Unitedhealth Group Inc (UNH) — Q4 2022 Earnings Call Transcript

Thank you. Good morning, and thank you all for joining us today. Over the course of the past year, the extraordinary and dedicated people of Optum and UnitedHealthcare delivered strong, well-balanced growth, progress in developing our consumer-oriented capabilities, and strengthened the many ways in which we deliver value-based care in multiple settings. Each of the five growth pillars we discussed with you at our November investor conference are powerful sources of opportunities on their own within large and expanding addressable markets. Yet what really unlocks the potential value we can provide to those we serve is the connectivity of capabilities across our enterprise. For example, this year, we expect 4 million people will participate in fully accountable value-based care provided by Optum Health, almost 1.8 million more than we served as we entered 2022. We're achieving this by connecting benefits, care, and other services to support our patients. Many of these patients will have a Medicare Advantage plan offered by UnitedHealthcare, or one of the many other payers who are accessing Optum's expertise and capabilities in delivering this kind of comprehensive care. We will serve these patients in clinic settings, in their homes, integrating behavioral care, supported by our data-driven clinical insights and next best actions, and all coordinated to provide the right care when and where they need it. Pharmacy is another area in which we are more deeply connecting consumers with our services. We engage 1 million people every day, finding the lowest cost options, managing their specialty drugs, offering vital in-person clinical advice at our community pharmacies, providing complex medication treatments right in their homes, or simplifying access through digital solutions in order to make the process uneventful for them. We believe this connectivity is a path to better outcomes for people and lower costs. It's also driving growth. By the end of 2023, we expect to have more than 750 community pharmacies, nearly 200 more than we had at the beginning of 2020. We continue to see the impact these services have at a very local and personal level, helping providers deliver more complete care and better outcomes, including medication adherence rates, which are about 90% compared to the 50% U.S. average. Our pharmacists are able to take the time to get to know their patients' treatment plans and support their medication management, collaborating with other care providers. We're guided in pharmacy by the principle of getting to the lowest cost for patients and clients. A good example, as more biosimilars come to market, we're positioned to offer patients their care providers and payers significantly more choices in how to secure the best prices for the therapies they need. In addition to biosimilars, we're driving affordability and prescription benefits by combining formulary and cash market pricing to ensure consumers will always get the best economics. Our life-saving drugs program has made very significant progress since our announcements last year. This program offers zero dollar out-of-pocket cost to consumers for drugs such as insulin and epinephrine. Our goal has been to make this available throughout the U.S. And as of today, we've been approved in 48 states for our fully insured business. Moreover, a quarter of our self-funded employers have now chosen to add this offering for their employees, and we expect that number to rise. Getting to this point in such a short period of time was only possible through the work not just of our teams but of state officials and others in the broader healthcare community, and we're grateful for their support. Looking to the year ahead, let me focus you on a couple of themes you can expect to hear from us. One is the continued scaling of our commitment to American consumers. You should and will have an increasing influence over their care experience. Through our core innovations, product design, enhanced digital offerings, and partnerships such as RVO Health and Walmart, you will see us driving this more broadly across the enterprise, becoming closer to the consumer, helping simplify their experiences and empowering their decision-making with greater transparency, speed, convenience and support. You will also hear how we are amplifying our technology capabilities. 2023 will see the emergence of an enhanced OptumInsight, bringing to life the opportunities that the legacy organizations from Optum and change creates, and an acceleration of how technology can be used to healthcare providers and ultimately patients within the overall health system. We start this year well prepared to deliver upon the objectives we shared with you in late November, and with a deep sense of responsibility to do so on behalf of the people we are privileged to serve. With that, I'll turn it over to President and Chief Operating Officer, Dirk McMahon.

