We hope you can join us there. Now we will open the call for your questions. One question per caller, please, so we can get to as many people as possible.
We'll take our first question from Justin Lake with Wolfe Research. Please go ahead. Your line is open.
Thanks. Good morning. My question is on reserve development. Given the relative lack of prior and intra year development in the quarter, I was hoping you could give us some increased color on cost trend and reserve development across the commercial Medicaid and Medicare segments. And then just to make sure we understand prior year development trends overall, can you tell us what percentage of claims if any you have you said each quarter for adverse deviation to your reserves?
I think most companies talk about mid single digits, but just wanted to confirm yours. Thanks.
Okay. That's Jeff Putnam.
Good morning. Thanks for your question, Justin. Starting with development, we maintain a a reserving process as you know that's tightly controlled and consistent over time. And we're very comfortable with our reserve position at the end of the quarter and really pleased with the overall accuracy of our reserving over time. When you look at our year to date development because yes, the second quarter was fairly modest, but when you look year to date as a percentage of our medical prior year medical expense, it's right in line where we are historically.
As that works into trends, we are always very respectful of trends. But as we stand right now, we've not seen anything to date that would inform or change our view on commercial medical trends for the year by cost by category or in total. And we don't get into details on trends in Medicare and Medicaid businesses, but I could offer a couple of comments. Medicare trends are generally stable with last year and we are seeing some elevated consumption over time similar to last year related to the market leading growth that we've had. And Medicaid trends also really need to be looked at state by state as always.
There are some areas with increased trend and then we're working to manage those down, but nothing really notable
to call out on those.
The Medicare trend you mentioned, can you just expand on that? What drives that in terms of your market leading growth? I apologize.
Maybe I guess Brian Thompson to speak to that. Sure.
Hey, Justin, Brian Thompson here. Again, we're really not seeing any trend emergence in 2018. I want to make that clear. What we're seeing is very consistent with what we saw in 2017. I think the point is, given our market leading growth, we do prepare for and have seen a utilization uptick as we grow meaningfully compared to the rest of the market.
We see that both in the form of new enrollees as well as our improved retention holding on to folks later in life. So again, what we're seeing in 2018 looks a lot like what we saw in 2017 and 2016, this being the 4th year now for strong market share gains and really provides a very credible good baseline for us as we look forward to 2019. Thank
you. Next question please.
We'll go next to Sarah James with Piper Jaffray. Please go ahead. Your line is open.
Thank you. My question is on the 2019 commercial environment. On the last call, Dion mentioned the national account RFP RFP pipeline is larger than normal. Is that again some concerns over, please?
Sarah, we're having a hard time hearing you.
So can you you may be
on a headset or something. Can you?
Sorry, it's not better.
Yes, it is. Thank you.
So my question is on the 2019 commercial pricing environment. On the last call, Dan mentioned that the national account RFP pipeline was accounts, small and middle market develop?
Sure. I think the question relates to national accounts pipeline and development, Stan.
Sure. Thanks, Sarah. Good morning. So on the national accounts front, as we continue to progress through the selling season, I think I shared last quarter and would likewise amplify this quarter is that it's really a theme around incumbency that continues to be it as we progress through the selling season. At this point, I would tell you that we've had some nice new client wins as well as expansions in existing clients, but we've also had some clients leave us as well.
And obviously, there's still more to be resolved in the selling season. We are doing well again to convert retirees to group Medicare offerings. And likewise, we continue to do very well in the middle market segment as we work through the years. So that's sort of the self funded national account profile. I think you also were asking a bit about the pricing environment and as it relates to commercial risk based offerings.
And from our perspective, we are happy to see, as we had told you last quarter, we'd expect to return to growth in the commercial risk based group offerings as we progress through the year. We did that in the Q2 and had nice contributions across all market segments from individual small group through to middle market as well. And so as we look at that environment, it is competitive. It has been competitive. We always have pockets of competition that we're responding to, but we find ourselves well positioned and well served by our broad footprint, both geographically as well as by markets segment and funding status.
