By Amina Niasse and Sriparna Roy
NEW YORK (Reuters) -Some long-term UnitedHealth Group investors are putting their faith in the return of a CEO with a proven track record and a new management team they believe can deliver a turnaround for the historically high-growth Optum health services business and put a tough year behind it.
Investors, billionaire Warren Buffett’s Berkshire Hathaway among them, have reacted favorably to the selection of Stephen Hemsley, who took over in May after the company missed its earnings projections for the first time since 2008.
Hemsley, who led UnitedHealth between 2006 and 2017, signed a three-year contract with a possible payout of $60 million in stock. He also bought shares totaling around $25 million.
“If you’re buying a stock that plummeted, you would like to know that the people running the business believe in it,” said Bill Smead, chief investment officer at Smead Capital Management, which owns nearly 300,000 UnitedHealth shares.
MEDICARE ADVANTAGE EXIT BUOYS CONFIDENCE
Five investors who spoke with Reuters said the company’s plan to close hundreds of Medicare Advantage plans could improve profitability by driving more patients into plans they said are based largely on Optum’s 90,000-physician network.
UnitedHealth earlier this month said its exits in Medicare Advantage, which serve people aged 65 and older, would include those based mostly on large provider networks where managing varying costs is typically harder. It will leave 109 U.S. counties next year and pull out of about 100 plans elsewhere, impacting 600,000 members.
UnitedHealth will still offer Medicare Advantage plans in 2,191 counties next year.
UnitedHealth and other health insurers have been battling rising medical costs. But some of their tools for slowing spending, such as requiring prior authorization approvals before patients can get needed care or procedures have come under government pressure.
That was sparked by an outpouring of consumer rage over the perceived pain induced by such practices that came to the fore after the murder of a top UnitedHealth executive last year, pushing the industry to pledge it will change.
Kevin Gade, chief operating officer at Bahl and Gaynor which owns more than 680,000 UnitedHealth shares, commended the company’s retreat to focus on more limited provider networks.
“It should help balance the cost per patient without deteriorating quality,” Gade said.
The company declined to comment on its reduction of larger-network Medicare Advantage plans, but reiterated that its Optum financial miss was in part due to picking up higher-cost Medicare Advantage members in Optum-based plans.
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