⚕️ United For A Change?

UnitedHealth Group is acquiring Change Healthcare in a deal worth $13B

Hey Global Investor, here’s what you need to know before the US markets open.

Market Snapshot 📈

S&P 500 (Friday Close) 3,824.68 +20.89 (0.55%)

NASDAQ (Friday Close) 13,201.98 +134.50 

FTSE 100 (5 PM IST) 6,846.80 -26.46 (0.45%)

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USDINR (5 PM IST) 73.44 (1 Year +3.51%)

⚕️ United For A Change?

Optum, the diversified health services unit of the UnitedHealth Group is combining with Change Healthcare, a medical billing systems company. United will acquire Change for $8B in cash and will also assume Change’s $5B debt, making the total deal worth $13B.

Background: Consider these three exhibits:

1. The global healthcare system is going through a severe stress test. Healthcare providers have reduced the amount of ordinary healthcare they provided in order to save capacity for Covid patients. Insurance companies such as UnitedHealth are undertaking special efforts to process expenses and alleviate the cash crunch the providers would otherwise face.

2. The Centers for Medicare and Medicaid Services (CMS) completed final regulations in October 2020 mandating transparency, that will require health insurance plans to post physician care costs estimators online by 2023. Hospitals are already required to post detailed pricing information online.

3. Policymakers in Washington are preparing to impose extensive price transparency rules on healthcare providers. The Consolidated Appropriations Act (2021) has built healthcare price disclosure requirements into federal law.

These three developments are enforcing the price and data transparency between healthcare providers and insurance companies in terms of clinical/billing/payments/data analytics to ensure efficient and effective processing.

What is Happening? OptumInsight is the healthcare data analytics sub-segment within Optum. Change Healthcare’s financial analysis and management systems will use Optum’s automated payment network to ensure physicians get paid faster and give consumers a simple, convenient way to look at payments.

Change Healthcare has been at the leading edge of price transparency with its digital patient experience manager system, disclosing pre-procedure pricing, and reducing what patients will have to pay out-of-pocket for procedures. This real-time and transparent payment system is expected to reduce administrative waste while improving decision support at the point-of-care.

OptumInsight accounted for $2.8B in revenues with ~25% operating margin in the quarter ended Sept 30, 2020; Change Healthcare reported revenue of $756M in the same period and $43M net loss. Change Healthcare went through with its IPO in June 2019. The private equity major, The Blackstone Group, owns 20% of Change Healthcare’s stock has signaled its plans to vote in favor of the deal.

UnitedHealth is acquiring Change Healthcare’s common stock at $25.75 per share in cash, a 41% premium over the company’s closing price of $18.24 last Tuesday. The deal is expected to close in the second half of 2021 and will accrue 50 cents to UnitedHealth’s adjusted EPS starting in 2022.

Market Reaction: UNH closed at $363.39 on Friday, down 0.45%; CHNG closed at $24.14, up 0.94%.

Company Snapshot 📈

UNH $363.39 −1.64 (0.45%)

CHNG $24.14 +0.22 (0.94%)

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