UnitedHealth Will Tie Doctors’ Payments to Quality of Care

UnitedHealth Group Inc. (UNH), the largest U.S. health insurer by sales, will pay doctors based on the quality of their care in a cost-cutting effort that also benefits the company’s consulting business.

UnitedHealth expects to save twice as much as it would spend on incentive payments for doctors because patients will be healthier, according to company documents forwarded by spokeswoman Cheryl Randolph. The program may cover as much as 70 percent of the insurer’s commercial members by 2015, from less than 2 percent now, the company said.

The nationwide expansion of the program follows similar efforts by the U.S. government and rival insurers to trim medical costs by shifting away from paying based on the amount of services provided. Optum, UnitedHealth’s services business, will be able to sell software, data and consulting to providers making the changes, Sam Ho, chief clinical officer of the insurer’s UnitedHealthcare unit, said in an interview.

“This changes the business model, changes the reward and payment system for better care and better health at lower cost,” Ho said. “There is coordination between our programs and strategies so that Optum knows how to provide services.”

Hospitals and doctors will see their costs fall through the program, UnitedHealth said.

Optum’s Cash

Optum’s revenue increased 21 percent to $28.7 billion in 2011. The unit’s services “will become even more valuable” as providers increasingly share responsibility for managing costs, Chief Executive Officer Stephen Hemsley said on a Jan. 19 conference call.

The Optum arm is supporting the growth of the insurance business, said Sheryl Skolnick, an analyst with CRT Capital Group in Stamford, Connecticut.

“The market’s having trouble grasping all the changes and why they’re so important to health care and the payment delivery system,” Skolnick said. The message to Wall Street is, ‘Wake up -- this is where you’re seeing Optum.’”

UnitedHealth’s benefits business is doing well, with lower costs and growing membership, because the provider also is changing its risk management and services in a broken system, Skolnick said. The nationwide expansion will make a leader in coordinating patient care by aligning the financial incentives of doctors, hospitals and the insurers who pay for those services, she said.

WellPoint’s Effort

WellPoint Inc. announced a similar move last month, and related programs were included in the 2010 health care law.

UnitedHealth rose 1.8 percent to $53.05 at 4 p.m. New York time. The shares have gained 26 percent in the past 12 months.

WellPoint (WLP), the largest U.S. health insurer by membership, is implementing a program that will increase pay to primary care doctors by 10 percent. The Indianapolis-based company said by spending on a patient’s basic help up front, more expensive care like visits to the emergency room would decrease.

Humana Inc. (HUM) purchased Concentra Inc. and is integrating into physician clinics. Aetna Inc. (AET) has been acquiring information technology companies to learn about customers to provide more concentrated care.

The shift in payments is being implemented as UnitedHealth and WellPoint forecast an increase in demand for medical services this year. The insurers benefited last year as Americans concerned about unemployment hovering near 9 percent put off seeing doctors.

To contact the reporters on this story: Sarah Frier in New York at sfrier1@bloomberg.net Drew Armstrong in New York at darmstrong17@bloomberg.net;

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net

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