How to Save UnitedHealthcare from Strategic Collapse
The art of modern leadership, in business as well as in government, is the skill to see tipping points before they happen, to prevent strategic collapse. You want to create history rather than simply being swept along by its currents.
Updates since original publication on August 13, 2024:
October 14 to integrate Blue Cross Blue Shield agreeing to pay $2.8 billion to resolve antitrust class action claims by its customers
October 15 to integrate UnitedHealth Group’s losing almost $40 billion in market value following earnings
October 17 to integrate Elevance share dive in the face of "unprecedented challenges"
December 6 to integrate Pfizer, Eli Lilly and PhRMA CEOs dinner with Trump
December 10 to integrate the arrest of Luigi Mangione for the murder of UnitedHealthcare CEO Brian Thompson
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Solving The Mad Riddle of Healthcare
Yesterday afternoon, police arrested Luigi Mangione for the murder of UnitedHealthcare CEO Brian Thompson.
Instead of eliciting sympathy, Thompson's death spawned a hate machine against the insurance industry that’s only getting louder as the days drag on with little insight into the killer’s motives.
While the police investigation unfolds, the $500 billion healthcare company is simultaneously trying to cope with the personal tragedy of losing a top executive and a spiraling PR crisis that risks long-term reputational harm in a country where so many have turned against it, write Riley Griffin, Michelle Fay Cortez, and John Tozzi in CEO Killing and Rage Over Insurance Plunges UnitedHealth Into Crisis, their deep reporting for Bloomberg on "a company under siege."
"Thompson’s death has become a symbol of revenge over denied medical bills and lack of access to necessary care, an issue that some UnitedHealth employees say they’re growing increasingly anxious about. While the company has sent a series of messages extolling Thompson and decrying his killing, some employees say they want to see a more direct response to the vitriol against the company.
The vitriol following the shooting sparked a reckoning among some UnitedHealth employees. Much of the public animosity was aimed at the way insurance companies prevent Americans from getting the care their doctors prescribe. Some employees grappled with the idea that their paychecks were padded in part by the practice of denying care."
The mad riddle of the American Way of Healthcare, via earnings this week (as reported by Bloomberg (UnitedHealth Sinks on Rare Miss as 2025 Outlook Disappoints) and the Wall Street Journal, (UnitedHealth Shares Dive After Health Giant Says 2025 Results Likely to Fall Short)):
“UnitedHealth Group Inc. shares plunged the most in four years on Tuesday after its forecasts for 2024 and 2025 fell short of investors’ expectations, a rare stumble for the health-care giant.
The company hasn’t issued an early outlook that missed Wall Street’s view for years. The forecast reflects persistent hurdles, including rising medical expenses and stricter federal reimbursement rules that are cutting into revenue. The shares fell as much as 10 percent, the biggest intraday decline since March 2020. Stocks of rivals Elevance Health Inc., CVS Health Corp., Humana Inc. and Centene Corp. also dropped, a sign that investors see UnitedHealth’s troubles threatening the entire sector.
What happens to UnitedHealthcare, the industry juggernaut, is usually a sign of wider industry issues. Shares of CVS and Humana, rival insurers, were both down sharply, while hospital companies like Tenet and HCA, which benefit from utilization of healthcare, were up.”
‘Tipping points’ are moments when an outbreak of sentiment becomes an epidemic, a trend becomes destiny and a leader’s fate is sealed. They tend to be visible only with a particular elevation and distance, with vision at a system level.
Anyone can spot a tipping point after it’s been crossed; beforehand is something else entirely. The steady, upward turn of the dial on a host of threats and crises acting simultaneously and interactively, feeding on and fueling each other as a feedback loop, is hard to “fix” because its effects are always ‘out there’ in the ether somewhere.
Invariably, it’s always someone else’s cluster of problems to deal with.
And the goal of any well-compensated executive leader in healthcare — average annual compensation last year of the country’s largest health plan CEOs was around $20 million — is often to ride the bouncing ball for as long as possible, fighting gamely to stay on top, hoping not to be on the bottom when it bounces. (Which, I suspect, is what happened to Brian Kane, who was “removed” as Aetna’s president after less than a year, after previously serving as Humana’s chief operating officer and an investment banker at Goldman Sachs.)