And as we've talked about in this form for some time, we've done well to expand our product portfolio really along that value and price continuum and increasingly align that to care providers that are high performing. So hopefully that gives some color on what's happening both in the self funded and the fully insured segments in the commercial market.
Thank you, Sarah. Next question please.
We'll go next to Dave Windley with Jefferies. Please go ahead. Your line is open.
Hi, good morning. Thanks for taking my question.
I wanted to flip over to Optum, the kind of 2 parter here. So the first part Optum Insight margin has performed very well year to date. Wondered if you could talk about either pricing or mix of business drivers of that? And then secondly and more broadly as Andrew talked about Rally and the uptake of different technologies, how do you think about broadening the uptake or the adoption rate of your technologies in an environment where we might see competition directly from a technology company? Great.
We'll take both those questions. Tim, you want to take the first one?
Sure. Happy to do that. Dave, thank you very much for the question. So on OptumInsight, as we think about the quarter and we think about the margin growth, it really is 2 items. 1, you referenced pricing and mix, and there's a a significant amount of mix opportunity that is occurring in terms of growth of business around the risk and quality businesses as well as payment integrity.
And then the second area that is also important and continues to be important, you heard us talk a significant amount in 2017 about the discipline that we drove, financial discipline and overall cost management. And that's really coming through the business, frankly, all across Optum, but specifically in Optum Insights in the quarter as well.
Great. And then if I can, I'll just make a few remarks on Rally as well. And thank you for the question. Rally, as you can tell in the script, it's something that we're very proud of having developed over the course of the last 4 years. Obviously, there was a lot of work that went into that advance of our alignment with them, but they've done a very nice job of taking a single product company and making it multidimensional along the lines that Andrew has described.
So we are seeing probably the very fast uptake and in fact accelerating uptake of that business as we expand our offerings to respond to greater levels of consumer need. So as an example, when we gave Rally the responsibility for our premium designation program, which is effectively the way in which consumers search for and find a physician and or other care services. We gave that responsibility. We all of a sudden started to appeal to a broader group of consumers which dramatically increased the registration rate across that platform, now sitting at I believe somewhere around 18,000,000 people are registered with Rally today. So, we believe that the expansion of the value that is offered on the Rally chassis is the single best way to get there and that really requires that we continue to provide significant value to consumers both in terms of cost containment, but also in terms of the improved health that they each receive.
So we're continuing to expand and diversify that offering, keeping it simple for people. And we look forward to the developments that we'll see with the individual health record and how that drives next best action and to the consumers that we serve and expect to see increased utilization as a result as well.
Great. Thank you.
Thanks, David. Next question, please.
Our next question comes from Peter Costa with Wells Fargo. Please go ahead.
Good morning. Thank you. My first question is regarding Optum. Andrew, welcome aboard in your first quarter in the hot seat. And I kind of want to understand what you expect to be different about growing Optum going forward under you relative to how it's grown in the past?
And then if you could in the quarter itself, the growth in revenues at Optum slowed down from the Q1. Can you spike out how much of that was related to M and A?
Sure. Peter, thanks very much for the question. I'll ask Tim in a second to address your second part of the question. But in terms of the first, obviously, very early days for me here at Optum. I think terrific foundations have been laid over the last 7 or 8 years in terms of the asset base that this company has is really, I think, unparalleled in terms of the portfolio of assets that we have.
As we look forward, I think the opportunities are going to be very much centered around how we start to drive the gearing between all of these assets to really bring to life the full potential of this portfolio. And I think what we see at a very high level is significant direct local interface as care provider and touch points with patients and consumers. So a business with a real face backed up with an extraordinary evolving digital capability, which then allows us to drive high frequency contact, really all underpinned by tremendous commitment to care and delivering quality of care, commitment to bringing down total cost of care and ensuring all of that done in an extraordinary high quality way. So I think all of those tenants of the business which have got it thus far are going to be absolutely the characteristics going forward. What I'm focusing on now, of course, is really making sure I understand all of the various parts of this business, working with the team to figure out the next steps, it's going to I think be characterized very much in the way I just described.
