Good morning. I'll be your conference operator today. Welcome to the UnitedHealth Group 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 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 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-K, dated July 17th, 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 Wichmann. Please go ahead.
Thank you, good morning, everyone, and thanks for joining us for our second quarter 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 healthcare 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 2018 performance illustrates strong execution on this path. Compared to last year's first half, revenues of $111.3 billion increased 12.7% or $12.5 billion. Adjusted cash flows from operations grew $7.2 billion, and adjusted net earnings grew 28.2% to $6.19 per share.
For the full year, our outlook for adjusted net earnings per share is increasing to a new range of $12.50-$12.75 per share. We expect cash flows from operations for 2018 to approach $15.5 billion, 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 six 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 Optum Rx. 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 NPS performance. Quality continues to be strong and rising. Approximately 80% of our Medicare Advantage seniors will be served by four-star rated plans in 2019, and 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 their top HEDIS categories in 2018, up from just 10 two years ago. 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 five 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. We do so engaging proactively with customers, manufacturers, distributors, and retailers across the industry. UnitedHealth Group now has more than five years experience synchronizing medical care and pharmacy care for patients. Over those five years, we have continually applied learnings to refine our approach while hardening, scaling, and expanding our services. Results in market share and NPS gain 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 Optum Rx new business, while existing customers are retained at a high nineties 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 action 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 multi-channel 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 ER use 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, PreCheck My Script is integrated into the practice flow of physicians who treat as many as five million Optum Rx consumers over the next year. 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 PreCheck MyScript. 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. We have begun to apply these services more broadly through our Optum Care sites. Patients using maintenance medicines receive refills in advance of their refill date through our home delivery services, providing value and convenience for 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 seven million UnitedHealthcare insured consumers. We are the only party incented 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 UnitedHealth Group.
Thank you, Dave. I'll start today by expressing my admiration and appreciation toward all those whose work has created the 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. 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 second quarter of 2018, Optum Health increased the number of people it serves by 7% to 92 million, and revenue per person grew 12% over last year as Optum Care grows and diversifies its businesses. Optum Insight backlog grew nearly 15% year-over-year on the strength of its technology, data analytics, business process, and advisory services. OptumRx again filled over 3% more adjusted prescriptions as it continued to expand its market share. Overall, Optum's second quarter revenues grew by more than $2 billion over last year, growth of about 9% to nearly $25 billion. Optum's earnings from operations rose 21.5%, 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.
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 operating at 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 billion in cumulative incentives paid to consumers, standing apart 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 three 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 millions of dollars in downstream medical costs. Already, one-third of our wellness coaching customers have moved to this new approach, and more than 90% of their coaching engagements are digital, compared to an entirely analog experience only one year ago. Optum Insight continues to grow steadily, working actively with payer customers, large and small, supporting their 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 one-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 Optum Care, we're creating the structure to advance more modern and locally effective clinical and administrative models for the benefit of physicians, patients, and customers. Optum Care 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 community 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.
As you heard Dave say, the value being delivered in pharmacy care services is translating into higher NPS and continued client retention rates in the high 90s at Optum Rx and new wins, including three new health plans for 2019. We are already hard at work with prospects for 2020, even as we further strengthen capabilities for 2019. In sum, our businesses are growing and performing well today and preparing for next year. 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. Now I'd like to turn the call over to Steve Nelson, UnitedHealthcare CEO.
Thank you, Andrew, and welcome. UnitedHealthcare grew to serve 2.2 million more people over the past 12 months. All in, our revenues advanced more than $5 billion over last year to nearly $46 billion in the quarter, growing at a 12% pace, with Medicare and Retirement revenues growing nearly 13% and Community & State by more than 17%. Our commercial business continues to serve nearly 27 million 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 second quarter, similar to the second quarter of last year. The pricing we are receiving for risk-based products remains consistent with our expectations, and commercial medical cost trends remain steady, also in line with expectations. We're performing well on managing administrative costs across UnitedHealthcare.
In total, our second quarter earnings from operations of $2.4 billion grew 7% over second quarter last year. Looking forward, we are progressing well on two 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, 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 in 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 first full quarter with Banmédica, 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 integration 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. 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 billion. Our earnings from operations exceeded $4.2 billion, growing nearly 13% on steady operating margins. Adjusted earnings increased 28% to $3.14 per share, and our cash flow from operations grew to $4 billion. Turning to details, we continue to expect our 2018 medical care ratio to run in the range of 81.5% ± 50 basis points, with commercial trends well within our range of expectations of 6% ± 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 first quarter 2018 business.
