UnitedHealth Group, Inc. (NYSE:UNH) Q1 2020 Earnings Conference Call April 15, 2020 8:45 AM ET
David Wichmann – Chief Executive Officer
John Rex – Chief Financial Officer
Wyatt Decker – Chief Executive Officer-OptumHealth
Dirk McMahon – Chief Executive Officer-UnitedHealthcare
Tim Noel – Chief Executive Officer-UnitedHealthcare Medicare & Retirement
Andrew Witty – President, UnitedHealth Group and Chief Executive Officer-Optum
Conference Call Participants
Gary Taylor – JP Morgan
Justin Lake – Wolfe Research
Steven Valiquette – Barclays
A.J. Rice – Credit Suisse
Kevin Fischbeck – Bank of America
Josh Raskin – Nephron Research
Ralph Giacobbe – Citi
Scott Fidel – Stephens
Ricky Goldwasser – Morgan Stanley
Charles Rhyee – Cowen
Dave Windley – Jefferies
Lance Wilkes – Bernstein
Frank Morgan – RBC Capital Markets
Good morning, and welcome to UnitedHealth Group First Quarter 2020 Earnings Conference Call. [Operator Instructions] And as a reminder, today’s 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 risk and uncertainties that could cause actual results to differ materially from historical experience or present expectations. A description of some of the risk 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 earnings 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 April 15, 2020, which may be accessed from the Investors page of the company’s website.
I will now turn the conference over to the Chief Executive Officer of UnitedHealth Group, Mr. David Wichmann. Please go ahead.
Good morning and thank you for joining us. With all that is going on, we’ve structured things a bit differently today. We’ll get directly to what’s likely top of mind for all of you, the impact of COVID-19, global health crisis on our businesses and the actions we’re taking to support our communities, members, patients, care providers, customers, government partners, and team members and their family. These are still the early days in the response to COVID-19 and we anticipate we will experience and learn more as events unfold in the months ahead.
UnitedHealth Group was consciously built, with the restless mindset, adaptable capabilities, culture and the enduring human values to respond and serve in meeting challenges such as we are seeing today. The commitment, ingenuity, compassion and engagement of the 325,000 people of UnitedHealth Group has never been stronger. I’ll start today by expressing my gratitude and admiration to this restless team for the extraordinary efforts and personal sacrifices being made every day. They are doctors, nurses, pharmacists, social workers and other clinical and nonclinical healthcare workers on the front lines of care, as well as customer care representatives, transaction processors, supply chain experts, technology engineers, data scientists and others supporting them, the health system and our communities.
The COVID-19 pandemic is deeply personal to them and to all of us. They’re connected digitally, triaging people with symptoms, engaging directly with our most vulnerable patients, ensuring essential chronic in COVID-19 related medical and behavioral health services are available and accessed, while helping keep the health system coordinated, connected and working for individuals and their doctors. They’re enhancing safety for those most at risk, making sure the right medicines are getting to the right patients, when and where they need it, and the right testing and protective gear is available to properly safeguard the health workforce. They’re driving innovative solutions around testing, healthcare workforce safety, improving critical product supply and services availability, helping develop and evaluate therapies and applying advanced analytics to identify, predict and combat COVID-19.
For our heroic clinical team, we have further hardened our safety first workforce environment for those caring for patients across our more than 1,500 facilities and those providing medications and services caring for people in their homes. Like all of us, they are concerned about the health and safety of their own families and friends.
Yet, they remain front and center engaging fully each day to serve many selflessly away from their families for weeks, so they can ensure care is provided to those most in need. I have never been more proud or more humbled to be on their team. Every team member at UnitedHealth Group remains fully employed, supported, protected and engaged in the COVID-19 crisis.
Let me pause to acknowledge and add a note of deep gratitude to Andrew Witty, who has announced this morning will be taking a leave of absence to provide leadership for the efforts of the World Health Organization to find and distribute a vaccine for COVID-19. Our gratitude for Andrew is grounded in all he has done to guide the UnitedHealth Group and Optum so effectively and sensitively for all who we serve and all who work at this enterprise and his willingness to apply his leadership and phenomenal talents to this new assignment for which he is so aptly suited.
We couldn’t be more proud to call one of our own to see one of our own serve in this way and we look forward to both his success in leading this effort and his return to our company once this important work is done. He is on the call with us today and available to respond to your questions before he reports to duty with the World Health Organization.
From the outset of COVID-19 outbreak, we mobilized to keep our entire enterprise fully intact and functioning at the highest performance levels. As we stand today, we are supporting all of our products, services and commitments across all of our businesses and markets. We have long had a high proportion of our more than 200,000 person, nonclinical team working from home and we were able to quickly move nearly all of the rest to work at home as well. They have been performing well and our service levels remain strong for our clients, members, patients and the health system broadly.
For the millions of people we are privileged to serve through United HealthCare. We have taken every step possible to broaden access to care. We have offered additional enrollment opportunities to those who previously declined employer sponsored offerings, eliminated all COVID-19 related cost sharings and removed prior authorizations to speed patient transitions of care, so health systems can diagnose, treat, and redirect patients. We have developed to revised payment timeframes to help people sustain coverage and we are helping people displaced from their job to smoothly transition to affordable coverage which meets their needs.