Maybe I could pass to Tim to answer the more specific question on the quarter.
Sure. Peter, thank you for the question. First, what I'd say is as we look at the growth rate of revenue at Optum both year over year and sequentially, it is in line with our plan in both of those ways of looking at it. The revenues of $24,700,000,000 were up 9% or up 2,100,000,000 compared to
a year
ago with both OptumHealth and OptumInsight posting double digit growth rates and with OptumRx posting a 7% growth rate year over year. In each of those businesses, organic growth was very strong, both in OptumHealth in terms of care delivery with market expansion as well as Optum Serve volume growth and then behavioral health. And then in Optum Insight, strong growth with the addition of the advisory board, excuse me, but also pretty significant volume growth in terms of our risk and quality business and then also volume growth and payment integrity. Also when I mentioned OptumRx earlier and the overall revenue growth there, I think it's important to understand that that's driven by new sales growth in terms of new clients that have come on as well as very strong expansion in terms of specialty as well. So really solid growth across the businesses and in line with our expectations.
I was hoping you'd spike out quantitatively exactly what the growth was from M and A this quarter versus the growth last quarter?
We don't spike that out specifically, Peter, but I would tell you it's not an appreciable difference.
Thank you.
Okay. Thank you, Peter. Next question, please.
We'll go next to Steve Chenow with Goldman Sachs. Please go ahead.
Good morning, guys. Thanks for the question. I just wanted to follow-up on sort of the decline in ASO coupled with another strong quarter of growth in the group risk business. Can you give us a sense for
what you're seeing out there? Has that sort of decades long shift ASO stalled or slowed? And are you seeing greater demand for group rest products now? And if so, why do you think that is? And just in this context, if you could comment on Nexus AATO, I'd be really curious
to hear what's happening there. Thanks. Dan?
Sure. Thanks, Steve. This is Dan Schumacher. You had a few things tucked in there. First, just on the quarter and the decline with regard to self funded enrollment.
The reality there is it's just sort of the normal seasonal pattern, particularly in our international accounts and employer based attrition. So if you look at that outcome in comparison to the average of the last 5 or 10 years, it's very much in keeping with that. So really just the normal seasonal pattern we see on the ASO front. I think you had asked about is there an acceleration or a change in the migration from fully insured to self funded? That continues to be a recurring theme.
I would say it's sort of at a comparable pace to what we've seen over the last several years. So I wouldn't spike out any acceleration or deceleration in that. We don't believe on the fully insured side to see greater take up rates. What we're doing there is we're actually taking market share. And I think that large contributor to that is really the work that we've done, as I've mentioned before, around expanding our product portfolio around that value continuum and then making sure importantly we pair it with really high performing care delivery partners, both OptumCare as well as externally and then improving as we've talked about the consumer experience and making it simple and personal for them.
You would ask I think also about Nexus ACL. We continue to build that product and are excited for the prospects. And just as a reminder for those on the phone, the Nexus ACL offering is really a national accountable care offering. So we string together our best solutions locally into a national solution. Today, we've got about 75,000 enrollees on that.
We'll double that as we turn into the year and we'll look to double it again by the time we get to the end of 2019.
Thanks, Steve. So really, Steve, what you've hit on is this category of growth for us, pillar of growth around consumer centric benefits, Nexus ACO would be one example. But if you look to the distinguished group insured growth over the course of the last 3 years or so and why we're bullish on growth going forward. It's really because of these new designs that we're progressively putting in the marketplace and maybe tie it to the question to before that, our ability then to use digital assets and other ways to engage consumer around lifestyle behavior modifications creates a great attraction to these products as well. So thank you for your question.
Next question please. Thanks.