Thank you, Andrew. While the calendar shows we are two weeks into the New Year, our team's 2023 started many months ago; and in some cases, years ago. We have been laying the groundwork necessary to execute on our growth strategy and sustain our momentum heading into this year and beyond. To give you a sense of how this develops, I'll step through some of the work that has been long-term to ready our organization to serve even more patients and customers in this new year and provide greater value for consumers across a broad range of initiatives. Take the many new patients we will serve under value-based care arrangements in 2023, deepening our presence in existing areas and adding new regions. Our team's preparations are extensive. That's because the transition to fully accountable care is not simply a matter of downloading a new app. The preparations include significant investments in clinical training, technology, network coordination, and other activities to make certain we are ready to serve. These critical investments help us support both our current year needs and establish foundations for the growth into 2024 and beyond. Our ability to serve people effectively has expanded beyond the four walls of the clinic with the rapid development of our in-home clinical capabilities. These services complement our clinic-based and digital offerings and bring high-quality care access to some of the most challenged and often underserved patients in this country. For instance, for value-based patients, our in-home services have reduced hospital visits by 15% versus fee-for-service, delivering comparable health outcomes and achieving a Net Promoter Score of approximately 80. Within health benefits, you've heard us discuss how our innovation in commercial products is adding new growth opportunities. One of those is Surest, a unique solution to employers and employees who are looking for first dollar coverage and high transparency into quality and cost. The momentum behind Surest is strong and building. Just two years ago, one in 25 national accounts offered Surest as an option to more traditional plans. Thus far in 2023, it is one in nine, and we expect it will continue to rise. Our offerings for seniors are another area in which we plan, invest and build capabilities to provide new and valuable offerings for an extended period. For example, we continue to expand the range of clinical services we provide via our HouseCalls initiative. In 2023, we will increase the types of vaccinations offered, expand testing services, and deploy even more real-time resources to address social determinants of health. Seniors place high value on being able to get care in their home. It comes with a Net Promoter Score of 75 and is helping to drive improving retention levels as we head into 2023. In addition, our advocacy service solutions help members achieve better health. Our solutions led to a 42% increase in closing gaps in care, up to 15% lower emergency room visits, and an over 10% increase in clinical program enrollment compared to customers who utilize standard offerings. Turning to health technology, let me offer a few early observations on our progress and long-term growth opportunities we see in this area. With the completed change healthcare combination, we are accelerating our investments to bring this vision of a more intelligent and simpler health system to market as rapidly as possible. We will continue to innovate in and deliver the software, data analytics, technology-enabled services, revenue cycle management, and advisory services our customers expect. And we are executing on the synergies of this combination with most of the financial benefit coming from complementary growth. OptumInsight is uniquely positioned to offer integrated, end-to-end technology analytics and services across the entire healthcare value chain. Along these lines, we recently reached two new comprehensive health system partnerships, with Northern Light Health in Maine and with Owensboro Health in Kentucky. The services we provide typically feature a full breadth of our advanced solutions, including information technology, revenue cycle management, analytics and supply chain tools. The key here is that our comprehensive technology solutions are resonating in the market, and we expect to see increasing momentum across all of OptumInsight as we invest in and finalize our integration activities. With that, now I'll turn it over to Chief Financial Officer, John Rex.

Thank you, Dirk. The investments and innovations Andrew and Dirk described and that we shared with you in November, speak to a company that has tremendous growth potential as we head into '23 and well beyond. The opportunities to serve people more deeply are tangible and accelerating, building upon a foundation of strong growth in recent years, including our 2022 performance. Revenue in '22 of $324 billion grew by more than $36 billion or 13% over the prior year, with well-balanced double-digit growth at both Optum and UnitedHealthcare. Fourth quarter adjusted earnings per share of $5.34 grew 19% and brought full year adjusted earnings per share to $22.19, growth of 17%. Our capital capacities remain strong. Cash flow from operations in '22 was $26.2 billion or 1.3 times net income. We returned $13 billion to shareholders through share repurchase and dividends, and deployed over $20 billion in growth capital to expand our capabilities for years to come. Turning to the performance of our businesses. OptumHealth's revenues grew by 32% in '22 to $71 billion as we expanded the number of patients served under value-based care arrangements by about 1 million. Revenue per consumer grew by 29%, driven by the increase in value-based care patients and in the levels of care we are able to offer. Consistent with our comments in November, OptumHealth is off to a strong start in '23 and will organically grow to serve an additional 750,000 value-based patients this year. OptumInsights revenues grew 20% to $14.6 billion in '22. We concluded the year with a revenue backlog of $30 billion, an increase of $7.6 billion over last year. As Dirk noted, we are advancing our investments to more rapidly unlock the positive impact OptumInsight can have for care providers and patients. We expect to make a significant portion of these important investments in the first half of the year. OptumRx revenues grew 9%, approaching $100 billion for the year, driven by continued strong sales and the expansion of our pharmacy services businesses. Both customer retention and new customer wins were among the highest Optum Rx has ever delivered, laying a strong foundation for continued market-leading growth. At UnitedHealthcare, full year revenues of nearly $250 billion grew 12%. Our strong 2023 Medicare Advantage member outlook is consistent with the objectives we shared with you in November. We expect to serve up to 900,000 more people in '23 across our individual, group and dual special needs offerings, our eighth consecutive year of above-market growth. This consistent performance underscores the product innovation, benefit stability and high-value seniors have come to rely on from us. Our Medicaid growth outlook for '23 incorporates an expectation that states will resume eligibility redeterminations early in the second quarter. Our objective is to ensure that people will have continuous access to benefits. And when all redetermination activities are eventually completed, we expect to serve even more people than we do today across our state-based commercial and exchange-based offerings. Within our commercial offerings, we expect to serve about 1 million additional people in 2023. Our new and innovative products continue to gain momentum with employers and their employees, which will lead to increasing growth in this market over the next several years. In sum, while this year is just getting started, the early performance we are seeing across our businesses further validates our confidence in the 2023 growth and performance objectives we shared with you just six weeks ago. Now I'll turn it back to Andrew.