Last week we moved to provide nearly $2 billion in liquidity to the health system, accelerating payments to care providers whose clinical operations have been impacted. We have been partnering with other companies and academic institutions to develop and validate protocols and processes to more rapidly and frequently test healthcare professionals on the frontline, applying new technology to ensure safe and full availability of this critical workforce. This leverages the self-administered collection innovation we developed, which is simplifying COVID-19 testing and we have been tracking infectious disease pattern to identify supply-demand in equities and resource needs in every major metropolitan statistical area across the U.S. health system. This will emerge as a new capability to provide enhanced disease surveillance in the future.
Our high-risk members have been identified and we are surrounding them with services to reduce the impacts of social isolation on their access to physical and behavioral care, while keeping them as safe as possible. And we have provided over $50 million in initial domestic and global grant funding and investments to advance health workforce safety, support those in geographies most afflicted, aid seniors included in their homes, and help communities address rising levels of homelessness and food and security.
Like the broader health system in recent weeks, we have seen a reduction in elective care, which is impacting both the UnitedHealthcare benefits and the OptumCare delivery businesses. Most traditional procedure work has been postponed at our SCA ambulatory surgery centers. Likewise, the UnitedHealthcare and Optum at-risk care delivery businesses have seen lower demand for these services. We are seeing timeframes and discussions for new business opportunities being extended as most business partners focus on crisis response. Many employers have had to furlough employees, driving higher levels of unemployment, which may ultimately affect the outlook for growth in our Group Benefits business, while increasing our membership in individual lines and Medicaid coverage’s.
While it feels awkward to be talking about earnings outlook at this moment, you saw our press release; we are maintaining our 2020 earnings per share outlook established at our Investor Conference. We view this as the most reasonable baseline posture in these uncertain times as we continue to grow and operate our businesses, while assessing the multitude of potentially offsetting factors across our uniquely diverse enterprise. These factors will become clear in the months to come. The related financial effects on our business will clarify as well. As they do, we commit to providing swift relief, even as we consider the uncertainty of the environment going forward. While there is still much to understand, we can be very clear with you today that we are committed to ensuring that any financial imbalances, which arise from this situation, are reconciled proactively and addressed fairly and timely for all those we serve.
Let me now share a few of the specific actions underway at Optum and UnitedHealthcare. Optum has cared directly for more than 10,000 COVID-19 patients to-date and is operating more than 400 test sites across the country. We quickly shifted more than 4,000 additional OptumCare physicians to our digital care clinics on our way to more than 10,000 in the weeks to come. These rapid responses was made possible by the swift work of the regulatory agencies, allowing flexibility in state licensure requirements for clinicians across service categories and state lines. We thank and commend them for these actions and encourage long-term continuation of these policies.
Our digital health consumer engagement has accelerated in many directions. For example, we’ve applied new COVID-19 clinical pathways to our device based remote monitoring services to identify and prioritize high-risk individuals for follow-up care. Our newly developed COVID-19 symptom checker provides people with recommendations on how to proceed, based on the results. And we’ve provided access to our digital behavioral healthcare services, which give clients on-demand help for stress, anxiety, and depression. All content, coping tools and peer support are free to everyone.
Because it’s critical everyone receives their needed medications, we are providing early refills, extended authorizations and increased home delivery options. We also extended hours at our behavioral health pharmacies to ensure medication adherence for those with mental health and substance abuse challenges. The spread of the virus has created a significant health risk for those receiving life-sustaining infusion services traditionally administered in the hospital or hospital clinic settings. For these patients, we’re providing infusion services through our Optum Infusion ambulatory suites and in their homes through our nurse infusion specialists.
Finally, Optum is innovating on the frontlines of care delivery, developing screening protocols to identify patients who are likely to need hospitalizations and collaborating with health and care delivery organizations to share this knowledge. UnitedHealthcare is working at full speed as well with partners across the health system to address the current global emergency. For consumers, UnitedHealthcare has made it simple and easy to access care, waiving cost sharing for COVID-19 testing and treatment and eliminating many administrative requirements. Tens of thousands of people have taken advantage of the special enrollment period we opened for those needing coverage for health benefits, and more than 2 million consumers took advantage of our offer to obtain early prescription drug refills to ensure no one experienced gaps in treatment.
UnitedHealthcare digital and telehealth services were ready, and as a result, extensively used as a safe simple and free way to connect with care providers, either through a partner or directly with the patients’ own doctor. UnitedHealthcare is paying careful attention to vulnerable members especially in Medicare and Medicaid by expanding access to our personalized digital care platforms, which provide up-to-date information about prevention, coverage and care. People can quickly talk to a nurse, refill and schedule home delivery for prescriptions and get access to emotional support 24 hours a day.