We'll go next to Michael Baker with Raymond James. Please go ahead. Your line is open.
Yes. Thank you. I was wondering if you could outline some of your promising venture investments in light of your drive to reshape the future healthcare? We'll start with Dirk McMan.
Yes, sure. So Optum Ventures, they generally invest in digital health companies that use data and analytics to improve consumers access to health and healthcare services and healthcare across the board. Also Ventures really invests in things that make the healthcare system more reliable and easier to navigate. The Ventures investments are focused on, I would say, 4 main areas health analytics, digital on demand, consumer focused health and healthcare system management. I would also say and conclude that there's a lot of synergies between Optum and Optum Ventures, Optum providing a good scalable platform to test Optum Ventures and Optum Ventures being able to give us some shots in the arm with respect to our digital agenda.
Thanks, Dirk.
Yes. And I'll just add a little bit to that if I can. We also build businesses organically as well inside our company and maybe just comment on a couple. One would be a business called Rinnai where we're advancing new platforms for dialysis, really trying to promote home based dialysis and use as well as trying to drive greater value to consumers in that whole category, if you will. And then just I'd also mention when we announced this in the last couple of weeks where we created a a company called along with our venture partner, Lemai, created a company called Bind, which is an on demand healthcare insurance platform, which I would characterize as being pretty revolutionary in terms of the potential it holds to fit a particular market segment in the group insured marketplace as well as the self funded market as well.
So those are a couple of additional examples. These are the things that we hope to profile for you and to a greater extent when we get together in November. Next question please.
Next question is from Kevin Fischbeck with Bank of America Merrill Lynch. Please go ahead.
Great. Thanks. I wanted to ask you about the guidance because I've spoken a little bit with the guidance that's happened so far year to date. Just Q1, you raised guidance by less than the beat. In Q2, you basically raised guidance with the beat, even though announcing a few pretty big deals during Yirvan Medica, Sound, a few other things that are probably at least a third of what the total guidance range has been.
So wanted to see if you could kind of rectify why the guidance hasn't been raised by more given the tailwinds from M and A and then given what appeared to be pretty solid trends so far in the first half of the year. Is there anything you would highlight as either one time in the first half or a headwind decline in the second half?
Thanks, Kevin. Well, I think we've actually raised expectations pretty strongly over the course of this year. So twice by a total of about $0.175 at the midpoint and that's despite some pretty substantive flu pressure and a new HIF effect that was identified in the Q1 of around 0.2 dollars or so. So the way we look at it, at least from my vantage point, we've raised it by about $0.40 or so, so far this year. So, but I think important as we look to the balance of 2018, we're focused on growth.
We're continuing to focus on cost containment and achieving the full potential of this enterprise capacities. And you can see that we are deeply investing in innovation to drive constructive measure change and improve health care economics in both North and South America. So, for us to later focus on these five areas of growth, advancing quality, driving MPS or measured by MPS, I should say, and again, continuing to invest and diversify our businesses so that we can achieve a long term sustainable growth rate that we've outlined for you in the past, of which we remain deeply committed to as well. We did buy Vemedica in the Q1. Vemedica is interesting for us.
Right now, it's in winter. So not particularly accretive in the second and third quarter of the year, happens to bear the same characteristics as our UnitedHealth Brazil businesses as well. So we don't see a lot of material improvements in our results as it relates to that and maybe we'll start to see that closer to the Q4 or so. But part of what I laid out as well is that and maybe this is what you're suspecting is that the company has so much costs. We're going to continue to get after growth and to we'll continue to get after costs.
We're going to continue to get after growth and diversifying and growing our business and importantly investing in it for the long term so we can serve more more health systems better. Thanks for your question. Next question, please.
We'll go next to Lance Wilkes with Sanford Bernstein. Please go
ahead. Yeah. Good morning. I had a couple of questions or a question on the PBM in particular. I was interested in understanding for margin in OptumRx.