Our second quarter operating cost ratio of 15% increased only 40 basis points over last year, despite including about one 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 and 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 second quarter 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. We continue to deploy capital to further diversify our company through focused merger and acquisition activities and for our longstanding share repurchase program.
We are optimistic as we look ahead to the second half of 2018 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 $15.5 billion 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, one person at a time, one 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 expanse 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 longstanding 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 NPS, and enable sustained growth and differentiated value for years to come. As to headwinds, we expect the policy 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. 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 third quarter earnings call, followed by a full review at our annual investors conference on Tuesday, November 27th. We hope you can join us there.
Now we will open the call for your questions. One question per caller, please. We can get to as many people as possible.
At this time, if you have a question or comment, please press star 1 on your touchtone phone. You may remove yourself from the queue by pressing the pound key. Again, we ask you to limit to one question per person so we can get to as many participants as possible. We will take our first question from Justin Lake with Wolfe Research. Please go ahead. Your line's open.
Thanks. Good morning. My question's on reserve development. Given the relative lack of prior and intra-year development in the quarter, I was hoping you can give us some increased color on cost trend and reserve development across the commercial Medicaid and Medicare segments. Just to make sure we understand prior year development trends overall, can you tell us what % of claims, if any, you have you set 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 Jeffery Putnam.
Good morning. Thanks for your question, Justin. Starting with development, we maintain a reserving process as you know that's tightly controlled and consistent over time. 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, when you look year to date as a % of our prior year medical expense, it's right in line where we are historically. As that works into trends, we are always very respectful of trend. 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 category or in total.
We don't get into details on trends in Medicare and Medicaid businesses, I could offer a couple comments. Medicare trends are generally stable with last year. We are seeing some elevated consumption over time, similar to last year related to the market leading growth that we've had. Medicaid trends also really need to be looked at state by state as well, where there's some areas with increased trend, then we're working to manage those down, 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 can ask Brian Thompson to speak to that.
Sure. Hey, Justin. Brian Thompson here. 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 onto folks later in life. What we're seeing in 2018 looks a lot like what we saw in 2017 and 2016. This being the fourth year now for strong market share gains, really provides a very credible, good baseline for us as we look forward to 2019.
Thank you.
Thanks, Justin.
Next question, please.
We'll go next to Sarah James with Piper Jaffray. Please go ahead. Your line's open.
Thank you. My question is on the 2019 commercial environment. On the last call, Dan mentioned the national account RFP pipeline was larger than normal. There's also been some concerns over the-
Sarah? We're having a hard time hearing you. You may be on a headset or something. Can you Yes?
Sorry. Is that better?
Yes, it is. Thank you.
My question is on the 2019 commercial pricing environment. On the last call, Dan mentioned that the national account RFP pipeline was larger than normal. There's been some concerns over groups digesting pricing. Could you walk us through how you're seeing national accounts, small and middle market develop?
Sure. I think the question relates to national accounts pipeline and development, Dan?
Sure. Thanks, Sarah. Good morning. 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. Obviously, there's still more to be resolved in the selling season. We are doing well, again, to convert retirees to group Medicare offerings. Likewise, we continue to do very well in the middle market segment as we work through the year. 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. 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 second quarter and had nice contributions across all market segments, from individual small group through to middle market as well. 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 market segment and funding status.
As we've talked about in this forum for some time, we've done well to expand our product portfolio really along that value and price continuum
Increasingly align that to care providers that are high performing. Hopefully that gave some color on what's happening both in the self-funded and the fully insured segments in the commercial market.
Thank you, sir. Next question, please.
We'll go next to Dave Windley with Jefferies. Please go ahead. Your line's open.
Hi. Good morning. Thanks for taking my question. I wanted to flip over to Optum, the kind of two-parter here. 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. 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. Daniel, you want to take the first one?
Sure. Happy to do that. Dave, thank you very much for the question. On Optum Insight, as we think about the quarter and we think about the margin growth, it really is 2 items. One, you referenced pricing and mix, and there's 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. 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. That's really coming through the business, frankly, all across Optum, but specifically in Optum Insight in the quarter as well.