We are also helping federal, state and local authorities address system capacity shortages by supporting them with the main operating experience. One example involves two UHC Community and State leaders, Dr. Jeffrey Brenner and Kathleen Stillo, who are now working exclusively with the State of New Jersey, for the next several months to establish a critically needed field-based hospital system. These are just a few examples of how the people of Optum and UnitedHealthcare have mobilized to respond to this public health challenge. There are many more and they are happening every day.
Now, I’ll turn it over to John Rex, our Chief Financial Officer.
Thank you, Dave. I know you’ve had an opportunity to look through our first quarter financial results this morning. And as such, given the unique circumstances, I’ll be brief about the quarter. As Dave said, while it feels somewhat uncomfortable to be speaking of the financial aspects of this challenging situation, we know this is what you need to understand for your work. Given the timing of the COVID-19 outbreak and its progression in United States, the first quarter financial impact was limited. As you know, incidence rates in the U.S. only started moving meaningfully in mid-March. And elective care trends did not begin to be meaningfully impacted until later in the month.
At the segment level, UnitedHealthcare and the OptumHealth, Insight, and Rx businesses all reported first quarter operating earnings that were in line with our own expectations going into the year. Looking ahead, we are maintaining our full-year 2020 earnings per share outlook. As I’m sure you would expect this view is subject to a number of key considerations that yet to play fully out, including the full incidents and intensity levels we experience, the duration and ultimate impact on economic, employment, and business activity levels, and the duration and extent of disrupted care patterns as the virus runs its course.
Beyond our maintained earnings per share outlook, we anticipate other key Investor Conference metrics likely will play out differently than we expected at that time. And our quarterly progression will likely vary from historical patterns. For example, the environment today suggests the second quarter could be the lowest medical care ratio of the year, potentially, meaningfully so with elective care demand still restrained. Offsetting this impact, we would anticipate the second half medical care ratio could be meaningfully elevated.
Among some of the factors we consider, people will hopefully have more comprehensive care access by the second half of the year. And some of the currently deferred care can be restored. Individuals with chronic conditions are among those for whom we have considerable concern in this environment. While we are mitigating the impact through other means, mistreatments can aggravate health status, resulting in initially more intensive care needs as the system reopens. We will proactively work to help them quickly seek care and the impact of testing and coverage expansion such as serologic tests. These are just a few of the factors we must consider, and I’m confident you are eager to probe into all of these areas and likely more.
We appreciate your understanding of our need to defer on providing point estimates and even ranges today, given the evolving situation, the multi-variables at play and their interdependencies and our regard for the mini thoughtful views that will shape the situation. Our strong financial position and liquidity enable us to fully meet both of our operational and strategic needs. We ended the quarter with an intentionally higher excess cash balance and a higher than normal debt-to-capital ratio. This was a prudent response to what we saw in more volatile financial markets during the month of March. When considering our quarter ending excess corporate cash position, we size our debt to total capital ratio at about 40.5%. As markets become more normal, we will return to our previous cash management and leverage position.
Given our critical relationship with our healthcare delivery partners, we moved quickly to implement policies to provide enhanced liquidity for care providers, by accelerating nearly $2 billion in payments, provided needed support to health systems and individual care providers. These types of actions are important to help provide more financial stability for the system. We expect some metrics such as days in medical claims payable and cash flow will be impacted as a result of these actions. Well, that will be transitory as we move through this situation together.
With that, I’ll turn it back to Dave.
Thank you, John. I hope this gives you some insight into what we are seeing and the actions we are taking to serve people, communities and the health system during these unprecedented times. We are committed to applying the full capacity of our enterprise to serve, not just our patients, members, and customers, but also the hundreds of millions of people impacted across the nation and around the world. We will continue to protect our team members and their families, apply our skills, energy and broad capabilities to serve and aid others in this time of crisis.
Our mission is to help people live healthier lives and to make the health system work better for everyone. This moment of challenge is proof of the resolve of the 325,000 women and men of UnitedHealth Group to achieve this mission, and you can also expect us to be fully prepared to excel on the other side of COVID-19, ready to respond to demand for health system resources and adapt our strategic priorities to emerging opportunities to lead in the development of the next generation health system in a socially conscious way.
Let’s open it up to questions please. One per person, so we can get to as many as possible. Thank you.
[Operator Instructions] We’ll go first to Gary Taylor with JP Morgan. Please go ahead, your line is open.
Hi, good morning. Thank you very much. I’m wondering if we could get the quarter end IBNR before the quarter. And if you could just comment on OptumHealth’s performance from 2007 to 2011? Ad how the business is different today in terms of more risk-based business? You’ve added some fee for service businesses. But how you’d expect the performance of OptumHealth to track versus how it performed back in the financial crisis? Thanks.
Gary, could you – can you clarify the first part of your question please?
Yes. I’m just hoping within the medical claims payable number you could give us the IBNR number that typically shows up in the queue?
Do you want the dollar estimate?
The dollar amount. Yes.
So Gary, this is John Rex here. We get our cue up very, very quickly and we’ll have that for you. And you can follow-up with Brett also if you need any color on that particular metric.