In the world of complexity science, tipping points are also known as critical transitions — such mathematical cliff-edges influence everything from the behavior of financial markets and the spread of disease to the extinction of species. The financial crisis of 2007-09 is often described as one. So is the moment that Covid-19 went global.
And yes, there’s an AI use case for predicting tipping points.
Computer scientists in China (sorry America) published a paper last month in the journal Physical Review X, showing how to anticipate tipping points in "networked dynamical systems” with the help of machine-learning algorithms.
From the paper:
Numerous natural and human-made systems exhibit critical transitions whereby slow changes in environmental conditions spark abrupt shifts to a qualitatively distinct state. These shifts very often entail severe consequences; therefore, it is imperative to devise robust and informative approaches for anticipating the onset of critical transitions. Real-world complex systems can comprise hundreds or thousands of interacting entities, and implementing prevention or management strategies for critical transitions requires knowledge of the exact condition in which they will manifest
The art of modern leadership, in business as well as in government, is the skill to see tipping points before they happen, to prevent strategic collapse. You want to create history rather than simply being swept along by its currents. (Nice piece on how Jensen Huang, Cheif Executive of Nvidia does 'signal sensing' here: The Secrets of the Man Who Made Nvidia the World’s Most Valuable Company.)
UnitedHealth Group is at a tipping point.
It is “stuck” in its conceptual past, and now trying to navigate a diverse selection of systems converging on its business model, self-organizing into a bigger force than itself, with the resources and the staying power to cross the economic moat protecting its castle. These are the barbarians at the gate of UnitedHealthcare:
Employees suing employers (“plan sponsors”) for overpaying for prescription drug benefits administered through PBMs, claiming that these overpayments resulted in higher health insurance premiums and out-of-pocket drug costs for employees. I believe Mark Cuban when he says: "If you work at a big company that is getting pharmacy rebates, your company will be getting sued. Guaranteed. It’s not a question of if, it’s a question of when. The inevitable class action suit will dwarf the tobacco settlements.” For more, this piece in STAT is a good starting point: The J&J lawsuit should be a wakeup call to the PBM industry — and to companies everywhere
LillyDirect will prove this out: Middlemen need drug manufacturers more than drug manufacturers need middlemen. The infrastructural advantage that Big PBM + Big EBC + Big Payer have used to define and control not just the economics of the drug market in the United States, but the practice of medicine itself, is easy to replace.
The institutional press — the journalism with credibility and narrative power to shape what people with influence think — is armed with data and gouging away at its storyline of value. Look no further than the series of deeply reported articles by the bellwether of capitalism, The Wall Street Journal, the exposé on the PBM market by the New York Times, and the Washington Post’s coverage of the “crumbling pharmacy industry.”
Government — at the federal and state level — adopting a more muscular approach to “fix” and reshape markets. Regardless of who ultimately becomes the next CEO of the United States, both candidates have made clear in their content and communications that they embrace a vision of a more powerful federal government, using its power to intervene in markets with new industrial policy.
Big PBMs Big Tobacco moment — The chair of the powerful House Committee on Oversight and Accountability is threatening the leaders of the three largest pharmacy benefit managers in the country with steep fines — or jail time — for allegedly lying in a recent congressional hearing. Chairman James Comer, R-Ky., sent letters last week to Patrick Conway, the CEO of UnitedHealth’s Optum Rx; Adam Kautzner, the president of Cigna’s Express Scripts; and David Joyner, the president of CVS’ Caremark arguing that statements they made in a July hearing contradicted committee findings and research by the Federal Trade Commission. (During the hearing, Conway, Kautzner and Joyner testified that their PBMs treat affiliated and unaffiliated pharmacies equally when setting rates, negotiating contracts and telling patients where to dispense their medications. Those statements were lies, suggests Comer’s letters, which cite committee and FTC evidence to argue that PBMs increase revenue at their own pharmacies at the expense of other businesses.) While jail time probably won’t happen — tap dancing around the truth does not necessarily run afoul of the law — the avalanche of litigation sparked by the “'I believe that nicotine is not addictive” testimony by the top executives of the seven biggest tobacco companies resulted in a $206 billion judgment against big tobacco and led to the downfall of an industry.