Great. Then, if I can, I'll just make a few remarks on Rally as well. Thank you for the question. Rally, as you can tell in the script, is something that we're very proud of having developed over the course of the last four years. Obviously, there was a lot of work that went into it in advance of our alignment with them. They've done a very nice job of taking a single product company and making it multidimensional along the lines that Andrew has described. 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.
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 million people are registered with Rally today. We believe that the expansion of the value that is offered on the Rally chassis is the single best way to get there. 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.
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.
David. Next question, please.
Our next question comes from Peter Costa with Wells Fargo. Please go ahead.
Good morning. Thank you. My first question or question is regarding Optum. Andrew, welcome aboard in your first quarter in the hot seat. 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. Then if you could, in the quarter itself, the growth in revenues at Optum slowed down from the first quarter. Can you spike out how much of that was related to M&A?
Sure. Peter, thanks very much for the question. I'll ask Tim in a second to address your second part of the question. In terms of the first, obviously very early days for me here at Optum. I think terrific foundations have been laid over the last seven or eight 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. 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.
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's done in an extraordinarily high quality way. I think all of those tenets of the business which have got us 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've 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 $24.7 billion were up 9% or up $2.1 billion compared to a year ago, with both Optum Health and Optum Insight posting double-digit growth rates, and with Optum Rx posting a 7% growth rate year-over-year. In each of those businesses, organic growth was very strong, both in Optum Health in terms of care delivery with market expansion, as well as Optum Serve on volume growth and then behavioral health. In Optum Insight, strong growth with the addition of the Advisory Board. Excuse me.
Also pretty significant volume growth in terms of our risk and quality business and also volume growth and payment integrity. Also when I mentioned Optum Rx earlier and the overall revenue growth there, I think it's important to understand 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. 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&A this quarter versus the growth last quarter.
We don't spike that out specifically, Peter, I would tell you it's not an appreciable difference.
Thank you.
Okay, thank you, Peter. Next question, please.
We'll go next to Stephen Tanal with Goldman Sachs. Please go ahead.
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 to ASO stalled or slowed? Are you seeing greater demand for group risk products now? If so, why do you think that is? Just in this context, if you could comment on NexusACO, I'd be really curious to hear what's happening there. Thanks.
Dan?
Sure. Thanks, Steve. This is Daniel 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 national accounts and employer-based attrition. If you look at that outcome in comparison to the average of the last five or 10 years, it's very much in keeping with that. 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 trend 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, 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 a 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 Optum Care as well as externally, and then improving, as we've talked about, the consumer experience and making it simple and personal for them. You had asked, I think, also about NexusACO. We continue to build that product and are excited for the prospects. Just as a reminder for those on the phone, the NexusACO offering is really a national accountable care offering. 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.
Really, Steve, what you've hit on is this category of growth for us, pillar of growth around consumer-centric benefits. NexusACO would be one example, if you look to the distinguished group-insured growth over the course of the last three 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. To maybe tie it to the question too before that, our ability then to use digital assets and other ways to engage consumers around lifestyle behavior modifications creates a great attraction to these products as well. Thank you for your question. Next question, please.
Thanks.
We'll go next to Michael Baker with Raymond James. Please go ahead. Your line's open.
Yeah, thank you. I was wondering if you could outline some of your promising venture investments in light of your drive to reshape the future of healthcare.
We'll start with [inaudible] .
Yeah, sure. 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, four 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 sort of give us some shots in the arm with respect to our digital agenda.
Thanks, [inaudible].
Man, I'll just add a little bit to that if I can. We also build businesses organically as well inside our company, maybe just to comment on a couple. One would be a business called [inaudible], 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. Just I'd also mention, when we announced this in the last couple of weeks, where we created a company called, along with our venture partner, Lemhi, 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. 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 want to ask you about the guidance, because I've struggled a little bit with the guidance that's happened so far year-to-date. Q1, you raised guidance by less than the beat, and Q2, you basically raised guidance with the beat, even though announcing a few pretty big deals during Banmédica, Sound, a few other things that are probably at least a third of what the total guidance range has been. Wanted to see if you could kind of rectify why the guidance hasn't been raised by more, given the tailwind from M&A and then given what appears a pretty solid trend 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 going into the second half?