It looked like margin was up for the quarter, although cost of product was also up. So I was just interested in some of the drivers of that. And I guess related to the long term view there, how are you looking at the online pharmacy strategy of United overall and with an entrant like PillPack and Amazon, what's your view as far as adding them in network, partnering with them, etcetera? Thanks.
Great question, Lance. Appreciate it. John Prince, do you want to take that? Sure.
Lance, John Prince, CEO of OptumRx. Thanks for the question. Maybe just talk about the margin in general. We're comfortable with our long term outlook of 3% to 5%. I think when you see in different quarters, you see a variation with mix over time.
The product is really driver of our specialty home infusion and that does really drive our business in terms of the product mix. And so I think that this will fluctuate over time. But ultimately, we're comfortable with our long term outlook and also comfortable with how we're executing in the market from an overall perspective. In terms of online pharmacy, we work with various partners across the healthcare system. We've been very focused on our consumer experience in our home delivery, our specialty and our infusion business.
That has been the key driver of our growth over the last year and a half. We've done exceptionally good job of improving our NPS in those areas. We've become hyper local. Those are businesses where we are in the market.
And so
you look at our strategy, we've seen home delivery specialty infusion. We're in a 35 markets being hyper local. We've added 6 this year. We're going to add 6 more this year. We see the market really pivoting to be in both same day and next day service.
We've been investing heavily in that. And I think we're flexible based on how a consumer wants to work with us in terms of whether they want to be online, digital, in the market, etcetera. I think we've got a good strategy to execute against that. Thanks for the question.
Thank you. Next question please.
Next question is from A. J. Rice with Credit Suisse. Please go ahead.
Hi, everybody. So I thought at this point maybe just to ask about the comment you made toward the end, Dave, in your prepared remarks where you talked about Restless Drive. I think the comment was not satisfied with performance, a few layers a few areas where we could do better and then I think also maximizing performance consistently. I mean you've done 28% EPS growth in the first half, pretty good by most standards for this industry. What are the areas where you think you're still underperforming?
And what are you sort of referring to with those comments?
Thanks for the question, A. J. I appreciate it. I think we've highlighted some of those today. We didn't really talk about in terms of levels of disappointment, but I think it's fair to say that we're not particularly pleased with how we've done a large case ASO marketplace overall.
If you look at our performance over the course of the past years and it's just it's not reflective of the winning capabilities of this company. And so that is a good example of a place that I think we need to improve. Very satisfied with our NPS performance, but extremely anxious to get that moved up and at the same time manage the interchange of that with the evolutions that are required in order to respond to consumer demands. So figuring that out is one of our challenges. And I'd say maybe another one is just the pace at which we are driving adoption of the use of technology and digital broadly.
And by most measures, there's nothing wrong here. I don't want to leave you with that point of view. But by most measures, with the company of the capacity that this one has, I just believe we should be able to move faster with greater speed and agility to respond to emerging market demand for these kinds of services. We are well out front with all of them. But my view is we need to get these into the hands of consumers faster call chalk it up a little bit to having maybe higher expectations than what we're currently achieving largely because we have a good inside view of what the internal capacities are of this enterprise overall.
So expect us to step it up.
Okay. All right. Thanks a lot.
Next question please.
And we'll go next to Josh Raskin with Nephron Research. Please go ahead. Your line is open.
Hi, thanks. Good morning. Wanted to ask on 2 specific growth opportunities in 2019, the first around Medicare Advantage. And now that you guys have submitted your bids, I'm just curious, there's a thought around relatively generous reimbursement, especially relative to what we've seen over the last decade or so and how you think about the Medicare Advantage market overall and then United within that? And then the second area, just public exchanges, individual public exchanges, curious if you guys are getting more interested or I guess that would be any interested in potential expansions there and how you're thinking about that market over the next couple of years?
Great. Thank you, Josh. Brian Thompson will take your first question.
