He Collects Butterflies--and Companies

But after building UnitedHealth into a medical giant, can Bill McGuire keep it rolling?

When Bill McGuire and his high school basketball coach used to go fishing in the Gulf of Mexico off Galveston, Tex., it wasn't unusual for them to haul in catches of over 200 pounds. Rivals were amazed at how McGuire knew just where among the jetties to drop his lines. "He'd say: `Can you smell that? The fish are right over there,' and we'd catch 'em," says ex-coach Bill Krueger.

That was 35 years ago. But since being named chairman and CEO of UnitedHealth Group Inc. (UNH ) in 1991, Dr. William W. McGuire, now a 54-year-old former pulmonologist, has continued to reel them in. Only this time, the catch has been companies. Now, after building UnitedHealth into the nation's biggest health-services company at $25 billion a year in sales, McGuire's challenge is to manage his sprawling empire--including a recently snapped-up $900-million-a-year prize, AmeriChoice--to keep up the momentum. Even he admits that the outfit's "clearly phenomenal" growth rate is bound to slow.

Already, UnitedHealth's reach is extraordinary--through health-benefits plans used widely by Corporate America, drug benefits for seniors through the American Association of Retired Persons, and Medicaid programs for the poor. By buying and expanding some 30 or so niche players over the past dozen years, the company now counts more than 1 in 7 Americans, some 38 million in all, among its customers. And while transforming a $605-million-a-year regional Minnesota-based HMO into a diversified behemoth, McGuire has given shareholders a 35-fold return on their investment (the stock trades around $100) since he became boss.

But the waters he trawls have grown choppy. With consolidation among HMOs ebbing, there are fewer target companies to fuel UnitedHealth's rocket-like growth. Moreover, corporate customers that offer UnitedHealth's coverage to their employees are starting to groan under the cost. In 2003, for the fourth straight year, their health-care costs will rise at a double-digit rate. In that environment, it's not surprising that McGuire's pay is under fire--he collected $58 million in cash and exercised stock options last year, and holds $388 million in so-far untapped options. Even an old friend, Colorado cardiologist Dr. David I. Greenberg, says such largesse is "obscene" at a time when patients have to fight for reimbursements. McGuire admits he makes "a lot of money" but says shareholders have enjoyed big gains along with him.

No question there. Earnings-per-share gains were 30% or better in each of the last 12 quarters, including a 58% rise in the three months ended Sept. 30. That outpaces the 46% gain reported by well-managed WellPoint Health Networks Inc. (WLP ) and the 9% rise expected at struggling Cigna (CI ). UnitedHealth can't sustain that torrid pace, though. McGuire concedes that after this year's 35% rise in net earnings, to about $1.35 billion, next year's gain is likely to slow to 20% or less--figures that Wall Street analysts generally don't dispute. And he estimates that UnitedHealth's sustainable earnings pace afterward will be closer to 15% a year. Since acquisitions made in the past year account for only about $400 million of 2002's sales--less than 2% of expected revenues--deals may become less important.

Still, McGuire will have to rely on some acquisitions to keep the engine chugging. With UnitedHealth's core HMO business largely consolidated, he is focusing a lot of his attention on faster-growing niche businesses, such as medical administration services or long-term care for the elderly. Some of those areas are also riskier, more subject to swings in regulation or the economy. But McGuire says he can manage those risks through UnitedHealth's highly diversified structure. The company is divided up into five separate operating divisions--including the UnitedHealthcare unit's conventional employer-based health plans, the Ovations group that targets older people for supplemental Medicare coverage and nursing-home care, and the Ingenix drug-development services for drugmakers--and some 20 separate business units.

Inspired by Johnson & Johnson (JNJ ) and other highly decentralized companies, McGuire is betting that some star divisions will do well enough to balance out any laggards. The $16.2 billion UnitedHealthcare medical-services unit, the company's centerpiece, is a classic safe business with low margins--4.6% last year. On the other hand, the $2.5 billion Uniprise operation, which provides health administrative services to large employers, boasts profit margins of 15.2% but is more vulnerable to corporate cost- cutting. "Everything is really a growth opportunity," says McGuire. "As we're [getting] better at health care, we're ending up with more people living longer with chronic disease, complex disease. So I think the whole area of working on behalf of older Americans is a huge need, and accordingly a huge opportunity for us."

Despite the dealmaking, McGuire has always kept a keen eye on the end user. Unlike rivals, most UnitedHealth patients have long been able to see specialists without first going through primary-care physicians. And McGuire, who advises government and medical professionals about cancer through the prestigious Institute of Medicine's National Cancer Policy Board, saw to it that experimental therapies for breast cancer were covered. Such policies have won corporate business as employers and workers moved away from more restrictive HMOs. UnitedHealth is "viewed as being one of the most patient-friendly companies out there," says industry critic Ron Pollack, executive director of Families USA.

McGuire has always been something of a maverick. Other insurers would not rush into a market its peers were fleeing. Yet that is what McGuire did in June, when UnitedHealth paid $530 million in stock to buy $900 million-a-year AmeriChoice Corp., a company that serves Medicaid recipients. Most rivals are deserting the government's insurance plan for the poor. McGuire is betting that the federal and state governments over time will more generously fund such programs--a long-shot wager, perhaps. Still, Donna E. Shalala, a UnitedHealth director who was President Clinton's Health & Human Services Secretary, argues that UnitedHealth can "produce a profit and be involved in producing high-quality service for vulnerable people."

Raised in a middle-class suburban Houston household, McGuire showed his taste for leadership early on. At 6'5" tall, he was the center--and the brains--of the successful (28-3) Clear Creek High School Wildcats basketball team in 1966, recalls Coach Krueger. After getting his MD summa cum laude from the University of Texas, he worked as a researcher at the Scripps Clinic & Research Foundation in California before moving to Colorado to practice cardio-pulmonary medicine. Then he joined an HMO as an executive, later becoming president. After it was acquired by UnitedHealth, McGuire began his rise to the top.

Even now, McGuire keeps up with science--in novel ways for an HMO chief. He is such a well-regarded expert on butterflies that lepidopterists named a newly discovered species after him, a brown central Texas insect now called Euphyes mcguirei. Along with a few million dollars, he donated his personal 30,000-insect collection to the University of Florida, where a research center will bear his name. Driven to upgrade the often highly varying care that doctors deliver, he has a company foundation twice a year distribute free to every U.S. doctor and many nurses copies of Clinical Evidence, a text of proven current medical practices.

McGuire's calculation: Better care for his 38 million customers will amount to an annuity for UnitedHealth. If he's to keep the company on track, that's an investment he'll need.

By Joseph Weber in Minnetonka, Minn.

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