Unitedhealth Group Inc (UNH) — Q1 2015 Earnings Call Transcript

Good morning and thank you for joining us today. This morning we are going to continue in our efforts to keep our formal remarks brief, allowing more time to respond to your questions. We are also going to freshen things up a little and share portions of today's formal commentary between Dave Wichmann, our President, and Larry Renfro, our Vice Chairman. I'll start out with the recap of the quarter. Net earnings in the quarter grew 33% to $1.46 per share on revenues of $35.8 billion. What is important is what lies inside these results. Higher revenue growth, more consistent performance in operating discipline, and margin strength across UnitedHealth Group's broad, strategically diversified set of businesses. Operating cash flows were $2.3 billion for the quarter, which is 1.6 times net income. Revenue and earnings performance from UnitedHealthcare were the biggest contributors to better than expected first quarter cash flow. This quarter builds on the momentum we discussed with you before from the second half of 2014. We expect that momentum to continue with second quarter earnings per share growing nicely from this past quarter's results, being modestly above current consensus estimates. At this range, we see second and third quarter earnings being even stronger in the second quarter and lighter in the third, and current consensus would suggest this pattern would better fit our current business trends and outlook. We are advancing our 2015 full year outlook, taking revenues to $143 billion, a $2 billion increase and a nearly 10% year-over-year growth pace. Net per share earnings advanced to a new tighter range of $6.15 to $6.30 per share, which reflects an 11% year-over-year gain at the upper end, despite absorbing $0.10 per share attributed to Catamaran transaction costs and the impact of reducing our level of share repurchase going forward. The increase in revenue and earnings modestly improves our outlook for cash flow from operations by $200 million on the lower end of the new range of $8.2 billion to $8.4 billion. Now, I'll ask Larry to review Optum, and then Dave can pick up with UnitedHealthcare and some UnitedHealth Group better price items. Larry?

Thanks, Dave. Optum's revenues grew 14.7% to $12.8 billion in the quarter, with operating margins stable year-over-year at 5.8%, despite more than 30 basis points of acquisition costs. Optum's earnings from operations grew 14% to $742 million in the quarter, with every reporting unit producing double-digit percentage earnings growth. Catamaran acquisition costs reduced Optum's year-over-year earnings growth by seven percentage points in the quarter. Setting aside these transactions costs, Optum would have produced 21% earnings growth for the quarter. We expect Optum to post strong earnings growth in 2015 and, after fully absorbing Catamaran acquisition costs, we continue to forecast operating earnings within the range of $3.75 billion to $3.85 billion. This will represent growth of at least 50% over two years from a base of less than $2.5 billion in 2013. We continue to build our capabilities in important ways this quarter, particularly our relationships starting with Catamaran. The proposed Catamaran combination brings obvious benefits to the markets and customers we serve. It will create a competitively scaled channel-agnostic pharmacy benefit manager focused on growing and serving all prescription market segments. It will advance the next generation synchronized pharmacy benefit manager where all clinical data points are connected and drug considerations are fully integrated with clinical care processes to produce better outcomes and better overall cost trends. This will be important as the age of specialty pharmaceuticals emerges along with inevitable biosimilar counterparts. People will be served better, and benefit program sponsors will benefit from both the more progressive synchronized care offering as well as from sharing the meaningful savings achieved from combining these two enterprises. Integration disruption can be avoided, since the two companies already share a common technology. We believe this can quickly become the next generation clinically-informed, clinically-anchored pharmacy benefit manager. Looking forward, our Optum team is driving meaningful growth in the customer pipeline for all Optum business segments. Optum's external revenue backlog grew 24% in the quarter to drive overall backlog to over $9 billion. Optum continues to develop broader relationships with more sophisticated clients who need end-to-end solutions to the complex challenges they face. For example, Optum 360 has added sizeable and distinguished new partners, most notably North Shore-LIJ Health System and the Mayo Clinic. In the U.K., Optum International became one of the very few organizations to be accredited to serve under the NHS lead provider framework as the NHS procures an expected $1 billion of commissioning support annually. Optum Labs recently added Yale University as a partner, and research from the lab has now been accepted for publication in the Journal of the American Medical Association and the British Medical Journal. Finally, this quarter, we launched an important new brand campaign for Optum to help further build understanding of our services and innovation. Now let me turn it over to Dave.