The growing demand for more vigorous antitrust action by the DOJ and FTC. For a data point, see what is happening with “superstars” Amazon, Apple and Google — last Monday, US District Court Judge Amit Mehta ruled that Google has illegally monopolized the online search market. The decision not only has serious ramifications for Alphabet’s flagship business, it now puts $20 billion at risk for Apple, too. Next up: United Healthcare, which is now a target, MultiPan, one of UHC’s ingredients for its business model, which is also a target, as well as the PBMs. And once the market in class-action lawsuits picks up steam, expect Big EBCs to be swept-in to the mix.
This last bit — that UnitedHealthcare will be broken apart by the DOJ/FTC, it’s just a matter of time — helps explain why this head-scratcher was floated on its last earnings call: “We're a comparatively small part of the $5 trillion U.S. health system”.
Chew on that statement for a bit.
A National Asset to the United States?
In a feat of intellectual gymnastics that would make Cirque du Soleil proud, in addition to positioning itself as a “small part” of the healthcare system in the United States, UnitedHealthcare also positions itself as a national asset to the country as a whole, “too important for the country to fail”.
It is the fifth-largest public company in the United States, bigger than JPMorgan Chase. Its insurance products serve more than the population of Spain, and its $186 billion health services division, Optum, has 103 million patients, more than Vietnam’s population. It employs more than 400,000 people.
Through the first half of the year, UnitedHealth brought in close to $200 billion in revenue and almost $3 billion in profit, putting it in the top 30 of companies worldwide. Optum, “coming off last year's record-selling season” is the biggest driver of business for UHG.
So while calling a $400 billion/year business a “small part” of the American healthcare experience is technically true, UnitedHealthcare has nonetheless internalized a critical fact about power, control and competing as a system: It’s about gravitational pull into your orbit. If you sit on every side of the transaction — from doctors to insurers, drug payers to drug prescribers, lifesavers to end-of-life carers — you not only grow as the population grows and ages, but you have the ability to define the rules of play for everyone else.
This kinetic energy of UnitedHealthcare determines the construction physics behind all players, production chains, digital flows and consumption patterns in healthcare today, the “hundreds or thousands of interacting entities” in a $5 trillion market.
UnitedHealhcare creates mutually-assured dependence (and destruction) based on its operating system: how and why digital health start-ups shape and sell their big market visions (and why those big market visions have never really materialized into big market reality); how and why Walgreen’s, it’s stock at a 27-year low, is exploring a garage sale for VillageMD after a $6 billion write down; how and why Walmart got out of the primary care game after burning through nearly $1 billion; how and why the EBITDA from a $5 trillion investment made in healthcare every year delivers “crisis” not “value” to the people paying for it. The DoJ’s head of competition, Jonathan Kanter, in an interview last week in The Verge (AAG Jonathan Kanter says the Google monopoly verdict belongs on the ‘Mount Rushmore of antitrust.’):
“If you look at our trial and the trial record and the decision that you just went through in detail, it talks a lot about smaller competitors. It talks a lot about rivals. It talks about different business models that never had the opportunity to fully succeed and compete because they didn’t have access to the distribution they needed. We’re never going to see the next generation of smaller startups and disruptive players unless we have an appropriate degree of antitrust enforcement that keeps them free to compete on the merits of their innovations rather than being elbowed out through restrictive contracts and other provisions.
I’ll also say this: a couple of weeks ago, I was out in the West Coast in the Bay Area, and I had the privilege of sitting down and talking to dozens of VCs and startup founders and innovators. What I heard overwhelmingly was support for these cases. They believe that a small number of companies are crowding out the ability of new innovative startups to invest in and build and grow and that they feel that the regulatory requirements — not from the government but from the dominant companies that impede their ability to grow, develop, earn revenue, and engage with their own customers the way they want to — are impediments to their success."
Following the second article by a team from the Wall Street Journal into its Rubik’s Cube of a business model (Insurers Pocketed $50 Billion From Medicare for Diseases No Doctor Treated), UnitedHealth Group’s public relations team took the field to defend themselves, putting out a statement to “set the record straight on HouseCalls, Medicare Advantage and the demonstrably superior health outcomes and cost savings delivered to more than 33 million American seniors each year.”