Thanks, John. As we head into 2023, we're determined to build upon the momentum we've just described this morning, further advancing our mission and delivering sustainable earnings growth of 13% to 16% over the long term. And with that, operator, let's open it up for questions. One per caller, please.

The company seems to be taking a lot of momentum across the board into '23. I wonder when you step back and look at the swing factors that say would push the company towards the higher end of the range that you've offered in EPS or towards the lower end, what are some of the biggest swing factors in your mind, potential positives or challenges?

Thank you, A.J., and Happy New Year to you as well. I appreciate your question. We believe we’re entering 2023 with significant momentum. Last year, we experienced strong performances across all our businesses, with most exceeding our expectations from the investor conference. Looking ahead, there are a couple of standout points I'd like to highlight. First, our membership growth has been impressive, particularly with UHC, which we're expecting to surpass 1 million new members, likely exceeding our '22 numbers by the end of '23. This reflects strong market engagement across all our business lines, including government programs, Medicaid, and our commercial sector, where we've seen substantial growth. In addition, Optum is on track for a record selling season with our Optum Rx platform, which is contributing significantly to pipeline growth for the next several years. OptumHealth is also experiencing rapid growth in value-based, fully capitated lives, doubling the number of individuals we support since the end of '21, and we anticipate this growth will continue. OptumInsight will see a transformation this year. We’ve recognized the potential for improvement and have made strides in integrating change, particularly in the fourth quarter. This will lead to a new cycle of product innovations, supported by growing partnerships with large health systems. We have secured two new relationships since the investor conference, in addition to our existing ones, which are long-term and significant sources of energy for our organization. Our success will depend on our execution—ensuring that our team is focused every day on getting transactions right and caring for each patient and consumer interaction properly. The raw momentum for the company looking into 2023 is remarkable. Thank you, A.J., and I'd like to move on to the next question, operator, please.

Great. I was wondering if maybe you could just comment on the RADV expectations for February 1. We just had our conference this week, and there was a lot of talk about this and just what managed care is generally expecting out of that ruling?

Lisa, thanks very much for the question. Yes. I mean, we're not going to get into a ton of speculation because obviously, it's very, very potentially imminent. And so not sure there's tons of value there. But I would like to ask Tim Noel, who looks after our M&R business, to maybe share some of his perspective on that. Tim?

Great. Thanks for the question, Lisa. We talked about this a bit at the investor conference and don't have a lot of new information to share this morning, but let me revisit a couple of the key elements that we discussed a couple of weeks ago. So first, risk adjustment is really critical to providing broad and equitable access inside the Medicare Advantage program. Also a really important part of ensuring there are no disincentives for caring for the most vulnerable. We also continue to remain very supportive of additional transparency. And here, that takes the form of more timely and consistent reviews. And a few of the key elements that we're thinking about with respect to these audits is it's very important for CMS to include a fee-for-service adjuster to make sure that we're comparing original Medicare and Medicare Advantage on the same basis. And also, very important that we don't conduct these audits decades in arrears. That comes with some challenges, of course. That said, without the final rule set, as Andrew alluded to, hard to get really narrow and specific, but we feel really good about how our results validated. Some of our sample sets were above, and some of our sample sets were below. But likely more specifics to discuss at next quarter's call. Thanks, Lisa.