Thank you, Larry. Turning first to UnitedHealthcare, first quarter revenues grew 11.5% to $32.6 billion, and net operating margin improved by 100 basis points year-over-year to 5.8%, reflecting strong performances in all businesses: commercial, Medicaid, Medicare, and global. Each of the first quarter care ratios improved year-over-year and were better than our plans for the quarter. The combination of strong growth across all our diversified benefits business and even more effective medical and operating cost performance produced a 35% increase in UnitedHealthcare's quarterly earnings from operations to $1.9 billion. The headline for UnitedHealthcare in the quarter is growth, growing organically to serve 1 million more people in the United States in the first quarter alone, and 1.6 million more people year-over-year with notable strength this quarter in the seniors and commercial businesses. We are increasing our projections for organic growth and domestic medical benefits by about 600,000 people from our investor conference outlook to approximately 1.4 million people in 2015. The increased outlook is driven by stronger market response to our expanding commercial benefits product portfolio. In the first quarter, UnitedHealthcare's commercial business grew nicely, serving 680,000 more people. Growth included 570,000 public exchange consumers, which is well ahead of our expectations. In our earnings outlook, and as we have said before, we do not expect meaningful financial contributions from these customers in 2015. On the international side, UnitedHealthcare is underwriting and pricing to create both sustainable customer value and sustainable margins, and is scaling to deliver results. Amil, our Brazilian Healthcare Company, produced improved financial results on a better mix of business, with revenues growing 12% year-over-year on a local currency basis. Medicaid membership exceeded plan even with the expected decreases in Tennessee where the state introduced a third plan into the market. UnitedHealthcare grew its Medicare businesses in the first quarter by another 380,000 people, split pretty evenly between Medicare Advantage and supplemental benefits. Two weeks ago, CMS issued its final Medicare Advantage rate notice for 2016, while these rates will help provide some needed stability for seniors who continue to enroll in Medicare Advantage in record numbers, the rates simply did not keep up with the pace of medical cost increases. We will continue to make the case on behalf of the millions of seniors we serve for sound and stable approaches to Medicare Advantage funding in the future. Before we sum up, let me run through a short punch list of non-financial highlights for the quarter for UnitedHealth Group as a whole. During the quarter, we invested in brands and reputation broadly across UnitedHealth Group including the brand campaign Larry mentioned for Optum and the successful introduction of UnitedHealthcare's own fresh branding effort. Both have generated favorable responses and we will build on these throughout the year. We are gaining scaled market traction on several innovation efforts. Rally, our digital consumer health platform, now reaches nearly 9 million Americans across the broad spectrum of employers, health plans, and associations, and is improving consumer engagement. We plan to expand to nearly 30 million people by this time next year, including consumers in Brazil. Link, the secured cloud-based workspace for care providers, now reaches nearly 425,000 care providers and we expect to reach 600,000 or more by this time next year. We continue to advance higher quality, lower-cost care with our delivery system partners on behalf of those we serve. Medical spending under value-based arrangements grew nearly 30% year-over-year to nearly a $40 billion annual run rate. This was an active quarter in terms of acquisition and capital deployment, and we will fund these efforts from internal resources and debt, and we have maintained our credit ratings. Lastly, the UnitedHealth Foundation continues to engage in a focused manner with communities in need. As an example, the foundation recently announced substantial support for an innovative community care program in Maricopa County, Arizona, pioneering medical education and services in the Rio Grande Valley of Texas, and a technology initiative in Tennessee that connects patients with care professionals through community health clinics via telemedicine. And OptumRx crossed the $10 million milestone in prescription drugs donated to community health clinics in Kansas. Steve?

