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Obamacare, Move From Fee-For-Service Boosts UnitedHealth By $2B

Written by: | readers@forbes.com | Dated: Thursday, April 16th, 2015

UnitedHealth Group (UNH) says its revenue this year will increase by $2 billion more than earlier projected for 2015 thanks in part to its expansion on public exchanges under the Affordable Care Act and its push to more value-based care contracts with doctors and hospitals.

The outlook, which includes increased earnings projections for this year as well, came as the company beat Wall Street’s earnings projections for the first quarter, reporting $1.4 billion in profits on nearly $35.8 billion in revenue. By comparison, profits were $1.1 billion on $31.7 billion in the second quarter of last year.

After taking a more cautious approach last year to offering products on public exchanges to uninsured Americans under the Affordable Care Act, UnitedHealth expanded to several more states and markets. Executives say they are benefiting from that expansion.

“In the first quarter, UnitedHealthcare’s commercial business grew nicely, serving 680,000 more people,” said David Wichmann, UnitedHealth’s president and chief financial officer told Wall Street analysts on the company’s first-quarter earnings call this morning. “Growth included 570,000 public exchange consumers, well ahead of our expectations.”

Across the company’s businesses, UnitedHealth is adding customers and managing their health care costs much better. The insurer added 1.6 million more people in the past year and more than one million additional enrollees in the first quarter alone.

UnitedHealth is negotiating more contracts with medical-care providers that move doctors and hospitals away from the traditional fee-for-service approach to medicine that is based on volume and can lead to overtreatment and unnecessary medical tests and procedures. It is moving these providers to value-based pay that is tied to health outcomes, performance and quality of care provided.

“Medical spending under value-based arrangements grew nearly 30 percent year-over-year to a nearly $40 billion annual run rate,” Wichmann said.

UnitedHealth CEO Stephen Hemsley said the company expects 2015 revenue to now reach $143 billion, which is an increase of $2 billion from an earlier projection. The company’s earnings per share are now expected to be between $6.15 and $6.30 per share compared to an earlier outlook of $6 and $6.25 per share, “despite absorbing approximately 10 cents per share from” its acquisition of the pharmacy benefit manager Catamaran CTRX -0.17%. That deal was announced earlier this month.

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