Tim, thanks so much. And Lisa, thanks for the question. I mean, I think as you just, again, just maybe step up a little bit in the broader position, obviously the whole MA program is an unbelievably successful and popular program for seniors across the U.S. And of course, the biggest proof of that is the number of folks who every single year volunteer to sign up to be part of this program. And we're seeing another record year of enrollment coming through as we speak. It's super important that any changes, whether it's in this particular circumstance or any other circumstance, are made thoughtfully and holistically. It's critical for quality of care, reassurance provided to seniors, and the ability to deliver good value for the senior and society, making sure that any changes are made carefully is what we would be hoping to see. And obviously, we look forward to working with the administration when and if any further updates come forth. With that, Lisa, thanks so much for the question. And let’s go to the next question, operator.

I was wondering if you could speak to the progression of earnings when you add physicians or large physician groups in OptumCare and how that changes over time. I'm specifically looking for sort of margin ranges as you first get started in the first year. When you break even, how long that takes? And then how long it takes to get to the ultimate margins? And I'm curious if the scale that you've got now, half of this book is new in the last three years, does scale accelerate some of that opportunity?

Thank you for the question, Josh. It's an important topic. I'd like to share some insights on this. A key factor needed for successful value-based care at scale is having the right patients. It usually takes three to five years to establish medical practices as part of our network as we expand. Patient volume is crucial in developing the capabilities and skills within clinical practices to transition from fee-for-service to value-based care. The time it takes from an economic and financial standpoint is also influenced by patient size. What we’re witnessing now is that OptumCare's value-based care, often seen as an overnight success, actually took 15 years to establish. We're now seeing that scale materialize, and credit goes to the teams involved. To facilitate this, it’s essential to create a culture within the organization that continuously tests and learns from our processes. This system is quite complex, as we are working with professional clinical decision-makers who are responsible for their choices in patient care. We also need to ensure they have the necessary information to learn from the entire system, including data on patients and best practices, to operate more effectively. Our ongoing investments in these areas present opportunities to enhance clinical care, which subsequently improves the economics. Getting clinical care right, placing people in the appropriate facilities, minimizing unnecessary time in care facilities, and prioritizing prevention drives economic success. We've noticed over the past few years that we are successfully elevating newer cohorts to improved economic positions more rapidly. This enables us to invest further in bringing more patients into the system. This mechanism is what you are witnessing in action currently. I hope that clarifies things a bit. Next question, please.

I wanted to discuss the cost trend. The medical loss ratio was in line with expectations for the quarter. However, there have been questions about the impact of respiratory illnesses during the quarter, and some discussion about an increase in overall utilization in December. I would appreciate some insights on these points, including how the trends look across the different segments: commercial, Medicare, and Medicaid.

Yes. Justin, thanks so much. I'm going to ask Brian Thompson to respond to that, please.

Yes. Thanks, Justin, for that question. Throughout the pandemic, we've been making these references to baselines, et cetera. I think now being three years into this pandemic, I'd like to ground an anchor more to our expectations as COVID has waned. And what I'm most encouraged by is that the fourth quarter played out as we had expected. And what we had set out inside our pricing trends are lining up really nicely as we look forward to 2023. To your comments around the flu, as I suggested at our investor conference, we certainly saw that spike. We have now seen that start to wane for, I think, five consecutive weeks here as we're moving forward. So to put it out like we had expected, really not a meaningful impact as I'm looking forward versus what we've planned for. So what I'm most encouraged by is we're sort of out of that zone of the unknowns around comparing to baselines, et cetera, and really managing a book of business with greater predictability back to sort of the expectations that we had well pre-pandemic and encouraged about how all of those elements, including flu, are lining up as we look forward. Thanks, Justin.

Thanks so much, Brian. And Justin, thanks for the question. Next question please?

Yes. Could you talk a little bit about the employer segment? And what I'm interested in is what was pricing like in 2023? If you think of the 6% commercial trend that used to be your pre-pandemic sort of levels, what was that like? And for those employer customers, how are they kind of weighing the need to get employees in the war for talent versus focusing on maybe higher premium costs and how they're trying to control that?