Thanks, David. So as we look forward, I hope you sense an acceleration on a broad and disciplined set of initiatives. As we look forward, I hope you sense an acceleration on a broad and disciplined set of initiatives in our consumer capabilities, brand and reputation for both UnitedHealthcare and Optum, payment reform, and progressive services to better support care providers, innovation and its more meaningful larger scale market deployment, strategic mergers and acquisitions, large, far-reaching next-generation strategic relationships, information-driven research, and social and philanthropic efforts aligned to the communities we serve. All these funds and more we intend to pick up our pace with thoughtful urgency and improve performance and consistency. So as we grow, we become a more effective enabler of a better healthcare system and serve more people with better outcomes through the prudent use of society’s healthcare resources. To recap, our 2015 outlook for $143 billion in revenues accelerates our revenue growth rate to nearly 10% this year, with improvements coming from both UnitedHealthcare and Optum. Our earnings outlook of $6.15 to $6.30 per share includes $0.03 per share of transaction cost this quarter from Catamaran and an additional $0.07 per share of pressure over the balance of this year, principally due to repurchasing less than half of the UnitedHealth Group shares we had targeted before this combination. For 2016 we continue to project core earnings growth, and that the Catamaran combination will be $0.30 per share accretive to those earnings, even while carrying $0.20 per share in amortization expenses. Savings and accretion are expected to grow further in 2017 and 2018, improving value for customers and earnings visibility for shareholders for a multi-year period. Today, we continue to have strong access to capital in both the equity and debt markets. We believe we can continue to participate positively and fully as both the health benefits and health services markets continue to evolve both domestically and internationally. We remain focused on developing and expanding our capabilities and businesses for both UnitedHealthcare and Optum as market opportunities present themselves. We expect to maintain our approach to advancing our dividend to more market-based levels, exactly as we have discussed this area of capital allocation with you previously, and no changes are contemplated in that respect. With that, I thank you and we will now open up for your questions.

Thanks, good morning. Just interested if you could give us some perspectives on what you are seeing in terms of PMPM (per member per month) healthcare utilization in the quarter, which seemed with MLRs (medical loss ratios) improving across the segment that it remains well controlled, but it’s clear there have been some conflicting data points out there showing that there may have been some broader market increases in utilization, HCA pre-announcing yesterday for example with strong admission volumes. So, just interested in your perspectives on what you are seeing with utilization and how to sync across some of those different data points we're seeing?

Sure, Scott. I think Dan Schumacher can best respond to that.

Good morning, Scott. Thanks for the question. I guess I wouldn't comment specifically on PMPMs, but I would say that in the quarter we were very pleased with our medical cost performance. As we talked about at the Investor Conference, as we formulated our forward trend outlook and we thought about how we priced and positioned our benefits for 2015, we assumed that a moderate increase in underlying utilization made sense. In the first quarter, there has not been any acceleration in underlying utilization. I think we've done well as an organization through our focused medical cost management initiatives, and also I think we're seeing benefits from greater consumer responsibility as we continue to drive greater concentrations, as Dave mentioned, in value-based reimbursements. As we look at the balance of the year, we expect our full year commercial medical cost trend to be in the range of 6% plus or minus 50 basis points, and I would orient you towards the lower half of that range.

I think we have pretty good visibility on that, we have daily census, so I think maybe some of the things that are coming forward might have something to do with the fact that 18 more million people have coverage and are using the system in a more structured way than in the past, and I think that may be a factor in what you’re seeing, Scott. Next question please?

Yes, thanks a lot. Given the pending purchase of Catamaran, I was wondering if you could give us a better sense or more color around your approach to differentiate on specialty pharmacy management and then any willingness by the PBM consultant community to change their approach to scoring vendors given the change from pharmacy benefit management to drug benefit management?

Sure, I think that's a great question, and I will have Larry pick it up, but particularly the strength of OptumRx’s synchronization efforts to really be able to connect data, target individuals, engage them particularly as specialty pharma emerges is really a tremendous opportunity for us to distinguish ourselves, and the cost of that category is such that it would be hard for us to believe that the customer community as well as the consultant community will not be sensitized to that category of cost. Larry?

Hi Mike, it's Larry Renfro. I will begin and then pass it to Tim Wicks, who is currently the CEO of OptumRx and soon to be the President of the new OptumRx. I’ll let him discuss specialty, but first, I’d like to share some of our thinking as we integrate the two companies. We focused on where the value would be and identified five key areas: first, scale; second, enhanced technology; third, distinctive capabilities like specialty and synchronization; fourth, a well-rounded management team encompassing relationship sales, operations, and customer service; and fifth, complementary businesses that align well together. This was our approach. Specialty is a crucial element for the future, as we mentioned earlier. I will now pass it to Tim to share his insights.

