Jeff Goldsmith
A 40-year growth legend is about to end
UnitedHealth Group reported its first quarter 2025 earnings after closing the market on Wednesday, April 16. UNH lost its expected 1Q earnings of 9 cents per share, but the company also dropped its full-year 2025 earnings estimate by 12%. Opening Thursday, investors reacted with unlimited anger and deprived more than one hundred million of its market cap in hours. In hindsight, UNH is priced perfectly, with a pre-sale price revenue rate of 38, 6 points higher than Amazon and 8 points higher than Microsoft, which is probably a savage act of correction.
The definite answer to this question – what is happening to Manchester United's huge business – is impossible since the company is a black box of $400 billion. The major consortiums – health insurance, nursing delivery, pharmacy welfare management and business intelligence/services – are so intertwined with each other that only the Federation CFO John Rex and some other senior managers actually really understand from the revenues of the United Nations. Next is some speculation about the root cause of Manchester United's revenue problem.
First, the main driver has been buying most of other companies using its amazing monthly cash flow ($3 billion per month) for the last two decades of Manchester United's earnings growth. This party may end. Manchester United has historically spent about half of its accumulated wealth on dividends and stock buybacks, that is, paying off shareholders to keep shareholders.
However, a huge and unpublic contribution to UNH's earnings growth was the acquisition, which has happened in almost uninterrupted strings over 40 years. From 2019 to 2023, Manchester United spent an astonishing $118 billion to buy other companies, and almost all of them ended up in optum. Thanks to the excellent discipline of UNH Executive Chairman Stephen Hemsley and CFO-Now President John Rex, Manchester United almost always buys profitable companies in profitable deals.
Manchester United seems to have run out of accumulated trades. United's $8.1 billion in cash and short-term investments (larger than Exxon Mobil) may be richer due to the lack of major new deals. This will make people wonder why Manchester United raises interest rates to employers as they sit on an increasing number of cash mountains, or shakes providers for deeper discounts.
United can't buy more health insurance companies (both Cigna and Humana have been on sale for years) as federal antitrust executors will stop them. Physician group transactions that no longer have risks. Currently, hospitals employ more than one-third of practicing physicians in the United States (a very unpleasant state affairs for both parties). But these hospital acquisitions limit the universe of available physician deals from Manchester United.
Manchester United showed us their assurances to buy the group owned by the hospital through the acquisition of bankruptcy administrator health care (stewards) of the physicians (stewards) who lost a barrel of money. UNH also evaded investor-owned groups of physicians, such as Envision or Team Health, as a service, i.e. vampires, hospitals. FTC/Justice raises red flags about UNH buying a home health company after a $2 billion deal during the pandemic-LHC Group and Amedisys.
Just seven years ago, when OptumHealth was a quarter of its current size, it was a 10% profit business. Since then, Optumhealth's margin has dropped by more than 25%. As costs and multiple leadership changes reduce optumHealth's corporate culture, the expectation that the wave of resignation and union activity will sweep the OH's physician community, further damaging the overall profit margins of Optum Health and UNH.
OptuminSight – United's Business Intelligence and Corporate Services Business – was almost 28% margin business prior to the hasty and reckless acquisitions of Equian, Change and Navihealth during the pandemic. Now, this is a 16.5% margin business. Optuminsight and United have suffered severe damage due to changes to healthcare hackers in February 2024.
Changes used to deal with a staggering $1.5 trillion or one-third of changes in U.S. healthcare claims, and after they found that changes were actually a large number of crackdowns on poorer and increasingly angry customers, these changes were a large number of crackdowns on poorer, with almost no integration aggregates, and their security failures hurt their own business’ cash flow and operating costs. It's stupid to buy more data businesses because the change episode proves that they can't run them safely.
As a result, UNH’s two largest businesses: health insurance and health care services, both of which have seen operating margins decline in the past five years and cannot be saved by more value-added transactions. Manchester United still doesn't matter to owning a hospital. Instead, UNH strives to surround and devour the hospital.
Secondly, strangers’ kindness has run. One strategic challenge posed by Optumhealth's growth is that when United buys large groups of risk bearing physicians like medical partners, Atrius and Kelsey Seybold, it also buys profitable risk contracts with Manchester United Insurance competitors. Nearly $23 billion in Optumhealth's revenue (more than one-fifth) is likely to be more profitable, coming from large Medicare Advantage contracts such as Blue Shield, California, and Blue Cross Blue Shield, Massachusetts.
Since the pandemic, OptumHealth has had the same cost issues as all of these hospitals, i.e. those hospitals and physicians paid for from lapses and temporary agencies, supply costs, etc., and many of their “partners” end up saying that “Nyet” may increase the contract, thus causing OptumHealth to contract to restore those costs.
Optumhealth cannot terminate contracts with competing health insurance companies without inspiring more bad publicity and may trigger anti-Trust queries. Therefore, UNH has serious issues of interest when negotiating with its competitors. Almost certainly, Medicare Advantage’s contract renewal rate cuts OptumHealth MA margins. Those competitive health plans are unlikely to make maintaining United/optum profits a priority.
Like the rest of the industry, the Federation is waiting for further reductions in Medicaid enrollment rates, and nearly certain payment reductions in the new government. The revenue outlook for the entire Optum is grim. Optum's profit margins have deteriorated for a long time, falling from 8.1% in 2018 to 6.1% in Q1, causing real damage to Manchester United's overall revenue. Optum's growth is a major contributor to Manchester United's outstanding revenue growth. This excellent growth may have ended.
Third, the indifference strategy of remotely managing nursing through AI-driven algorithms has reached a position of reduced returns. After Brian Thompson's shocking assassination and brutal exposure in The Wall Street Journal in STAT and Washington State's Passionate Denied and Coding Practice, some analysts speculate that UNH may dial out the denial machine, which is making their profit margins constant, including payments, through paid medical services, including routine medical services.
The lie that raised this speculation, UNH's health insurance profit actually rose to 6.1% in the first quarter, compared with 5.2% in the full time in 2024. However, litigation against care providers is politically killing people. They will directly lead to the cancellation of contracts for providers, lawsuits and ongoing mediocrity levels of consumer satisfaction. Manchester United's net promoter score of 12, indicating that HUN is not happy with its tens of millions of customers.
We should expect Sir Andrew Witty to stop pretending to be the CEO of UNH and to return to England to raise his flock and fly fish. This is a regrettable and compelling expression. After the first quarter earnings call, 25% of the market cap loss hurts President/CFO John Rex's chances of taking over him almost odds. Since replacing Bill McGuire in 2006, Manchester United's brilliant and reclusive executive chairman Stephen Hemsley has been growing the company's job since growing it, and his devil challenged it.
The greatest growth story in the history of American Corporate Health Enterprises seems to be coming to an end. I have been a shareholder of this outstanding company many times but no longer lose confidence in this ambitious custodial care project. As we wait for Medicaid bleeding from Trump 47 and the unfortunate Republican Congress, it is difficult to tell the reason for investing in UnitedHealth Group. In fact, moving from a whole bunch of acquired healthcare assets to a real business can be an impossible management challenge.
Jeff Goldsmith is a veteran health care futurist, president of Health Futures and a regular THCB contributor. This comes from his Personal substitution