Lance, thanks so much. Let me ask Brian to kick off on that.

Yes. Maybe I'll start, and then I'll hand it off to Dan Kueter. I'll start with the conversation around trend. As you well know, we used to share trend information back in the day and stopped doing so simply because it became less instructive as we were pacing through this COVID environment. What I can share, and I think once we get to this zone of consistency, we'll return to those metrics, we're certainly encouraged by what we're seeing on the utilization front. I think we are seeing some durable shifts. We've seen it with respect to ER moving into urgent and in-patient to outpatient. But on the flip side, as we all know, in these labor markets, we're seeing stronger unit costs. And as we all know, unit costs still comprise the majority of the overall trend. And as I had suggested earlier in the year, we did have a higher trend planning for 2023 than 2022. But in reality, that was really a function of the first half of 2022. And again, I want to give that thought and belief that we are largely back to normal levels. And I think once we pace through 2023, we'll get to that zone where we can share those pricing trends. So with that, maybe a little bit more on the competitive dynamic, Dan.

Yes. Thanks, Brian, and thanks for the question, Lance. The competitive dynamics in the commercial market remain the same as they've been, always competitive. We continue to price to our forward trend, and we have continued to do that. As Brian indicated, there has been some modifications to that, but all within the range of what we've expected and all within the range of how we've priced. So we don't see any material deviations at all from what we've expected in our plan.

Thanks so much, Dan. Thanks, Lance. Next question?

In OptumHealth as you have added or about to add behavioral and home, more substantial home care opportunities and have talked about those in the context of value-based care. I'm wondering what influence those have on the trajectory of revenue per member served? That's already rising at a pretty rapid clip due to the full cap that you're transitioning lives into. So the home and behavioral adds to that.

Yes. I will ask Dr. Wyatt Decker to share some insights shortly. However, before he does, I want to highlight that while we don't specifically break down the factors influencing our consumer served numbers, it's clear that the shift towards value-based care plays a significant role. One aspect of our home platform, which you mentioned, David, includes a considerable D-SNP population. This segment of our business greatly enhances our ability to provide comprehensive care for individuals who are often part of the D-SNP group. They present a different revenue profile compared to community patients. Therefore, focusing on the home aspect allows us to better serve D-SNP individuals, which will certainly contribute positively to the metrics you are interested in. Now, I’d like Wyatt to elaborate on how we are integrating behavioral health with home services.

Yes. Well, thank you, David, for the question. And it's very timely. We view home health as one of the new frontiers of providing value-based healthcare because of the convenience it provides and the ability to access people, like dual special needs patients that often have very difficulty leaving their home to get care. So you will see us both developing if you will, the platform of home care increasingly in a comprehensive fashion, as well as integrating home care with our clinic-based care model. So it really creates two growth vehicles for us, if that makes sense. And similarly, with behavioral, as we've seen during the pandemic, the need for behavioral care is immense in the U.S. market. And our ability to embed behavioral healthcare services within our primary care and value-based care offerings has been differentiated and will continue to grow, as well as our utilization of virtual behavioral care solutions in both the home and clinic environments. And so we're pretty excited about how this is coming together, and we're creating a differentiated offering that helps accelerate value-based care growth and provide that comprehensive care that people need.

Thanks, Wyatt. Next question please?

Just looking for a couple of numbers. One, just going back to respiratory. Our recollection was maybe 4Q for you guys was about 30 basis points of MLR from respiratory. I know Brian said not meaningfully higher. So I'm assuming that means there is another 15 bps or 20 bps or something from respiratory this quarter. And then just secondly, on the investment gain, about $400 million above The Street, about a couple of hundred million above the '23 guidance run rate. So just wondering, was there a realized gain in that quarter that's kind of above recurring or how we should think about that number?

Thanks so much, Gary. Let me ask John Rex to respond.

Good morning, Gary. I will address this in order. Regarding our observations in the quarter, they align closely with Brian Thompson's comments. The incidence we experienced in the fourth quarter was slightly elevated, which is consistent with our expectations from our discussions in late November about flu and respiratory illnesses. When we consider this in the context of the $50 billion in medical costs for the quarter, it wasn't significantly impactful, but it was consistent. As for investment income, we don't anticipate it to resemble the figures we reported in the fourth quarter last year in absolute terms. Similar to last year, I wouldn't use that as a baseline for forecasting for next year. We feel confident in our guidance for 2023, which remains consistent with last year's fourth quarter as well.