Great, thank you. Thank you, Larry. Michael, first of all we welcome scoring related to drug costs as opposed to simply straight up pharmacy discount rates, and what differentiates us in the specialty pharmacy area and why we’re competitive first of all relates to trend management and the work that we do around trend management. It really gets to all of the levers around synchronization and what we do to integrate medical, clinical, and lab data with pharmacy data to be able to bring that to bear to surround the consumer with all of those capabilities that help them make better decisions, help them be adherent to their drug regimen, and to be able to engage and program to help them improve their health. We also think that the approach we take to the site of care and being agnostic as to whether the specialty drug is managed in the medical benefit or the pharmacy benefit is very important, and then we also take advantage of site-of-care management so that we are agnostic to that as well and drive it to the best place of care for the consumer.

Thanks for the update.

Thank you. Next question?

Hi, maybe a follow-up on the Catamaran thought process. Larry, your 8% margin goal for next year, there is I think you and John have talked about there may be some variance in how you progress towards that goal depending on the mix of business. Obviously, Catamaran brings in a pretty significant shift in the mix of that business. Could you talk about how that affects your thoughts and your trajectory toward that 8% margin goal?

Sure, that's a good point. I’m going to ask John to speak to this as well. We had this goal of 8/16 and there were some various factors or components that we needed to really make as part of that overall goal. First thing was what you are coming on is 8% by 2016. We also said that we would double 2013 earnings of $2.5 billion by 2018. We said we would have 8 to 10 large more complex relationships, and that we would have double-digit top and bottom-line growth through 2016. So I’m going to define that as kind of core business, kind of pre-Catamaran, and I would tell you that everything from a financial standpoint is in line or ahead of expectations. So we’re going to continue to track our core business that way. As far as the 8/16 goal that we set now, as you know the blend has changed with what we’ve done in this transaction, so we’re going to be handling a lot more pharmaceutical business, so that’s going to change the mix, and I’m going to let John talk about that.

David, this is John. As Larry stated, our 2015 performance to date shows us solidly tracking to that 8/16 goal, and we are very much committed to that 8/16 goal. When we plan as an organization, we plan for organic growth, and that is how we got to configure our objectives and how we point the organization. So clearly that 8/16 is very much focused on our core businesses' organic growth. We are tracking to that and we are still completely committed to that. Certainly, your point is well taken; adding an excess of $20 billion of pharmacy care services revenue changes the mix, and I would expect that to influence our outlook as we think about kind of a 16 and where that lands. But we, as an organization, are completely committed to 8/16 on the core businesses, and that's where we will be tracking on the core base, ex the impact of the additional pharmacy care services revenue. The merger will dilute that down, but we will stay on track for our core commitments on the core business.

Okay, great.

Thanks for that question. Next one please.

Thank you. I was impressed with the guidance, particularly after observing the Catamaran cost, and I think it's the first time United boosted guidance early in the year since 2012. Can you talk about the level of confidence you have heading into the year? Is it maybe greater or are there fewer unknowns than the last few years that led you to an earlier guidance boost? Any headwinds or tailwinds that you could light up for us that would be helpful? Thank you.

I’m so more confused. I don’t think we are doing anything differently in terms of this; I think we kind of update our outlook every quarter. We have seen enough strength and growth in the businesses across the board to improve that guidance slightly and to absorb the costs associated with Catamaran and the adjustment to our share repurchase given that transaction. So we thought that that was appropriate to include in the update, and beyond that, I don’t think we are changing anything else along those lines. We typically, if we see that consensus estimates don't necessarily line up exactly with the way we are seeing our quarter-by-quarter rollout, we typically comment on that, and we have done that this quarter. So, I don’t think we’ve done anything differently this quarter along those lines. And if we did - if you're picking up anything, we didn’t intend anything on behalf of what we said. So can you help me with what you think has changed?