And so, as for – I think you can see that our days payable are consistent with quarter end last quarter and then also slightly elevated year-over-year as well. So I think you can take something from that. And then also just generally speaking, what’s gone on with development in terms of the continued conservative posture of the business and how it records its year – quarter end, year end and other IBNR estimates. Just also rely on the fact that it’s consistently applied to the best of our ability as always and then formed not just by claim lags, but other things as well. So on OptumHealth I might suggest that rather than responding directly to your question, I just suggest it is right on our expectations. I know there’s some commentary about it this morning, but it was definitely on our expectations.
What people, I don’t think realized about this business is that the elective and chronic disease management deferrals work both ways in a business that has two-thirds of its business, our revenues are risk-based and third of them are fee for service space. So you might want to think about that as you think about the performance expectations of this business going forward. I just want – I’m very proud of this team and how they’ve served and how they’ve adapted. And if I can, I’d ask Wyatt Decker to provide you with a few examples of how the team has performed.
Thank you, David and thank you Gary for the question. Yes, to characterize the response to COVID-19 of Optum and OptumHealth, I would use four adjectives, courage, compassion, collaboration and a can do spirit. The over 65,000 doctors, nurses and advanced practitioners and others of this team had been on the front lines of the COVID response as you heard earlier from Dave and has stood up over 436 testing centers. We have dramatically scaled our ability to care for patients digitally, including through telehealth vehicles, and will by the end of this month have over 10,000 providers on telehealth platforms and solutions.
We have been proud to be also on the front lines of innovation, collaborating with R&D on a whole host of solutions. And just as an example in New York and New Jersey, we over 329 care sites including 49 urgent care centers and stood up the first drive through testing solution for the state of New Jersey and continued to work very closely with those States and the cities within them to respond effectively to COVID. So much more to come, we anticipate to emerge on the other side of this, a even more sophisticated digitally enabled national provider of health care that is focused on serving our patients and delivering value-based healthcare. Thank you, Dave.
So that was Dr. Wyatt Decker. I think most of you know Dr. Decker well enough by now having been with us for a while. But just as a reminder, he was the CEO of Mayo, Scottsdale, which is obviously one of their strongest flagship locations. He is also an emergency room physician, which clearly showed through in this crisis or showing through in this crisis, he is intensely calm right in the middle of the crisis. And if you think about the numbers and things they’ve had to deal with let’s just say it’s been an honor and privilege to have him here with us today. Next question, please.
We’ll go next to Justin Lake with Wolfe Research. Please go ahead.
Thanks. Good morning. First I wanted to dig into early trends on commercial membership. We’d love to hear what you’re seeing in the commercial risk, both for instance, in terms of premium collections in April through mid month, right? How much have you collected in April, given all the uncertainty here versus a typical collection? And how many of your members you think have been furloughed? We’re just trying to understand the impact of furlough versus unemployment.
And then I know there is a lot of uncertainty out there, but if you go into promotional renewals that have to be priced for 71 and have to set Medicare bids in the next four to six weeks; a lot of questions on how you’re going to bid or set price relative to the potential for deferred utilization coming back next year, possibility of a COVID return during flu season et cetera. So, any color you can give us on pricing as well will be really helpful. Thanks.
Yes. Thanks, Justin, for the question. So, on a premium relief, we’re working with our customers on a daily basis to find the right solutions to ensure their employees can continue to have access to the care they need. I’ll give you a little bit of numerical context. In a typical month, we extend grace periods or offer payment plans to customers. That represent about 0.4% of our premium base. For March one premiums, we collected most of the premiums prior to the COVID impact really kicking in. And these extensions increased to about 1% of our premium base.
So for April 1 premium so far, the amount of extensions have grown to about 3% of our premium base. So, a little bit elevated, but we’re going to continue to work with our customers on payment plans to give them the options for coverage that they need.
Let me switch to your second question. You talked a little bit about commercial pricing. Of course, we’re in the process of developing our pricing for 2021. We’re closely monitoring the emerging COVID-19 information and including things like the claim experience from our members who have been diagnosed with the disease, as well as the abatement of other procedures.
We’re going to continue our commitment to pricing to our forward-look of costs, including estimates of things like significantly increased testing costs as well as hopefully the cost of the vaccine. Our view of the 2021 costs will continue to evolve as we learn more about the virus. The majority of our member months that should note are really priced after September. So, we’ll have time to get a better view on what the 2021 environment will look like.
Yes. And if it’s okay, Dirk, the one of the more immediate needs as well as what we’re doing on pricing for Medicare. So, Tim, do you want to take it?
Good morning, Justin. Thanks for the question. As you know, some of the key inputs to the 2021 Medicare Advantage bid process were published by CMS only last week. So, really early in the process and we never harden our position at this stage. In 2021, as always, we strive to provide consistency and benefits for the members that we serve. We have a long track record of stable-to-improving benefits and have accomplished this in some challenging circumstances in the past. The HIT dynamics that played out over years are an example.
So, too early to talk in detail about our benefits and some of the assumptions there. But our clear goal is stability. Stability is always extremely important to our members and it’s especially important at a time like this.
Good, thank you. Next question, please.
We’ll go next to Steven Valiquette with Barclays. Please go ahead.