Thanks, John. And thank you, Gary. Next question please?

Just interested if you could summarize your key M&A priorities for 2023, and whether there's any sort of shift at all in sort of the key trends that we've seen over the last few years, which have been a big focus on adding clinical capabilities and the scale at both OptumHealth and OptumInsight. Should we think about that continuing to be the core area of focus or any other additional elements that are worth considering?

Thank you, Scott. Before I turn it over to John Rex for some comments, I want to share a few introductory thoughts. While I won't go into great detail about our plans, I can assure you that we fully intend to continue deploying our capital effectively in the marketplace. A key strength of this company has been its ability to efficiently use capital to support organic growth, and that will remain a significant part of our success. We currently have a number of transactions underway. As you know, we are also working on integrating Change OptumInsight, which is very important for us. Looking ahead, the marketplace is quite intriguing. I believe John will likely agree that our pipeline of opportunities is larger, deeper, and more diverse than ever before. This trend started to emerge early last year and has continued. We anticipate that this year will be quite interesting for us. Our strategy aligns with our five growth pillars, and it's reasonable to expect our M&A capital investments to reflect that focus. Beyond this, it may not be wise to share too many additional details, but John, I would appreciate your insights on the landscape and environment.

Absolutely, Scott. Yes, so I'd start with just echoing what Andrew mentioned there, the way we approach this very much aligned with our five growth pillars and how we evaluate, how we look for opportunities, I should say, and where we think we should be pursuing investments and relationships. I'd point out that these are certainly very long-lived in terms of the investments that we make, in terms of relational investments we make, in terms of understanding markets, particularly as we've heard us talk about before within the care delivery businesses and such as value-based care that these are. Most of the markets that we want to address aren't established the way that we would like them to be established, so it's very greenfield in terms of our approach to M&A as we look at marketplaces and bringing together the capabilities that we would pursue. The environment itself that echoes what Andrew previewed there, certainly a strong environment in terms of opportunity sets that we are seeing in the broad marketplace, in terms of the types of capabilities that are there, how they might fit within this enterprise and the potential. I think you would expect us to see like where we've been focused. Certainly, over the last number of years, you've seen us do a lot of development as it relates to components of value-based care. And you know we define that very broadly now in terms of how we think about capabilities within value-based care to bring in new capabilities also and across all the other elements. But I’d overall characterize the environment as strong and the opportunities as among some of the most interesting that we have seen as a company.

Yes, I completely agree with that, John. Over the next few years, I see this aspect of our agenda as crucial for supporting our long-term growth goals, and you can expect us to remain active in this area. Thank you, Scott. Next question, please?

I wanted to follow up on the home component of the value-based care opportunity. Wondering if you'd say potentially you're further along in the penetration with the home model inside the UHC book than other payers? Any color there would be great. And then, any sense of how the 4 million fully accountable lives break out by clinic versus home model with the primary care setting, or also how the 750,000 member growth breaks out for 2023 would be great?

Thank you for the question, Stephen. I want to emphasize how crucial we consider the development of our home care platform, which has experienced significant growth over the past couple of years. It's essential to understand that sometimes individuals can be effectively managed within just the home environment, but more frequently, the clinic and home environments are interconnected, which is what we are aiming to build. Therefore, it's not entirely useful to categorize individuals strictly as clinic or home nominees. I view our home capabilities as an important extension of our clinical services, reflecting the reality that many aspects of care occur outside the 20 minutes spent in a clinic. It's vital to ensure we have adequate care options for those who may have difficulty leaving home or engaging with the healthcare system. This approach has been well received not only by UnitedHealthcare but by other payers as well. The interest from other payers in this area highlights the expanding multi-payer dynamics of OptumHealth and the broader Optum landscape. In fact, during the fourth quarter, our revenue growth rate from external sources was comparable to our internal growth; Optum was growing at the same pace with non-UHC payers as with UHC. This is a key indicator of the company's strength. Therefore, as we move forward, you will hear more about our home initiatives, which I view as a strengthening of our overall offering rather than a separate stream. I hope this provides some clarity, Stephen. Let’s move on to the next question.