I think that in terms of our business, I think our outlook is actually pretty positive. We're seeing growth across our businesses, I think we had nice momentum as we came out of 2014, and that has carried into 2015. When we take a look at the strength of the businesses, I think our Medicare offerings are stronger this year. We've had, I think, what we expected to see in terms of first quarter growth there. The Medicaid business continues to be very strong, maybe a little stronger than we had thought in the beginning. We knew we were going to lose a portion of the state of Tennessee, but our other growth has kind of pulled that to virtually even strong growth in the commercial business. We had nice growth across UnitedHealthcare and continued strong growth across Optum. Amil is showing some initial signs of strengthening and recovering; they've done a nice job down there, and they have really done an exceptional job of embracing some of the best practices of both organizations. So, along those lines, I think we have mostly positives. We continue to hope for stronger MA rates and funding. I think that will be a consistent theme. We continue to work on improving our business and our business disciplines, but I do think we’re making very good progress on medical cost management and managing operating costs. So, across the board, as I go through the inventory, I think we're in a stronger place than we have been in some time, and the first quarter results have demonstrated that. So, we’ve updated our outlook, and I wouldn’t suggest it’s anything more than that. Thank you. Next question?

Thanks, good morning. You clearly saw good success in exchange enrollment beyond your initial expectations. Could you discuss the factors around pricing and product design in your minds that led to this enrollment success? Any early reads on those exchange lines versus your expectations would also be appreciated. Thanks.

Sure, it's still early, but I have Jeff Alter comment on that. Thanks.

Good morning, Andy. It’s Jeff Alter. As we kind of took you through our plans starting back in 2013, we viewed 2014 as the year of learning, building rapidly as the market developed. I think the results we saw in our initial enrollment year of 2015 are a result of that longer-term strategic plan. We looked hard at how people bought what they were buying, what was successful, designs, products, and networks that could create sustainable price points over the long term. As you look at where we got our membership, it ties very nicely to where we said we thought we would get to on membership, and maybe we just saw a slightly higher membership in those markets. I think it has resulted from a long-term strategic plan for this emerging market and the results of a lot of hard work to create products and networks that could support the price points consumers were looking to buy at. That drove our first quarter. Also, stronger performance in our key account block, particularly around persistency—retaining existing clients as we moved through our fourth quarter and into our first quarter—has influenced our results. We retained more clients than we had in the past, and we also expanded our product portfolio around some of the work we did for exchanges, stretching that into well-priced product offerings for our small business and some of our 51 to 99 business. We saw those results begin to emerge in the fourth quarter of 2014 and strengthen into 2015.

So, I think the balanced performance overall and in the exchange–right products in the right market is pretty much as we expected. We knew back in January that the market was responding positively, and so it's played out nicely. Next question please.

Thanks, good morning, I appreciate the call. Could you talk a little about the $0.20 of guidance, which was sort of excluding the $0.10 of cost that you guys were absorbing, but the $0.20 of core earnings? What are the drivers of that increase? How much of that is the benefits business versus Optum? And how much of that is commercial versus government? Further within that, how much of that is MLR related, and what you guys were seeing in both segments?

Hi Josh, it’s Dave. Thank you for your questions, and it's a very good one. So we’ve increased our guidance by 10% on average, and then we’re including an additional $0.10 of cost associated with the transaction with Catamaran and then also the impacted, reduced share repurchase. I would say the number one contributor to our performance improvement expectations is growth, and I think it shows through pretty strongly across all the benefits businesses, with particular emphasis on the overperformance in commercial. However, what you probably don’t see in that is the lived on the insurance exchange. You probably don’t see the overperformance on the off-exchange business, which has been very strong as well. Jeff and his team have done a very nice job there. So I kind of edge that more towards a commercial contribution. Other profit contributors have been our performance on MLR, and we expected to improve our MLR during this year, as we said both in the Investor Conference as well as on the fourth quarter call. But we have clearly outperformed that this year as well. That’s due to the strength of the performance on several fronts, clinical engagement strategies, and our ability to manage medical cost trends as Dan referred to earlier regarding performance on inpatient management overall. This is key for us. You can also see in Larry’s prepared remarks that Optum is expecting to outperform as well, absorbing the cost of the Catamaran transaction and still hitting the expected performance ranges laid out previously. Overall, you’re seeing a strong performance, coming from multiple different fronts supporting the $0.20 improvement in our overall guidance.