Thanks, Kevin. Well, I think we've actually raised expectations pretty strongly over the course of this year. Twice by a total of about $0.175 at the midpoint, and that's despite some pretty substantive flu pressure and a new hip effect that was identified in the first quarter of around $0.22 or so. The way we look at it, at least from my vantage point, we've raised it by about $0.40 or so far this year. I think important, as we look to the balance of 2018, we're focused on growth. We're continuing focused on cost containment and achieving the full potential of this enterprise capacities. You can see that we are deeply investing in innovation to drive constructive measure change and improve healthcare economics in both North and South America.
For us to later focus on these five areas of growth, advancing quality, driving NPS or measured by NPS, 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 Banmédica in the first quarter. Banmédica 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. 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 fourth quarter or so.
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 potential given its assets, and just performing to its full potential is our ambition, and that's what this team is aiming to achieve. 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 people and serve our 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. Had a couple questions or a question on the PBM in particular. Was interested in understanding for margin in Optum Rx. Looked like margin was up for the quarter, although cost of product was also up. Was just interested in some of the drivers of that. I guess related to the long-term view there, how are you looking at the online pharmacy strategy of United overall and with an entrance like PillPack and Amazon? What's your view as far as adding them in network, partnering with them, et cetera? Thanks.
Great question, Lance. Appreciate it. John Prince, do you want to take that?
Sure. Lance, John Prince, CEO of Optum Rx. 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 those really drive our business in terms of the product mix. I think that this will fluctuate over time. 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 an exceptionally good job of improving our NPS in those areas. We've become hyper local. Those are businesses where we are in the market. You look at our strategy between home delivery, specialty, and infusion. We're in 35 markets being hyper local. We've added six this year. We're going to add six more this year. We see the market really pivoting to being both same-day and next-day service.
We've been investing heavily in that. 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, et cetera. I think we've got a good strategy to execute against that. Thanks for the question.
Great.
Thank you. Next question, please.
Next question is from A.J. Rice with Credit Suisse. Please go ahead.
Hi, everybody. I thought at this point, maybe just to ask about the comment you made toward the end, Dave, of 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, then I think also maximizing performance consistently. 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 referring to with those comments?
Well, 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 the large case ASO marketplace overall. If you look at our performance over the course of the past years, it's not reflective of the winning capabilities of this company. That is a good example of a place that I think we need to improve. Very satisfied with our NPS performance, 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. Figuring that out is one of our challenges.
I'd say maybe another one is just the pace at which we are driving adoption of the use of technology and digital broadly. By most measures, there's nothing wrong here. I don't want to leave you with that point of view. By most measures, with a company of a 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. My view is we need to get these into the hands of consumers faster and make a bigger difference on how the effectiveness of health systems and the health of people.
Maybe just 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 at this enterprise overall. Expect us to step it up.
Okay. All right. Thanks a lot.
Next question, please.
We'll go next to Josh Raskin with Nephron Research. Please go ahead. Your line's open.
Hi, thanks. Good morning. Wanted to ask on two specific growth opportunities in 2019. The first around Medicare Advantage, and now that you guys have submitted your bids. I'm just curious if 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. 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 three points versus last year. 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. 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 four years with share gains in 2019 as well.
As it relates to exchanges, 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. As you know, we have a very modest presence overall. I want to 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. As always, we'll evaluate for 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 was largely due to our small group penetration having grown to a point where we were required to participate in that exchange. 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? It'd be helpful to break out the 6% trend between what you're seeing in terms of utilization versus unit cost. The last piece, just if you can give us a sense of how much Banmédica and seasonality there maybe impacted MLR in the quarter. Thanks.
Great. Thank you, Ralph. I'll have Jeff-
Yeah. Quite a few questions inside that, Ralph. Thanks for the questions. First on MLR, just to say that that was right in line with our expectations. As we noted earlier, we're not changing our outlook for the full year at all. The year-over-year change is an element that we describe the insurer's tax impact favorable, then business mix and the less favorable development going the other direction. As far as acuity, 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 unit cost and 2% of utilization. I think the last piece was Banmédica. I think Dave touched a little bit on that earlier. Given the size of Banmédica against our total medical expense base, it's really not a material factor at this point.
You should conclude from this that the 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. You should also take as it relates to that 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 Banmédica as well. Next question, please.
We'll go next to Gary Taylor with JP Morgan. Please go ahead.
Hi. Good morning. Just a quick two-parter. Any specific comment on days claims payable being down just a touch? The second part is, we've kind of tiptoed around it 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 hospital saw such a marked acceleration of same-store revenue in the first quarter. If with a little more visibility at this point, if you have seen, in fact, just on the hospital piece, any pickup in that trend?