They came armed with cliche:
“….More broadly, the shortcomings of the current fee-for-service system — which is inefficient and ineffective, and consistently underdiagnoses serious health conditions — leaves patients with fewer options to treat diseases after they have progressed. For example, the WSJ cites higher rates of peripheral artery disease diagnoses through HouseCalls without mentioning early detection is critical to helping patients avoid unnecessary ICU admissions and, in some cases, amputations.
Ultimately, we believe this move from fee-for-service to value-based care, championed by Medicare Advantage, is a paradigm shift for a health system that historically pays for volume, not value. It requires a new way of thinking about early detection and disease prevention.
We recognize this directly challenges the status quo, which has relied on treating a constant influx of sick patients and is burdened with the wrong financial incentives. But we also see a different way forward - one that cares for patients before they are too sick for viable treatment and provides higher-quality outcomes at a lower cost….”
Quoting Pink Floyd, I have become comfortably numb.
Eliminate “Utilization Management” for GLP-1s
In closing, I suppose I should offer a solution for UnitedHealthcare — if only so I can’t be labeled a frustrated nay-sayer with no alternative to what has been framed here.
Ok.
In the spirit of “directly challenging the status quo” and “shifting the paradigm” with ideas that “provide a new way of thinking about disease prevention”, why not completely eliminate all forms of prior authorization and utilization management for GLP-1s? Stop fighting science and common-sense, stop defending the past. Accept and advance the idea that obesity is a disease with massive effects on society and business (it’s even a functional threat to national security of the United States).
Do this today, not ten years from now.
Use your market-making power to “create competition” (to use the words of David Joyner, executive vice president at CVS Health, who was describing what he believes the value of CVS Health is to plan sponsors last month in his testimony before the House Committee on Oversight and Accountability), but think differently about the nature of competition you’re creating.
Leverage your positioning to change the entire practice of medicine — including uniting HHS, the FDA and the VHA — around the ‘production of affordable health’ as a concept for economic competition, not between drug manufacturers and the “cost” of their drugs, but between economic systems (“ecosystems”) organized to produce better health, of which drug is a part.
The broad-framing for UnitedHealthcare leading an end to obesity is available as an Open Access download on the Blue Spoon website here.
The more interconnected and interoperable the markets (‘market interoperability’), the more opportunities it spawns and the wider the economic playing field becomes. Walgreen’s and Walmart didn’t have to abandon primary care as a business model — they just needed a longer runway enabled by better economics, currently controlled and defined by Optum/UnitedHealthcare, and different market definitions, also currently controlled and defined by Optum/UnitedHealthcare.
I’ve written elsewhere:
Healthcare is an N-sided market that has never followed the rules of conventional economic theory. Partially because of this: it's not just one "market" that drives innovation and determines “value” but an infinite flow of them.
If you accept that premise as your jumping-off point, then what follows is this simple concept: real strategic advantage goes to the side with the skills to harness a carnival of markets and combine them as a single economic unit, as a unique 'system of markets' cohering and collaborating on shared space for growth. As a general rule, the fastest way to amp up the worth of your own network is to bring smaller networks together with it so they can act as one larger network, a new ecosystem, in which everyone gains and shares in the value created above and beyond a single organization.
A Next-Generation Model
Revolutions are open-ended: the spark that brings about large, irreversible change — the thing that topples iconic statues, gets barricades erected in the street or ends business empires — never come down to just one thing in isolation, happening at a distinct moment.
Strategic collapse is a slow burn. Gradually then suddenly.
The long-term prospects of all parties involved in healthcare — and we are all involved — depend on how they/we adapt to a total change in context, how they/we can align value, and how they/we can come together in unique market combinations.
The radically pragmatic strategizing that industry and government will need to engage in as a system is this: how to reshape the thing of which we all are a part.
Quoting Andew Witty on Q1 earnings:
“Our focus on understanding opportunities to align incentives, notably led via our value-based care offerings, demonstrates what can be achieved through partnership and realignment of ways of working.
Our commitment to improving all we do for consumers stimulates our drive to help bring care to patients where they need and want it at prices and with an experience worthy of the 2020s. We have a proven commitment to making available our insights and innovations widely and quickly throughout the market, alongside our relentless multiplayer orientation at Optum. We remain committed to partnering with others throughout healthcare to help make the health system more modern and responsive.”