Hey, thanks, Josh. Brian Thompson here. As I mentioned last quarter, certainly encouraged by the direction of the 2019 rates, up nearly 3 points versus last year and then complement that with some policy changes around the framework that provide greater flexibility around how we can define benefits, all good for seniors. As you mentioned, I do think that ushers in an opportunity in 2019 for an environment that will provide stronger coverages and innovations and benefit enhancements for the seniors served. So should be great for MA.
As I think about our position
in it, we will approach 2019 with an expectation of continuing the momentum that we've demonstrated over the last 4 years with share gains in 2019 as well.
And as it relates to stages, maybe I'll just take that one. I think, Josh, as we've said in the past, first of all, our decisions are made state by state. And as you know, we have a very modest presence overall. I'm going to kind of reaffirm that nothing has fundamentally changed since we made our decision several years back now, which has absolutely turned out to be the right one for us. And as always, we'll evaluate future participation on a market by market basis.
One thing you may read is that there was some noise out there about us joining the Massachusetts exchange. I just want you to know that that was largely due to our small group penetration having grown to a point where we were required to participate in that exchange. So it wasn't necessarily a voluntary decision on our part. Thanks for the question. Next question please.
We'll go next to Ralph Giacobbe with Citi. Please go ahead.
Thanks. Good morning. Just want to go back to MLR. A little bit higher than we expected. Obviously lots of moving parts.
Can you maybe just talk about whether you've seen a bit of an uptick in maybe cost per claim or acuity? And it'd be helpful to break out the 6% trend between what you're seeing in terms of utilization versus unit cost? And then the last piece, just if you can give us a sense of how much BEMEDICA and seasonality there maybe impacted MLR in the quarter? Thanks. Great.
Thank you, Ralph. I'll have questions inside that, Ralph. But thanks for the questions. First on MLR, just say that that was right in line with our expectations. And as we noted earlier, there's we're not changing our outlook for the full year at all.
And the year over year changes elements that we described the insurers tax impact favorable and then business mix and the less favorable development going the other direction. As far as acuity, we would overall acuity in aggregate is in line with our expectations there as well. What you'll see over time though as we work hard to keep moving lower acuity in each category to its appropriate place of service that what remains in each category will naturally have a little bit upward pressure on acuity inside those categories. No change in our view on unit cost versus utilization still at 4%. Primary driver being the unit cost and 2% of utilization.
And then, I
think the last piece was Vanmedica.
I think Dave touched a little bit on that earlier, from a given the size of the AnMedica against our total medical expense base, it's really not a material factor at this point.
So just to conclude from this that our trends are very much in line with our expectations for the year. Our teams are performing very well containing healthcare costs and they are pricing to a forward view of trends, very consistent with the actions that we've taken in the past. To also take as it relates to our last comment around international that our international businesses in South America are performing very well. Very nice growth year over year off of strong baselines, good start for BEMEDICA as well. Next question please.
We'll go next to Gary Taylor with JPMorgan. Please go ahead.
Hi, good morning. Just a quick two parter. Any specific comment on days claims payable being down just touch? And then the second part is we've kind of tiptoed around to talking about trend and I've heard and appreciate all your comments. But I just wanted to specifically ask on hospital trend given the for profit hospitals saw such a marked acceleration of same store revenue in the Q1.
If with a little more visibility at this point, if you have seen in fact just on the hospital piece any pickup in the trend?
Gary, I think I'll take that last one first and that we really haven't things are really aligned and consistent with what our expectations were coming into the year. And as we question with respect to the days, Jeff, do you want to take that?
Sure. Just to start by, as we mentioned, we're comfortable with our level of reserves here as of June 30 and at 48.3 days. That's well within our expected range that you've seen us historically, which has typically been 47 to 49 days other than the period where we had the individual ACA effects that elevated it up to closer to 50. And it's down year over year about a day when you bring it out to the decimal point there. And there's a couple of things contributing to that.
One is there we continue to see we've talked about this earlier a little modest reduction in provider claim submission timing. And also there was a timing impact from when we released capitated payments that are directly linked to risk and quality revenue receipts that just changed from Q3 to Q2 relative to last year.