Great, thanks. Good morning, everyone, and thanks for taking the question. Hope everyone is staying safe. So just a follow-up further around the commercial enrollment trends. And I guess I’m curious for 1Q 2020, curious how that membership shook out relative to your own expectations. I think there wasn’t any impact yet related to the rise in unemployment in late March in those 1Q numbers. And how are you thinking about unemployment impact that overall membership for the overall company as the year progresses? I know you claimed that you may recapture or gain some members in the Medicaid book as well. Thanks.
Dirk, you want to take that?
Yes. So, thanks for the question. As I said in January, we were expecting to be down for both fully insured and self-funded membership in the first quarter. But we expected to gain that membership in both areas as we paced through the year. With the current COVID crisis, we expect to be down for the year as business is closed and employers reduced payroll associated in driving group attrition. At this early stage, I can’t tell you what that will be. Again, I will say we’ll continue with our pricing discipline and remain focused on delivering the unique value proposition for both our customers and consumers.
We do expect to see, as you noted, increases in Medicaid and our individual products to ultimately offset some of the losses we experienced in the commercial group business.
Okay. Just one quick confirmation question. Just on that $2 billion of accelerated payments to care providers, that’s certainly commendable and very much appreciated on the receiving end. Just from an accounting standpoint, does that have any impact on the reported MLR of 81% in 1Q? Or does the timing, that change in your P&L from a cost recognition perspective around?
Hi, this John Rex here. No, it didn’t have any impact on that.
Okay. Just wanted to make sure.
It could affect our cash flows in the Q2. That maybe the way to think about it. Next question please. Thank you, Steven.
And next is A.J. Rice with Credit Suisse. Please go ahead.
Hi, everybody. And I’ll also echo about everyone staying safe. John, you mentioned in your comments about the slowdown in some re-contracting RFPs. And that makes sense that people can have face-to-face meetings when they’re considering big deals. I assume that, that would impact potentially group sales on the insurance side, the OptumRx selling season and the OptumInsight selling. Can you just maybe flesh out a little bit more of how big an impact that is? What you’re seeing in those different businesses with respect to large sale activity?
So, A.J., it’s Dave. [Indiscernible]. So, yes, just as this hit, there was a lot of activity in the commercial markets, let’s call it, where folks were trying to get their employees to safe place, work at home, and to kind of reestablish our operations as you would expect. It isn’t as if everything dried up, but it did slow down a lot. And at least as it relates to the commercial markets, I would expect that, that will come back online here as we get to the other side of COVID-19 or at least for a period of time.
Where I think the other place I’d like you to have commentary on would be with Andrew Witty, if Andrew might want to talk a little bit about the impact of the COVID-19 on the appetite for health systems and health plans and others, I mean what their availability has been for business as well.
Yes. Thanks very much Dave. And A.J., thanks for the question. As Dave said, it’s very interesting situation. I would say pipeline opportunities for Rx and for OptumInsight, very strong. The timings of meetings obviously disrupted by the COVID crisis, as Dave just referred to. Our focus really just now on the OptumInsight portfolio and pipeline, we’re actually seeing significant engagement and interest, I’d say actually a step-up in terms of general interest for innovation of how to start thinking through to improve healthcare delivery, how to try and improve their economics as different players in the system become under pressure. We’ve seen particularly more and more interest in the John Muir type deal that we announced last year, the more comprehensive engaged system.
So, timing is unpredictable. We just don’t know. But in terms of appropriateness of our offering, well, the needs that we’re hearing our clients and customers express, feel very good about that. And I would also say the team led by Robert Musslewhite at OptumInsight are working super hard in terms of innovating our offerings in response to the some of the new needs that are being expressed by our clients at this time.
So I would say overall, feels like a continued meaningful opportunities for OptumInsight, timing unpredictable and we have to wait for a little bit more time to go by before we can be certain of when some of these things get closed.
Thank you, A.J. So my view is that we’ll see a strong demand for Optum’s value proposition, once we get to the other side of this situation. Next question please.
The next question is from Kevin Fischbeck with Bank of America. Please go ahead.
Great, thanks. I appreciate the commentary about the seasonality in MLR, lower in Q2 and then higher in the back half of the year. Do you guys have any just general thoughts and framework about, whenever things do get back to normal, I know that’s still a moving target, but how much of what is deferred actually comes back when you see disruptions like this and how long does it take for that deferred volume to actually come back into the system?
You know, it’d be very difficult for us to project that at this stage, given all the uncertainties that are out there. Kevin, it’s a really great question. It’s something that we’re going to monitor closely and I think by the time we get to the second quarter call, we would probably have a better view of all that. John, do you have anything you want to add?
I would just add that, this situation is just so different than anything we’ve seen before, when we look back at prior situations, when you’ve seen a cessation in demand, it’s a different event. It’s a hurricane, it’s some other event where the system shuts down and when the system opens up, that demand comes back quite quickly actually as long as everything’s up and operating. But this is one of the times where we just haven’t been through it before either.