Is it fair to say then, Dave, maybe two-thirds of the improvement is the benefits business and a third is Optum?

Yeah, I’d say that there's some—it’s there, plus or minus overall, but yeah, I think that’s fair.

Two-thirds…We couldn’t calibrate it, but what’s great is it is balanced, and I think that’s the strength of the diversified model; all the businesses are contributing to those advances. If we continue to execute appropriately, we’re hoping to do better. So, next question please.

Good morning. Congratulations to everybody. By my count, this has been rather an extraordinary quarter with double-digit revenue growth and strong operating income growth across all the business units. We've been kind of talking about them separately, but there are really key important factors that I’d like to focus on: being retention, the cost management you have mentioned, and the synergies of synchronization of the business. What I'm getting at is that there was a change in the company back in November; there’s been change building over the last several years. Now we’re seeing results. I don’t think that was an accident; I think those things are two very clearly related issues. I’m sensing you are at scale, I’m sensing the business is transforming. My question, therefore, is can you talk about what changed in the way you manage this business to get all of these many parts and pieces that are so strong to work together now better, perhaps in the future, and does that mean that this sort of performance should be more sustainable?

I'll start, and my colleagues can join in on this, but I would say dramatically that we have been endeavoring to perform at these levels of consistent performance for some time. It is not just a factor of internal efforts; I think there are external market factors that are putting pressure as well. We bear some of the responsibility for optimizing our performance, and some of it is due to external market dynamics and pressures. For the last couple of years, we have been attempting to drive the business to work together at a more optimal level across the enterprise. It has been a function of trying to drive a better culture, achieving strong chemistry among senior management, and really collaborating in a way that supports both their challenges and opportunities. I do think we have a very strong group of passionate people committed to working together to optimize performance, focused on serving customers, consumers and care providers, ensuring that we are delivering on the promise to enable a better healthcare system. I think that has all come together, and this effort is not done; we want to sustain this. I do believe there is a stronger chemistry among our team today, and I'm talking about a maturing leadership group across the board. I'm saying it’s not three or four people, it’s 75 or 100 people across the board. People make a difference and I think that’s been a part of it. We've also focused on culture to ensure that we're collaborating effectively and serving the markets. So, I think these factors have contributed to that, and I hope this is just the beginning of what we can do going forward; we have to keep working on it. Thanks for the question. Next please?

So Sheryl, it's Dirk. A good example of what we’re doing is the advocate for me call model; that was a joint effort between Optum and UHC with Optum handling the clinical pieces. If you look at what we are doing with our service offerings, ensuring our digital offerings are consistent, making sure all of our customer communications are clear, concise, and simple—those things coordinate across the enterprise. That’s a good example of how we’re managing across.

The decisions that we go about making, and how we choose leaders in the organization, emphasize collaborating and striving to ensure that the enterprise performs for those we serve. I regard many factors that may be intangible that have contributed to that, and I think you are seeing some of those efforts starting to emerge. I think we can do better, and I hope you will see the beginning of what we can achieve going forward, but we need to keep working on it. Thanks for the question. Next, please?

Hello everybody. I'm going to follow up with another Catamaran consolidation question. I guess the $0.30 EPS accretion we’re looking for next year—I assume that’s after plowing back some of the opportunities for the underlying customer base, so I assume that the overall opportunity from putting the two together is more than what we've reflected in the $0.30. Can you give us some flavor of what might be plowed back to combine entities clients? One of the issues that’s been raised, and I want you just to comment on, is that Catamaran has a lot of health plan members or clients. I know Optum, like OptumInsight, has a lot of business with other health plans. How does that relationship work? I know there seems to be some concern that people may view us as competitors, but how has your experience been in Optum working with other health plans?

Sure. There are several components to that. It is premature for us to get specific about elements related to the transaction; that is still subject to approval and so forth. But I would offer that the accretion is really more a function of the transaction itself. The capital we deployed relative to the cost of that capital against the earnings stream of Catamaran as it is. We are clearly focused on driving the overwhelming majority of the benefits and synergies that arise from this back to customers. We aim to improve the value proposition and advance a PBM model that is distinctive in the marketplace. We're really focused on customers benefiting principally from that, of which UnitedHealthcare is a customer, but also critical customers that are other payors in the marketplace—very good companies. Those relationships are vital to this model going forward, and we are committed to delivering on all commitments related to that, really developing capabilities to support their PBM strategies to provide distinctive capabilities and advantages in the marketplace that meet their specifications. I think we are a trusted partner in this category for various payors and care providers across the spectrum in Optum, and our business has continued to grow and evolve there. Larry, I don’t know if you want to comment on that.