Great. Thank you, Gary. Next question please.
And we'll go next to Steven Valiquette with Barclays. Please go ahead.
Okay, great. Thanks for taking the question. Good morning, everybody. So this is a little bit granular, but we are getting a few calls around the new expansion in 2018 of total knee replacement from just the inpatient to now the outpatient setting. So I think at a high level, I mean, there should be some cost savings around this, but there also could be an increase in utilization just because of the availability now in the lower cost setting.
So I'm just curious maybe at a high level what you're seeing around this phenomenon so far this year? Thanks.
Maybe Andrew Hike who came to us from FDA can respond.
Thanks, Steve, for the question. I'll offer some general commentary. I do think the CMS policy announcement is center center setting. And that's based on improvements in technology and surgical technique and aesthetic technique. And all that improves the quality experience and cost of care.
So from an FDA standpoint, we have been seeing a continued growth in total joint replacement procedures in the commercial space. We are beginning to see that happen with knees from a Medicare standpoint in terms of physicians preparing to ship those cases. We've asked really good for the patient in terms of quality and experience, very high NPS, fantastic quality outcomes and then substantial cost savings. We've been seeing that on a commercial basis for a number of years and working very collaboratively with leading health plans. And we think that will be a great benefit to Medicare over the coming years.
And we expect them to continue to widen the range of procedures that are eligible for outpatient. All the right thing for the patient and for the healthcare system.
Which is one of the reasons why we invested in SCA, which we viewed as the right ambulatory surgical platform, properly positioned in the higher acuity surgeries that were offered in those settings and with great ambition for its ability to expand and meet the needs of more people with higher quality and greater levels of consumer satisfaction. Just as a reminder, SCA operates in a 91 NPS zone. So very progressive and doing so while saving consumers about 50%. Next question please.
Our next question is from Ana Gupte with Leerink Partners. Please go ahead.
Hey, thanks for taking the question. Good The question is on drug pricing reform. And if you have any change in your plans or actions to aid the administration's agenda on overall spending specialty Rx transparency and out of pocket for seniors? You have the largest kind of capabilities at scale with Medicare Advantage bundled with Part D, the largest big three integrated PBM and BREO Rx? I was just curious.
John Prince?
Thanks, Anna. It's John Prince, CEO of OptumRx. In terms of overall drug pricing, we are very focused on lowering drug costs for consumers. And as you know, Ana, our strategy is focused on lowering the net cost of drugs, decreasing total cost of health care and really creating a transformative consumer experience. And that's very aligned with what is happening in the broader market.
So in terms of what we're focused on, we're very focused on initiatives that bring down the list price of drugs, but more importantly, the net cost of drugs. So a lot of things that we've been focused on, I think we're providing our ideas around what we're doing exactly. So as you know, in the Q2, beginning late Q1, we started direct to consumer pharmacy discount for UnitedHealthcare. That impacts 7,000,000 people. I think David talked about it in his script.
That impacts people from an out of pocket cost. We've been very focused on our investments in PreCheck My Script. That now is being used by almost 100,000 physicians in the market that directly links into the electronic medical record. That is helping in transparency. It gives the doctor an idea of what is on formulary, how much is the cost, is there a lower cost alternative.
We're very focused on value payments. We're heavily focused on we've got 15 of those in the market right now, continue to expand on that. And then lastly, we're very focused on our drug negotiations and encouraging our pharmaceutical partners to lower the list price. And so we've been working with people as they come to market with products to have a lower list price. And when people have done that, we put them preferred on the formulary.
So it gives you a series of examples that we're very focused on lowest net cost, improving total cost of care and we've been doing very practical things in the market to make that a reality.
Thanks, John.
Thank you. Next question, please.
We'll go next to David MacDonald with SunTrust. Please go ahead.