The advance rate notice for '24 will be out in the coming weeks. It's clearly been well noted that the past few years have kind of been above the historical trend, and know that at some point we could see some moderation. I'd just be curious what your expectations are around that and how you view its relative importance in the context of your overall outlook for the MA market?

Thank you, Nathan. As you've mentioned, we're approaching the time when we'll likely receive the rate notification, and we don't have clarity on what that will entail. We believe that the Medicare Advantage program is crucial for seniors, and its value has been consistently demonstrated for individuals and society. The strong interest from seniors in joining this program highlights its effectiveness. A significant aspect of that effectiveness is our commitment to providing stable benefits annually. Ultimately, we hope that the upcoming rate notice will support this goal and enable us to maintain that stability. We look forward to receiving the notice and will adapt accordingly once we have that information. There's not much more we can add at this moment until we get the official notice. Thank you for your question. Next question, please?

On Optum Rx, your near-term Optum Rx targets do imply passing on the savings from biosimilars, but can you detail some of the other levers you have here to drive the strength you're anticipating? How should we rank those drivers across pharmacy services, versus biosimilar benefits over the next, let's say, 12 to 18 months?

Great question, Erin. Before I ask Heather to give you a few more details, I think we're super pleased with the progress we've made, particularly on the biosimilar innovation that's coming this year in the next few weeks. And the work that's been done within Optum Rx to deliver a contracting strategy, which ensures that everybody who wants to use a HUMIRA molecule, whether that's the brand or whether it's a biosimilar, gets access to lower cost right out of the gate has been a super important innovation in terms of our contracting strategy. So without folks having to be shifted from drugs or dislocated in the marketplace, we found a way to bring lower cost to everybody in that environment. And I really want to give credit to Heather and her team for the work that she's done to lead on all of that. As you rightly say, we're passing those benefits directly back to the payers and the folks themselves. And with that, Heather, why don't you pick up and describe what else is driving the Rx growth this year?

Sure. Let me provide some insight into the next phase of our biosimilars strategy before discussing our earnings strength in 2023. As Andrew mentioned, we designed our biosimilar strategy to maximize value for our clients in the first year, and we take pride in that achievement. However, this is a multiyear initiative, and we will continue to monitor market dynamics. It is essential to establish a competitive marketplace for both originators and biosimilars, particularly in the unique situation with HUMIRA and the influx of manufacturers. Over the next 18 months, our strategy will enable competitors to differentiate themselves based on clinical criteria, product attributes, manufacturer support, and pricing. Our goal is to provide choices with minimal disruption while delivering value without restrictions. When I reflect on our earnings and the strong position we aimed to achieve by the end of 2023, consider the narratives we've been building and discussing over the past few years, specifically in strengthening our pharmacy services. For example, community pharmacies are experiencing rapid growth, but our specialty pharmacies, including Frontier Therapies that cater to rare diseases and orphan drugs, are also expanding quickly and gaining scale. Community pharmacies are reaching a level of scale where we have central fill support due to increased prescription volumes. Our negotiating capabilities are improving, allowing us to secure better terms in procurement for these businesses. Additionally, we had another strong selling season in our PBM. The market is dynamic, and we have been agile in adjusting our pricing and product attributes. Our product adoption in PBM has risen by 40% year-over-year. We are also seeing returns on our investments over the past couple of years, particularly with Optum Frontier Therapies and our partnership with RVO. As we look ahead to the next year, we intend to focus on these areas and drive earnings growth accordingly.

Heather, well said. And again, you've seen a real transformation of the Optum Rx platform. If you look at five years ago, about a third of the revenues in that business came from non-PBM pharmacy services. Now it's at half. That's a tremendous shift on the business' scale, really significant. And I'd say one of the key themes which is driving a lot of that is a relentless shift was the consumer in the way in which that business is oriented and building its product. Real focus on delivering the best possible deal for consumers, making sure they get the lowest net cost. And then you'll see through, as Heather just mentioned, partnerships like RVO Health, you'll see us to continue to innovate the way in which we engage with consumers to make that much more modern, much more as U.S. consumers should get and should expect. Heather, thank you so much. Next question please?

so regarding the acuity level of the elevated flu and respiratory costs in the fourth quarter, is there any sense for just how much of the elevated cost for, hate to call it, tripledemic, let's just call it that, I guess, for the quarter, how much of that was related to the hospital inpatient setting in particular? And then from your data, was there any sense that there may have been any slightly lower elective procedures or traditional non-COVID and non-flu-related care in the fourth quarter in light of the elevated flu and respiratory cost and utilization?