Hi, A.J. It’s Larry. You made a good point, and it is a good question. We live this every day, and I will kind of reiterate almost everything Steve just said; I've spoken to quite a few of the customers. What you want to reflect on is what we do today. If you look at OptumHealth and OptumInsight, you would find a balance between internal and external customers. If you look at what’s really happening with the Catamaran transaction, it will get very close to being balanced as well. Some of the feedback we’ve heard from existing clients—this is, as Steve said, the reason we bought and entered into this combination with Catamaran—was because we needed scale, enhanced technology, specialty, and synchronization programs. Those same interests drive people to do business with us, and that's why we believe we really marry up well with this new model. Some of the things we’re going to have to do is execute. We’re going to have to execute from day one as we engage new customers. We have to live up to commitments made, and we know that. We’re good at that. This will require total transparency. Today, we do business with 300 health plans and 4,500 hospitals, so we’re used to working with a lot of entities and ensuring transparency. This will just represent another aspect of it. Obviously, privacy and data security is paramount, and we will have to ensure we address that. We believe this will be relatively easy with no disruption because we are on the same technology platform as before. Overall, we feel positively about this transaction, but if you looked at what we do in OptumHealth, you would find that many of these clients are already ours, and they have sourced our various intervention, prevention, and wellness programs. You’d also find the same with OptumInsight, so we know this model, and I would say as long as we execute effectively, we should be fine.

Thank you. Next question please.

Great. Maybe if I can ask a similar question in a little bit different way. When we think about the accretion of $0.30, my understanding is that it’s versus not deploying the capital elsewhere. But you’ve already kind of talked about a $0.07 headwind so far this year from cutting back on share repurchase. I guess that you can do that again next year to bring leverage back down. How do you think about kind of the net accretion versus, if you had continued your previous capital deployment plan in 2016? I understand the concept of returning the overwhelming majority of the benefits back to the customers, but we typically don’t think of year one as being the high watermark from an accretion perspective. Where does that $0.30 number go to in year two and three?

Well, first of all, we’re not providing that level of guidance at this early stage, but we think this deployment of capital is compelling relative to the market opportunities, and I think the capabilities we can bring to the marketplace are strong. We believe this business will continue to grow and become more effective in serving customers. It will become an important business, particularly in the market dynamics we see ahead, as specialty pharma continues to emerge in the marketplace—requiring greater information and clinical engagement. We think this is a very good use of capital and will be a significant business broadly for the marketplace serving all sectors where prescriptions are engaged. We expect growth from this and don’t foresee this accretion flattening out; rather, we expect it to improve year-over-year. Our approach to deploying capital is to find growth opportunities aligned with strategic capabilities, prioritizing those investments over dividends and share buybacks. We are pleased with this, and we will continue to seek investment opportunities in this area and in our other Optum services.

Kevin, I'll get little more granular. Perhaps this is not where you were aiming, but I can’t be held responsible for that. Regarding the $0.30 in 2016—it’s crucial to focus on key factors such as client retention, sales, operating leverage, customer service, and management. All of these aspects significantly influence how we manage the business. With the combination of Catamaran, we have a strong management team, experienced leaders, and robust relationships that we are confident can drive us toward that $0.30. Importantly, I'm not talking about network discounts or specific drugs at this point, as some of these categories will return value to others and our clients as we collaborate. Overall, we’re confident in our operational plans towards that $0.30.

Thanks for the question, and next question please.

Hi. At your Investor Day, you indicated you expect to achieve your long-term earnings growth target of 13% to 16% in 2016. Recognizing now that the 2015 EPS is going to be higher than your expected, is that objective still on track? As you look into 2016, could you comment on your other lines of business, how you see headwinds and tailwinds?

