(Corrects spelling of “Buffett” in bulleted summary)
By Amina Niasse and Sriparna Roy
NEW YORK (Reuters) – Some long-term investors in UnitedHealth Group are putting their faith in the return of a CEO with a proven track record and a new management team they believe can deliver a turnaround in the historically high-growth Optum health services business and put a difficult year behind it.
Investors, including billionaire Warren Buffett’s Berkshire Hathaway, have reacted favorably to the selection of Stephen Hemsley, who took over in May after the company missed its profit projections for the first time since 2008.
Hemsley, who led UnitedHealth from 2006 to 2017, signed a three-year contract with a potential $60 million in stock. He also bought shares totaling about $25 million.
“If you’re buying a stock that’s tanked, you’d like to know that the people running the business believe in it,” said Bill Smead, chief investment officer at Smead Capital Management, which owns nearly 300,000 shares of UnitedHealth.
MEDICARE ADVANTAGE EXIT BUOYS TRUST
Five investors who spoke to Reuters said the company’s plan to close hundreds of Medicare Advantage plans could improve profitability by moving more patients into plans they said rely heavily on Optum’s network of 90,000 doctors.
UnitedHealth said earlier this month that its exits from Medicare Advantage, which serve people 65 and older, would include those based primarily on large provider networks where managing variable costs is often more difficult. It will exit 109 U.S. counties next year and withdraw from about 100 plans elsewhere, affecting 600,000 members.
UnitedHealth will continue to offer Medicare Advantage plans in 2,191 counties next year.
UnitedHealth and other health insurers have been struggling with rising medical costs. But some of its tools to curb spending, such as requiring prior authorization approvals before patients can receive necessary care or procedures, have come under government pressure.
This was sparked by an avalanche of consumer anger over the perceived pain induced by such practices that came to the fore after the murder of a top UnitedHealth executive last year, pushing the industry to vow to change.
Kevin Gade, chief operating officer of Bahl and Gaynor, which owns more than 680,000 shares of UnitedHealth, praised the company’s retreat to focus on more limited provider networks.
“It should help balance the cost per patient without deteriorating quality,” Gade said.
The company declined to comment on its reduction of larger network Medicare Advantage plans, but reiterated that its financial loss from Optum was due in part to the addition of higher-cost Medicare Advantage members to Optum-based plans.