Good morning. Thank you. Just one quick question on Global. I was wondering if you guys could spend a minute on what you're trying to do at the local level to increase the penetration of private insurance and also what you're doing more at the national level to try and drive increased public private collaboration with these governments? Thanks.
Okay. We'll have Molly Joseph, our Chief Executive of UnitedHealthcare Global Response.
Sure. So, our focus is around our Latin America platform. And there we really see a very strong demand for access to private health care and a limited supply of affordable private healthcare. And our core capabilities create tremendous value across affordability, And that is both And that is both from a health benefits perspective and from a medical delivery perspective. And we work to use these platforms in combination with our enterprise core capabilities to advance healthcare modernization, make care more affordable and make it more effective for those that we serve.
In doing that, we open up access to serve broader segments of the private healthcare market. And over time, we earn trust to serve these markets more holistically by partnering with government.
I think one of the strongest examples of that is our public private partnership and our hospital in Portugal as an example, where we're leading on quality and provide a very cost effective solution, working with government to serve the needs of the people of Portugal. And Molly and her team has really done a nice job and particularly you saw in the script around innovation and bringing new innovations to the market. What that what you're starting to feel is the introduction of information analytics, use of digital capacities, increased product modernization and designs in countries that have historically had a great deal of diversity of offerings. So that helps to create demand for all folks and that access to private health system and serves the needs of multiple different price point expectations that those consumers have. So we are very pleased with what the work that they have done.
Next question please.
And we will go next to Matt Borsch with BMO Capital Markets. Please go ahead.
Thank you. If I could just sorry, this is on a very technical near term data point, but maybe in response to the first question that you had in the Q and A session here on the reserving. I guess what I'm just trying to understand is, clearly there's a positive bias and there was again this quarter to your reserve development. But is there any is there a specific margin for adverse deviation, if that's the correct term I'm using that you target? Or is there some should we expect that 0 is, in your view, the best result as we move ahead?
Jeff? Yes. Thanks for your question, Matt. That's not something we disclose publicly. That said, it is not here.
We do have a target and it's been very stable over the years built up by business for adverse deviation.
Yes. And where that really shows itself is when you carry over from over a year. It doesn't really show up quarter to quarter. It shows up going from Q4 to Q1 and less dramatic when you get into Q2. Our development as indicated in the script really relates to Q1 this year and it's not all that different from the development that we experienced in Q2 2017 related to the Q1 of 'seventeen as well.
So thank you, Matt. Next question please. Thank you.
And we'll go next
to Michael Newshel with Evercore ISI. Please go ahead.
Thanks. I wanted to ask how much headway from
the health insurer fee moratorium you're expecting in the back half of the year for midyear commercial renewals? Dave, I think you mentioned a $0.22 impact earlier, is that right? And was any of that absorbed in the first half of the year?
The $0.22 I'm sorry to confuse you really related to the impact of flu combined with that. I think HIF component was what $0.06 $0.07 something in that zone, if I recall correctly, Mike.
Okay? Got it. And then most of that falling in
the second half of the year, but small.
That's right. Yes.
Okay. Thanks.
Thank you. I believe that concludes the questions for the day. We accomplished one of our performance metrics and that was to make sure that we were able to answer all of your calls all your questions, excuse me. And so I appreciate them. They were all very good.
So but to sum up our report for the Q2, the people of UnitedHealth Group Optum and UnitedHealthcare executed well on our strategic path, improving quality, affordability and consumer satisfaction for the people we serve, resulting in growth and reliable returns for our shareholders. Revenue, cash flow, earnings and importantly, NPS scores continue to advance. While we recognize there is much more to be done to reach the full transformative potential of our enterprise, we are committed to help positively reshape healthcare to be higher quality, more affordable, simpler and of higher value to people. We are confident that we will continue the strong performance in the second half of this year, in 2019, 2020 and for many years to come. Thank you again for joining us today.
This concludes our call.
And this will conclude today's program. Thanks for your participation. You may now disconnect.