The other lines of business I’ll ask Jeff, Austin, and Steve maybe to respond; we are not changing our outlook with respect to our long-term growth trends. We do not intend to suggest any deviations. We still feel confident our businesses are capable of producing growth in that range, and we hope to see our performance recover into that range as well. Regarding individual businesses, maybe I’ll start with Steve Nelson.

Thanks, Steve. Hi Christine, it’s Steve Nelson. With respect to the Medicare business, it’s really well-positioned for 2016 and is expected to improve further, serving more seniors, which is our objective—providing not just better benefits but great health outcomes and a better healthcare experience. We are in the midst of our 2016 benefit planning period. We have shaped our networks in a meaningful way, adding premiums to half our total membership, which was a significant transition we executed this year, making great progress. We have strong clinical programs and customer service innovations that not only provide benefits but also ensure a better healthcare experience for our members. Our market share and brand position are strong, and when you couple this with the growth of the population and increased propensity to choose Medicare Advantage over fee-for-service, it creates a very strong position and a positive outlook.

Good morning, Christine. It's Jeff Alter. I think the commercial business has a very positive view of the future. We've endured a tough couple of years with lots of headwinds and disruptions from the ACA, showing our managed trends better than others. As we go into 2015, 2016, and beyond, the combined power of Optum healthcare working together to maintain lower trends and pricing will distinguish us going forward. Expect the recent growth we’ve had to distinguish us moving forward by delivering value to the marketplace through different product designs while providing better cost management.

Good morning, this is Austin. Strong momentum continues in our Medicaid business. We are very honored to see ongoing robust growth, and expect it to continue throughout the year and into the future. It is built on strong relationships with our state partners and strong clinical programs focused on achieving better outcomes while maintaining high-quality standards for the constituents. Overall, we have shown value in partnership with those states over time, sustaining that value which underscores the momentum.

So I think pretty solid across the board, and the Optum business continues to be strong. The backlog pipeline in Optum continues to grow, and revenue backlog grows even faster than what we’re showing in our reported results. So, pretty positive in that regard. We’ll take maybe two more questions—next one please.

Yes, thanks, good morning. I was wondering on this Optum UHC better together; is that strengthened or less strong post-Catamaran transaction? How would that be informed by your 2016 and 2017 selling season? Are there any other milestones that might inform one decision versus the other?

I would say broadly that coming back to a previous question, the chemistry and operating dynamics across the businesses continue to mature and strengthen. We have a very strong generation of leaders working together. Significant work has been done at the corporate level regarding the actual development and execution of a transaction of this caliber, collaborating closely with the Optum team and OptumRx team, which represents the orientation at this point in time. The Better Together dynamic across our businesses has never been better, and we intend to keep it that way. Next question please.

Thank you. Long time listener, first-time caller. Thanks for taking my question. This week you mentioned Optum360 and Mayo getting together. Mayo is also embarking on their implementation of APAC. That’s a lot of cooks in the kitchen. Can you comment on the value proposition to Mayo, given their simultaneous rollout of APAC, and how you’re going to manage this? Can you also tell us what the organic growth looks like in the OptumHealth business? Thanks.

Yes, Sean. This is Bill. I’ll address implementation work with APAC. It’s an insightful question since that is a lot going on. It was instrumental in our discussions with Mayo that we will work in concert with them on their rollout of APAC. Mayo evaluated the tools we provide alongside their existing and incoming systems. They chose to move ahead because they viewed us as independent and the best option in the market. We will focus on other aspects that enhance Mayo's position—namely patient engagement and other consumer-related issues. We’re set to collaborate effectively, ensuring minimal overlap in our efforts within our project plans.

Sean, this is John Rex. OptumHealth demonstrated very strong top-line growth in this quarter; you noted 27% growth overall. I can say that all businesses contributed to that. A key factor driving the majority of that growth is OptumCare businesses, which focuses on care delivery. It aligns with our five-year growth focus. We see this growth primarily stemming from both expansion in existing markets and new market entry, driving the majority of growth from OptumHealth this quarter.

To sum up the quarter, the story is really about growth—growth in revenues, earnings based on more consistent performance for customers, growth in the number of people we partner with and serve across the healthcare system, and growth in the scope and diversity of our businesses. So we thank you, and we’ll see you next quarter. Thank you.