Which is vaguely correct, as all things are in healthcare. And you certainly can’t argue with a commitment to make the system more modern.
But the atmosphere is different now. People are pissed off, at scale.
As a general rule, you can’t “fix” an embedded economic system, whether that economic system orbits around Google, Starbucks, Nike, UnitedHealthcare or the U.S. Congress.
And we’re not going to crack the mad riddle of healthcare by mounting long attacks on each other. That produces what we have now: structural stalemate. The American Way of Healthcare needs a whole new taxonomy for creative leadership, better words to power better ideas about markets and the nature of competition.
What’s missing are not more technological advancements applied to “optimize” obsolete concepts, but unique government and industry relationships, co-creating the mechanisms necessary to mount a big effort at adaptation….at competing differently….all the while ensuring universal access to its innovations. Kanter again in his interview:
“I believe that antitrust law and competitive processes and markets can work. I wouldn’t be doing this for a living if I didn’t truly believe that a market-based economy is the best one we have. In order for that to work though, we need competitors with opportunities. We want to make sure that remedies in any case, whether it’s this one or any other, are meaningful and meet the markets where they are today, not where they were 15 years ago.”
On Monday (October 14), Blue Cross Blue Shield agreed to pay $2.8 billion to resolve antitrust class action claims by hospital systems, physicians and other health providers -- aka its "customers" -- alleging they were underpaid for reimbursements.
The settlement is the largest ever for a healthcare antitrust case.
"We have not had an environment like this before," said Elevance chief executive Gail Boudreaux during her earnings call yesterday, saying the current market was facing "unprecedented challenges" as it tries to navigate a mismatch between what government health programs pay and what insurers need to manage them for EBITDA.
Couldn't agree more.
From Bloomberg's piece yesterday:
This growing disconnect between Americans and their insurers is an increasing threat to the industry, said Wendell Potter, a former Cigna communications executive who has written books critical of health insurance.
“They have to demonstrate quarter-to-quarter that they’re managing medical expenses because that’s what Wall Street expects,” Potter said. “They’re certainly not managing the expectations of the people that they serve.”
In some ways, UnitedHealth is in an impossible situation. “I don’t know what they can do other than hope that it does go away,” Potter said.
Couldn't disagree more.
Hope isn't a strategy.
Needed: A New Genre in Storytelling
Fears become images, images become projections, and projections as they expand blur into empty discourse, the cliché that swarms at high altitudes, inaction hiding behind a halo of virtue and empathy ("patient centricity" anyone?).
At some point, we need to get our asses off the comfortable mental furniture keeping the Standard Model alive. We -- and everyone is part of the "we" -- need to start seeing and thinking with a new set of attitudes toward the real reality we all share. A whole new taxonomy is needed, not for its own sake, but to semantically separate conventional approaches from novel ones, and to generate different strategic concepts that have leverage to create new value.
Seeing and thinking in terms of systems is the mother lode to mine for a new imagination, the kind of creative leadership that solves for strategic atrophy. This isn't a moral argument about "doing the right thing" and "profit” being a dirty word in healthcare, but an understanding that radical forces are changing not just the rules of the game, but the game itself.
The skill in short supply is not technical, but visionary.
The killing “has cast a dark shadow” over the health-care insurance industry, Jared Holz, a health-care equity strategist at Mizuho Securities, wrote in a note to clients about UnitedHealth’s stock drop.
“We believe the majority of the pressure, if not all, is related to the idea that the crime was based on some level of dissatisfaction with the insurance industry, its tendency to deny coverage for patients (in some circumstances) and the emotional toil this can take on patients and families,” Holz said.
The thing needed across the board is different leadership that is able to articulate and propagate a new direction, teams that can manage the 'transition space' to market innovation. Because simply hanging loose at the crap tables and hoping for the best is the low-probability path to strategic (and professional) success.
Let the Modern Realignment begin.
/ jgs
John G. Singer is Executive Director of Blue Spoon, the global leader in positioning strategy at a system level. To engage with a mind stretch: john@bluespoonconsulting.com