So in terms of us trying to step out and understand, both when systems are up open and operating, when comfort levels are there to reengage with systems are elements that we certainly haven’t experienced yet. And so I wouldn’t want to step out and kind of predict the past that the past events that we’ve seen when something like this has occurred are predictive at all of that.
So, it’ll have a lot to do with whether it comes back in the fall, what the timeframes are wearing off, whether the elective procedures come back online at what pace, there are just so many unknowns right now, Kevin. So I wish we could answer your question more fully and we hope to be able to provide you guys more guidance going forward. Next question please.
And we’ll go next to Josh Raskin with Nephron Research. Please go ahead.
Thanks. Good morning. Just want to, first one was a clarification, when you’re saying guidance is unchanged despite the moving parts and the metrics moving, is that just at this point you view the COVID impacts to be offsetting? Or is this just simply we’re going to wait to change anything overall? And then my real question is just on the physician groups, you talked about two-thirds of the payments being capitated, so obviously that’s a huge help from a liquidity perspective to the providers, but did that two-thirds of the total dollars of the OptumCare physicians or you talking about just two-thirds of the dollars from United HealthCare to the OptumCare providers?
Its cost the entire business, Josh.
And Josh, its John Rex, two-thirds of OptumHealth revenues are with our premium revenues, capitated revenues.
So obviously there’s deferrals of services, their utilization is lower against their capitated base as an example. So as it relates to the guidance going forward, based upon what we see at this stage, we’re maintaining that guidance is really not a whole lot more to be said about it, but I think John articulated well, which suggest that the elective deferrals today are offsetting COVID-19 costs. And what we are committed to today is to the extent that, that drives any imbalances in terms of performance or economics across the system. We’re committed to rectifying those as swiftly as possible. Obviously we have to be thoughtful about how we go about that. But that’s one of the commitments that we’re making today.
Josh, clearly we have a number of surveillance tools that we use and kind of both the data and the direct communication. We have members, patients, our clinical workers, and all these are going to continue to inform our response and our forward planning.
Thank you, Josh. Next question please.
And we’ll go next to Ralph Giacobbe with Citi. Please go ahead.
Thanks. Good morning. Just wanted to clarify and understand the commentary around sort of that what you just said in terms of ensuring financial imbalances are reconciled. Does that mean potentially rebating back this year beyond any MLR triggered or just hoping to understand the context a bit more there? Thanks.
Yes, it could be. So there’s a number of things to take into consideration, there is challenges with health system funding and liquidity at the beginning, so we put $2 billion to work. There was clearly homelessness and insecurity issues evolving, so we put a fair amount of dollars to that. There was a shortage of PPE broadly across the country, including with our own care delivery capacity and we were remained resolved and committed to making sure that not only our health workforce, but the health workforce broadly stays protected.
So not only did we source PPE, but we’re also focused on generating new and innovative testing capacities that would resolve PPE use as well as keep broadly the health workforce safe across the globe. So those are all good examples of what I’ll characterize as imbalances that occurred throughout and obviously there’s the possibility of financial imbalances to occur as well. And, so as we think about those, employers are having furlough employees, they have no revenues today, they need and want to keep people in coverage.
And it very well could be that in under the circumstances, deferrals of services outweigh COVID-19 costs, in those situations not only would there be normal MLR rebate situations, but we very may well find ourselves in a position where we can provide some additional premium relief to those clients. It remains to be seeing whether or not we are able to do so and to what extent, but it is something that we’re deeply committed to doing.
Next question please.
The next question is from Scott Fidel with Stephens. Please go ahead.
Hi, thanks. Good morning everyone. My question is just thinking about the individual business and your current footprint there and if we assume that the economic impacts persist for a period of time and that impacts commercial group enrollment, just interested in your thinking about potential appetite for reentering the ACA exchange markets, that you had exited. And I guess just given the timing of when you need to submit those filings, I would assume that’s probably the decision that, even though there’s a lot of uncertainty right now, you guys are probably going to have to start thinking about right now. And just interested in how your thought process is right now on that?
Well, what you can count on is, it will make no staff reactions to this situation in terms of making strategic decisions about Group going into markets. But we have given this considerable thought leading up to the crisis and through it all. Dirk, would you want to comment?
Yes, sure. Thanks Dave. Yes, we began to look at participating in more exchanges prior to the COVID-19 crisis. And so we’re still in the process of going through market-by-market, evaluating the relative efficiency of our network, our ability to compete and states where we would like to extend Medicaid. You asked me that we’ll have a more hardened view of our individual exchange intentions on the second quarter earnings call.
Okay. Next question please.
We’ll go next to Ricky Goldwasser with Morgan Stanley. Please go ahead.
Yes. Hi. Good morning. So, one follow-up question and a real question. So first of all, understood obviously that it’s very difficult to predict now the, when procedures are going to come back. But when you think about the capacity of the system to catch up on elective procedures, if we’re going to see things coming back into fall or this is just kind of a 2Q phenomenon, how much capacity is there, to catch up by end of year versus what might spill over to second quarter?
And, the follow-up question was on the pricing, your membership guidance provided in the 4Q assume some level of midyear renewals. So any color about pricing from midyear in light of all the puts and takes off the situation?
