UnitedHealth Group said sales rose 6.8% in its latest quarter, topping analysts’ expectations.
Photo: mike blake/ReutersUnitedHealth Group Inc. said its insurance arm gained from widespread cancellations of medical procedures but its surgery centers were hurt by falling volumes, results that showed the pandemic’s emerging impact on the U.S. health-care system.
The company on Wednesday played down the effects of the new coronavirus on its first-quarter performance, however, saying they were minimal and emerged toward the end of March. The results beat analysts’ expectations. The company also said it wasn’t adjusting its guidance for the rest of 2020 and warned of significant uncertainty.
The pandemic has had a mixed impact on the U.S. health-care industry so far. Across the nation, surgeries have been canceled as hospitals and other health-care providers brace for expected surges of coronavirus patients. Americans are also avoiding clinics and emergency rooms amid infection fears and stay-at-home orders. But in parts of the country, such as New York, hospitals are overwhelmed by patients sick with Covid-19, the illness caused by the novel virus.
“The elective deferrals to date are offsetting Covid-19 costs,” UnitedHealth Chief Executive David Wichmann said in a conference call with analysts and investors.
UnitedHealth is the parent of the biggest U.S. health insurer as well as, through its Optum arm, the owner of a large network of surgery centers, urgent-care clinics and doctor practices. Investors consider its results a bellwether for important segments of the health-care industry.
Earlier this week another industry bellwether, Johnson & Johnson, lowered its forecast for its performance this year, citing the slowdown in patient visits to doctor’s offices and in spinal surgeries, knee replacements and other elective medical procedures.
Gary Taylor, an analyst with JPMorgan Chase & Co., said UnitedHealth’s first-quarter results likely foreshadow far more dramatic financial impacts across the health-care industry that will become clearer later this year.
Hospitals have reported revenue drop-offs of around half, due largely to the deferred surgeries, he said. So far, their reimbursement for Covid-19 treatment, with the surge in cases spread unevenly around the country, doesn’t appear enough to make up that deficit.
“This is a dramatic, unprecedented change in the last month,” he said. In the second quarter, he suggested, insurers might report some of the strongest results in history if those fall-offs in care continue. UnitedHealth’s comments are “directionally supportive” of those trends, he said.
UnitedHealth said medical expenses could be significantly lower in the second quarter but might rebound later in the year as people pursue care they had deferred.
Overall, UnitedHealth’s first-quarter earnings were $3.38 billion, or $3.52 a share, compared with $3.47 billion, or $3.56 a share, in the same period last year. Adjusted earnings were $3.72 a share, ahead of the $3.63 a share analysts polled by FactSet had expected.
First-quarter revenue was $64.4 billion, up 6.8% from $60.3 billion in the same period a year earlier.
The medical-loss ratio of UnitedHealthcare, the company’s insurance arm, which measures the share of premiums paid out in claims, was 81%, when a consensus of analysts polled by FactSet had expected 82%.
Yet OptumHealth, the unit that owns surgery centers, physician practices and urgent-care clinics, fell short of some analysts’ projections.
Inside the U.S. Health Crisis
Like the rest of the health-care system, UnitedHealth has seen a drop-off in elective care, Mr. Wichmann said. The falloff helped insurance results, as UnitedHealthcare didn’t have to pay for the forgone surgeries and other care. UnitedHealthcare reported first-quarter earnings from operations of $2.9 billion, on revenue of $51.1 billion.
The drop hit UnitedHealth’s Optum health-care operations, however. “Most traditional procedural work has been postponed” at Optum’s surgery centers, Mr. Wichmann said.
Nonetheless, UnitedHealth said OptumHealth had met its financial expectations overall, as the unit is often paid in ways that aren’t tied to the amount of health-care provided. OptumHealth reported earnings from operations of $712 million, on revenue of $9.2 billion.
UnitedHealth Chief Financial Officer John Rex said uncertainty about how the pandemic would unfold makes it hard to make projections. “The situation is just so different than anything we’ve seen before,” he said.
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The insurer will also face expenses tied to hospitalizations and other care received by Covid-19 patients. UnitedHealth pointed to a range of actions it had taken to bolster coverage and care during the crisis, including accelerating payments to doctors and hospitals, starting with about $2 billion, and offering more telemedicine.
UnitedHealth said it expects a drop-off in its membership in employer plans due to layoffs and closed businesses as large parts of the U.S. economy shut down, but that could partly be offset by increases in Medicaid and individual-coverage enrollment.
Also on Wednesday, the company said Andrew Witty, UnitedHealth’s president and the chief executive of Optum, will take a leave of absence to assist with the World Health Organization’s efforts in pursuit of a Covid-19 vaccine.
Write to Anna Wilde Mathews at anna.mathews@wsj.com and Dave Sebastian at dave.sebastian@wsj.com
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