Gary, I think I'll take that last one first in that we really haven't. Things are really aligned and consistent with what our expectations were coming into the year and as we move throughout the year as well. The first part of your 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 30th. 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. It's down year-over-year about a day, when you bring it out to the decimal point there. There's a couple things contributing to that. One is we continue to see, we talked about this earlier, a little modest reduction in provider claim submission timing. 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 third quarter to second quarter relative to last year.
Great. Thank you, Gary. Next question, please.
We'll go next to Steven Valiquette with Barclays. Please go ahead.
Okay, great. Thanks for taking the question. Good morning, everybody. 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. I think at a high level, 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. I'm just curious maybe at a high level what you're seeing around this phenomenon so far this year. Thanks.
Maybe Andrew Hayek, who came to us from SCA can respond.
Thanks, Steve, for the question. I'll offer some general commentary. I do think the CMS policy announcement is consistent with our overall view that more surgery, including higher acuity surgery, will shift to the outpatient setting and ultimately to the surgery center setting. That's based on improvements in technology and surgical technique and anesthetic technique. All that improves the quality experience and cost of care. From an SCA 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 shift those cases. We think that's 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, working very collaboratively with leading health plans. We think that will be a great benefit to Medicare over the coming years. We expect them to continue to widen the range of procedures that are eligible for outpatient. It's 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 morning. The question's on drug pricing reform, if you have any change in your plans or actions to aid the administration's agenda on overall spending, special TRx transparency and out-of-pocket for seniors. You have the largest set of capabilities at scale with Medicare Advantage bundled with Part D, the largest big three integrated PBM and BriovaRx. I was just curious.
John Prince. Thanks, Ana. It's John Prince, CEO of Optum Rx. In terms of overall drug pricing, we are very focused on lowering drug costs for consumers. As you know, Ana, our strategy is focused on lowering the net cost of drugs, decreasing total cost of healthcare, and really creating a transformative consumer experience. That's very aligned with what is happening in the broader market. 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. A lot of things that we've been focused on, and we've been providing our ideas around what we're doing exactly. As you know, in the second quarter, beginning late first quarter, we started direct-to-consumer pharmacy discounts for UnitedHealthcare. That impacts seven million 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 MyScript. 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 does it cost, is there a lower cost alternative. We're very focused on value payments. We've got 15 of those in the market right now, continuing to expand that. Lastly, we're very focused on our drug negotiations in encouraging our pharmaceutical partners to lower the list price. So we've been working with people as they come to market with products, to have a lower list price. When people have done that, we've put them preferred on the formulary.
It gives you a series of examples that we're very focused on lowest net cost, improving total cost of care, 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.
Great. We'll have Molly Joseph, our Chief Executive of UnitedHealthcare Global, respond.
Sure. Our focus is around our Latin America platform. There, we really see a very strong demand for access to private healthcare and a limited supply of affordable private healthcare. Our core capabilities create tremendous value across affordability, access, and outcomes for those that we serve. Our businesses in these markets are broad, they are diversified, and they are scaled, and that is both from a health benefits perspective and from a medical delivery perspective. 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 governments.
I think one of the strongest examples of that is our public-private partnership in 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. Molly Joseph and her team have really done a nice job, and particularly you saw in the script around innovation and bringing new innovations to the market. 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 not had a great deal of diversity of offerings. 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. We're very pleased with the work that they've done. Next question, please.
We'll go next to Matt Borsch with BMO Capital Markets. Please go ahead.
Thank you. 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&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. Is there a specific margin for adverse deviation, if that's the correct term I'm using, that you target? Or should we expect that zero is, in your view, the best result as we move ahead?
Jeff?
Thanks for your question, Matt. That's not something we disclose publicly. That said, it is not zero. We do have a target, and it's been very stable over the years, built up by business for adverse deviation.
Yeah, the way 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, 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 first quarter of 2017 as well. Thank you, Matt. Next question, please.
Thank you.
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 major commercial renewals. Dave, I think you mentioned a $0.22 impact earlier. Is that right? 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 that specifically the HIF component was, what, $0.06, $0.07, something in that zone, if I recall correctly, Mike. Okay.
Got it. Then most of that falling in the second half of the year, but small.
That's right. Yep.
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. I appreciate them. They were all very good. To sum up our report for the second quarter, 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 continued 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.
This will conclude today's program. Thanks for your participation. You may now disconnect.