Yes, I’ll give the second question to Dirk. The first, we just don’t know exactly when elective deferrals will come online and what the overall capacities are, broadly for them to come online given the circumstances, I think you just think about the evolution of this disease, how fast it came on in the United States, which is where 95% of our revenues are across our company. But think about the evolution of that and then think about the tail and then the possibility of it coming back or not.
And the timing of the vaccine and the number of other things that need to be taken into consideration that they just create an uncertain future to get specific around things, our ability to respond to questions like you just asked. So I apologize that we can’t, but it’s just very difficult for us to give you the responses to those kinds of details.
Dirk, you want to talk about mid-years?
Yes, well, like I said, to begin with, the majority of our member months to start off with were – pricing for the majority of our member months, for 2021 we are going to be priced after September. So we’ll have a little bit better view. Now, many of the midyear renewals are sort of going out the door. So that’s sort of the scenario we’re in.
And let’s say, as it relates to our care delivery practices, we’ve been evolving the ways in which we provide care and ensuring that our chronic members who have also deferred treatment, that they have the option to get treatment through these telehealth capacities, the way in which we’re working on OptumRx to make sure that they are compliant with their pharmacy solutions and the way in which general pharmacies are available and community mental health centers and federally qualified health centers to ensure that those patients who have high needs are attended to as well.
So there’s evolutions that are going on underneath, what’s happened here to make sure that we’re opening up capacities in new and different ways. And then the only other thing I would say is that when we get to the other side of COVID-19, our operations are all standing ready to respond to the demands that might be there.
So our ambulatory surgical care centers will be available immediately to respond to the demands, the pent up demands that will exist for joint replacements and the number of other things that they do so well. So part of what we’re doing is, making sure that when we get to the other side, we’re ready. And not only ready to respond to the immediate demands, but also we’re ready to adjust and evolve our business strategies to respond to the things that we’ve learned through this crisis. Thank you. Next question please.
And next is Charles Rhyee with Cowen, please go ahead.
Yes, thanks. Thanks for taking the question. So I know you guys have been hesitant to put hard numbers around how you expect elected procedures to sort of rebound back, particularly in the back half of this year, but Johnson & Johnson on its earnings calling yesterday noted that, there was a slide on the presentation like the procedure volumes to be down about 55% to 80%, in second quarter, but third quarter also down about 40%, with the rebound really above baseline coming in 4Q of around 15%. This seems sort of more conservative in terms of a rebound than you’re kind of noting. Maybe can you kind of give us some of your thoughts on what’s behind your assumptions? And – or is your thoughts on how they’re looking at the situation perhaps? And then, John, I know you said that this is not like other situations; obviously, in natural disasters, things bounce back fairly quickly because the demand hasn’t really gone away. Is may be looking at something like the financial crisis a better proxy then or how we might think about elective procedures kind of coming back? Thanks.
Sure. Hey, thanks, Charles. So a couple of thoughts, and then I won’t opine on anyone else’s, any other company’s comments they put out there. But let me just kind of try to give you a few of our comments. I think one of the very important things to keep in mind in this extremely different situation are the co-dependencies and the interplays across a business like us, in terms of all the things you’re describing. And so, when we talk about, there’s a lot we don’t know right now and we’re actually not going to try to make calls to some of those. Keep in mind that there are factors that move differently in a diverse enterprise like this. Intensity levels, durations of the virus impact also the duration and intensity of the deferral of elective procedures.
So, there are factors in there as you go across the range of options that we consider the multi-variable factors that we look at when considering our outlook that interplay. And so, that informs kind of how we think about – how we just think about trying to consider different way that things would play out. And certainly, Dave did mention that, yes, and I mentioned also that we did – we have seen declines in procedural volumes and we saw those starting kind of late in March and those continued into April. But trying to use some of these other examples, even as you mentioned, the financial crisis as a measure, from our perspective aren’t necessarily still measures that we think are all that instructive because we haven’t seen a cessation in activity before like this. And the reasons for this cessation in activity are very, very different and the duration of those also is quite different. So, I don’t know that I’d even go to that one as kind of – as the instructive measure for us.
Great. Thank you, John.
Next question please.
And we’ll go next to Dave Windley with Jefferies. Please go ahead.
Hi, good morning. Thank you for taking my questions. I wondered, my question’s on capital deployment. I wondered if you might comment on how the crisis is impacting your thinking around that with maybe two opposing specific thoughts, one being your comments around conservation of liquidity at the corporate level, but then also the thought around say larger health systems being more capable of responding to a crisis like this and the strain on some providers perhaps presenting some consolidation opportunities? So, wondering if you might comment on capital deployment.
Sure. So, I think our long-term capital deployment strategies remain. Our long-term capital deployment strategy is absolutely in terms of how we think about allocation of capital into our businesses, into new organic growth opportunities, M&A opportunities, and as we think about things like dividend and share repurchase also. And clearly, you saw, we responded, we are in the fortunate position of being able to respond to what we saw as some instability in the financial markets in March, by increasing our cash position in order to fortify that, and in part and kind of given the role that we play in being reliable partners for the broad health care delivery community.