Stephen, thank you for bringing that up. In the fourth quarter, there was a bit of an increase in flu and respiratory cases, but I would consider it minimal in terms of the overall healthcare costs in the U.S., almost insignificant. There was a lot of anticipation about the potential impacts of different viruses leading to what some are calling a triple pandemic, but that really hasn't manifested. The slight increase we observed was within normal expectations for a typical Q4 and early flu season, and as Brian mentioned earlier, we've seen a decline over the last five weeks. So, I wouldn’t advise you to view this as a significant issue in the broader context of total healthcare costs. It really isn’t. Next question?

Just wondering if you could talk a little bit about your expectations for redeterminations that you talked a bit about how you see that as a membership opportunity, but some more focus on the MLR implications. I guess, if you think about the potentially significant change in the membership of the Medicaid program and the implications for the risk pool there, how are you thinking about potential margin compression and how quickly rates might be able to reflect that, if it does play out?

Kevin, thanks so much. I'm going to ask Tim Spilker, who looks after our Medicaid business, to talk to that. And maybe Tim, as you do that, you could also perhaps allude a little bit on the degree of visibility you have for your book of business as you roll into 2023. That might also be helpful.

Yes, absolutely. Thanks, Kevin, for the question. So certainly, a number of factors in play as we look ahead, certainly, the change in membership that we'll see as redeterminations resume. And then also acuity utilization, all of the factors really as things return to normal. So at this point, from where we look, we've got visibility at around 75% of our revenue for the year. And states, as they set that revenue, have taken all of those factors into account when setting their rates, and that revenue is in line with our expectations and consistent with the outlook that we shared in November. So we’re appreciative of the balanced rational view that our states have taken as they've looked ahead, knowing that we've got many factors coming forward. Maybe one last thing, just as we look ahead, the redetermination process will be extended. We know it will take 10 to 12 months depending on the state. And that will give us opportunities to provide data, feedback, and insights to our customers, work with them to adjust as things develop. So really no changes from what we communicated in November and with a little bit more certainty now in terms of our revenue.

Right. Thank you, Tim. I appreciate that, Kevin. Thanks for the question. Operator, we just have time for one last question, if we could go ahead, please?

I wanted to come back to the specialty drug and pharmacy initiatives. And I guess, can you talk about what percent of these drugs are going through the mail channel versus the retail channel now? Kind of how do you expect the share to shift away from retail to mail? And then I'd tack on kind of how should we think about what the earnings power of the shifts can look like as you capture more of the specialty drugs in owned channels versus third-party channels?

George, thanks so much for the question. Let me hand it straight to Heather, please.

Sure, that's a great question. As we monitor the pipeline in specialty drugs, we are driven with urgency, which is reflected in our growth as well as in our patient care and clinical programs. Our Optum Frontier Therapy is an effective model, even though it focuses on rare diseases and orphan drugs. We discussed this at the investor conference, where we highlighted its comprehensive clinical model that supports not only patients but also caregivers, prescribers, and families, while also assisting pharmaceutical companies in delivering optimal service for those medications. This model guides how we assist clients and patients within our specialty business. We emphasize holistic support, which includes patient advocacy, patient support, and prescriber assistance, along with investment in automation. Currently, in our specialty pharmacy, automation is improved, resulting in over 30% higher self-service rates. This figure applies to specialty pharmacy, not just mail and maintenance. We are focusing on automation for those with simple transactions, while our team is available to assist those requiring complex care and our 24/7 pharmacist support. We will continue to collaborate with our retail partners, ensuring we maintain a strong network. Our goal is to provide our consumers and clients with top-tier specialty service.

Thanks, Heather. And George, thank you for the question. Listen, we come to the end of the call. I hope very much you leave the call with a sense of our optimism and focus on continued growth for the year ahead. We remain intent on expanding our ability to help improve healthcare at the system and individual levels and executing with excellence for all those we serve. We look forward to sharing our progress on this journey with you again in April. And in the meantime, thank you so much for your attention this morning. We appreciate it.