How can Optum be in only 35 out of 75 target markets while also being available to 70%+ of the US population? An analytical speculation

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During the UnitedHealth quarterly earnings call earlier this month, Larry Renfro, CEO of Optum, offered some additional color on the growth of OptumCare: “Combined with [Davita], OptumCare will be in 35 local care delivery markets, nearly one-half of the 75 markets targeted for engagement or development. And these market operations are still in the early stages of growth and development” (per transcript on SeekingAlpha). Yet, based on our data, we think OptumCare (including Davita Medical Group and its MedExpress and Surgical Care Affiliates components) is already present in Hospital Referral Regions (HRRs) which include 74% of the US population.

How can these two statements be reconciled? We’ve put together a theory and it has some implications regarding OptumCare strategy. It’s a working theory based on what we know today but, as always when speculating from the outside, it could be wrong.  Let’s see what you think.

Getting to the same geographic unit of measure
United’s definition of “market” is probably not the same as an HRR. My guess is that United’s “markets” are MSAs. Earlier, United has stated that the 75 target markets together cover between 60-70% of the population. If you take the population in the top 75 MSAs, these add up to about 65% of the US population. I prefer thinking about healthcare markets in healthcare terms so favor either Hospital Service Areas or HRRs. But, especially given that OptumCare is a non-hospital strategy, MSA could be the right lens and, besides, while definitionally distinct, the more important MSAs and HRRs are roughly congruent.

If we run our dataset of OptumCare locations through an MSA lens, we still find OptumCare in a lot more MSAs than the 35 Renfro cites. To us, it looks like OptumCare is already in 185 MSAs in one way or another. Even if we exclude practices affiliated with OptumCare only through an OptumCare-owned IPA (and therefore conceivably less under the influence and branding of OptumCare), we still find 173 MSAs with OptumCare presence.

See table below:

OptumCare penetration among MSAs 29Jan2018

Given that OptumCare was put together by acquisitions, it is possible that there are a lot of sites which are outside of United’s targeted 75 markets. Let’s suppose that the top 75 MSAs is a reasonable starting hypothesis for what those markets are (given their population total is within the range of total population in these 75 target markets per United). If we replicate the same analysis but only include sites within the top 75 MSAs, the results are still a bit puzzling. OptumCare appears to have a presence in 54 of the top 75 MSAs (or 51 if we just include clinics directly owned by Optum). Closer to Renfro’s 35 markets but not comfortably close.

See table below:

OptumCare penetration in the top 75 MSAs only 29Jan2018

Getting to same definition of “presence” in a market
Perhaps the definition of what it means to have an OptumCare presence is also an issue. It is a bit ambiguous whether all of legacy MedExpress or the ASC’s acquired with Surgical Care Affiliates qualify. The website currently focuses on clinic sites but offers direct links to the MedExpress and SCA websites for locations. But it must be more than just the clinics in Renfro’s 35: by our numbers we have only 23 of the top 75 MSAs covered by OptumCare clinics (15 if looking only at owned practices).

Going the other way, if we exclude MSAs where there is only an ASC facility (and therefore no employed or affiliated physicians), we arrived at either 39 MSAs if we include the IPA practices (54 total MSAs with any of clinic, urgent care or ASC presence less the 15 where we only find a stand-alone ASC) or 34 MSAs (51 total MSAs with any of clinic, urgent care or ASC presence less the 17 where there appears to be only an ASC presence). Either of those numbers start to look a lot closer to Renfro’s 35. The remaining differences can perhaps be attributed to whether United is really focused on the top 75 MSAs or 75 out of the top 80 or 90 MSAs which are more urban, where United has a strong membership presence or where Medicare Advantage penetration is high (obvious strategic interest for United).

So, my working conclusions (based on these deductions) are:

  • OptumCare is focused on building presence in 75 of the top 80-90 or so MSAs
  • Presence means having physicians who consider themselves part of OptumCare not just having facilities (such as an ASC) that are owned by OptumCare
  • Optum is about halfway to its targeted MSA presence but (as was also noted in the analyst call) there’s also a lot more build out to be done in the MSAs where they have beachheads.

Implications
A few strategic implications if these speculations are correct (a big if when trying to reconcile data from website scrapes with executive summaries!):

  • OptumCare really is far from done in terms of geographic expansion. The 70%+ of US population they can currently access (using an HRR lens) is not the 70% of the US population they have prioritized. Just because you don’t see OptumCare somewhere in your MSA today does not mean they aren’t coming – especially I would expect if your MSA is large, United has covered lives there and Medicare Advantage is popular. For starters, I’d expect large physician practices in those 15 MSAs where OptumCare has ASC’s only to be acquisition targets for Optum.
  • The remaining 40 priority MSAs where OptumCare is not yet present may already be quite crowded in terms of care delivery. The growth imperative may be encouraging OptumCare to think more creatively about growth. For example, MedExpress has historically preferred stand-alone sites but has recently cut a deal with Walgreens to locate urgent care centers adjacent to their stores (presumably easing access to attractive real estate).
  • A lot of markets where OptumCare has assets appear to fall outside of the 75 target market cut-off – mostly urgent care and ASC sites rather than where clinics are. Unless these are underperforming sites, I would not expect Optum to want to offload them. The current list of 75 target market may get supplemented soon enough. But those markets are unlikely to receive a lot of management attention and capital to fund growth. If you operate in markets outside the top 75, you may not see much OptumCare growth in the near and medium term.