And so, that part being important, you can be sure that as we think about things in kind of the very near term, we’re respectful of markets, that is financial markets and how they’re behaving, and we’ll continue to be respectful of those and understand kind of that they are functioning and functioning fluidly as we consider those elements. And that may impact the timing of how we think about different capital allocation activities. We’re going to be super respectful of that because of the important role that we play in the health system and our obligations to be – provide health security for the people we serve and to be ready, enable and reliable partners for the health care delivery community broadly.
Thank you. My comments would be that is exceptionally well capitalized company. It’s been maintained with the capital structure, been maintained very consistently with high integrity. And I think it’s one of the strengths of an organization going into the situation to have the capital structure that we have today and the financial backing broadly. Next question please.
Next question is from Lance Wilkes with Bernstein. Please go ahead.
Yes, good morning. I appreciate all that you guys are doing. I thought it was a great job outlining the number of things that you are contributing to the system. Just wanted to ask a couple of questions, really more OptumHealth OptumCare related. And it’s just one variant of the same question. For right now, could you describe how you’re standing up telehealth enablement and virtual care delivery within the services?
And then before you get to the kind of post-COVID, as you’re thinking about that transition period as you’re ramping back – as the economy is ramping back into service, have you guys come up with perhaps how you will scale back? Meaning, are you going to be doing temperatures, masks for patients, things like that to try to get a sense of how quickly you can start to ramp back in the ASC business and some of the other physician businesses?
Great. Thank you, Lance and appreciate your comments about the company’s performance during this timeframe. Dr. Wyatt Decker?
Yes. Thank you, Lance, for your question. And on the digital health and telemedicine side, we have both our internal capabilities, which we’re leveraging extensively including telepsychiatry, that’s the nation’s largest telepsychiatry platform. We’re also working with partners, collaborators and vendors and have over half a dozen national partners who are assisting us to stand up solutions quickly. I would also add that we believe that telemedicine is not all created equal and we’re very focused on keeping the personal and intimate nature of healthcare alive and well. One of the ways we’re doing that is by making sure whatever possible that our OptumCare patients can reach out to their already established provider using telemedicine, which is a very different experience than a random or unknown provider, as an example. So, we’ll continue to leverage this. We’re also leveraging the Internet of Things, caring for people in their home and AI-enabled symptom checkers as other examples of how we’re really dramatically accelerating our digital health solutions.
And then to your second part of your question around the other side of this and how do we adapt? Obviously, that’s something that is evolving. We will, of course, work and have been working hand-in-glove with local, state and federal recommendations and authorities on when is it safe to resume elective and scheduled care and procedures. We will also, as Dave mentioned, are taking great care of our health care workforce, so that they are able to resume activities really quickly, which we expect to be a differentiator.
And then the final thing I’d say is that when you look at OptumHealth, one of the remarkable things is what a resilient and diversified health care business it is. So, we’re in 43 states. We have ambulatory care surgical centers, we have primary care, we have specialty care and because the COVID epidemic and pandemic is playing out differently across the United States, we feel we’re really well positioned and have been able to keep our workforce busy, contributing to the communities they serve, while we adapt to this changing environment. Thank you.
And one of the things we did was, as part of all, is we created a – leveraging that swabbing testing capability, so it allows for self-administration in a clinical setting. We also, alongside that developed a new test – set of testing protocols, procedures and applied technologies for the health workforce. And part of it was to ensure that that workforce is safe to apply their services, but also that we were able to ensure that they were as fully available as possible, which I know is on the top of mind for each and every one of them. So that technology, those protocols, that process that was developed, likely find its way not only into a clinical setting but also could find its way into other essential business settings as well, as a normal course of business going forward. So, we could see applying those types of concepts across OptumCare but frankly across the industry.
We have time for one more question, please.
And we’ll go next to Frank Morgan with RBC Capital Markets. Please go ahead.
Thank you. You’ve had a lot of success with engaging physicians to taking risk. And I’m just curious how do you think this long-term impact of the pandemic will affect the interest from physicians in participating in the risk model? Thanks.
I think as it relates to this one, at least so far, they probably have performed just fine. Obviously, it will remind a number of them about how important it is to align with certain partners that have a strong financial standing. And I would characterize UnitedHealth Group, in particular, Optum and OptumCare as being those kinds of entities. So, I hope what they do is they seek a greater sense of alignment towards, with partners or choose their partners based upon the strength of them in multiple different dimensions. And I think Wyatt has done a great job of building that business in a multi-dimensional way with a great number of strength. So, hopefully we’ll see greater alignment to UnitedHealth Group.
Thank you for your questions and thank you all for your time and your questions today. As we’ve shared with you, we’re going to continue to apply the full breadth of our resources, technologies, innovations, and compassion to support our members, our patients, provider partners, our team and the broader health system as we see our way through this global health crisis together. Please be safe each and every one of you and thank you for your time today.
And this will conclude today’s program. Thanks for your participation. You may now disconnect, and have a great day.