UPDATED: Thursday, Jan. 16 at 1:45 p.m. ET
UnitedHealth Group's Optum Rx unit made a commitment to pass through 100% of rebates negotiated with drugmakers to the client.
UnitedHealth Group's stock was down 5% Thursday after it released its earnings report. The company's fourth-quarter revenue missed Wall Street analysts' expectations and annual medical costs were higher than expected.
CEO Andrew Witty told investors on Thursday during the company's earnings call that Optum currently passes through 98% of rebates to the insurers, states and unions that contract with it. The remaining 2% remain in a more traditional rebate model because that's their preference, he said.
However, he said the team is "taking that excuse off the table today" as it moves to pass through all rebates.
"We believe that takes away the excuse of who really is setting the price, and we would like to work with others across the system to relentlessly achieve the lowest net cost for everybody in the system," he said. "We'd like to see patients see the benefits of that, and we'd like to work with anybody who wants to work with us to make it happen."
The news comes with the backdrop of significant pressure on the PBM industry from regulators and legislators, who express concern about the role that pharmacy benefit managers play in driving up drug prices for consumers. The Federal Trade Commission this week released its second report on PBMs, alleging that Optum, CVS' Caremark and Express Scripts raked in billions by marking up specialty generics.
Witty said that while drug prices continue to rise, PBMs are "really the only effective mechanism across the system which really holds the pharmaceutical company to account once it chooses to set its price." He noted that there are frequently price hikes to start the year from the pharma industry.
Optum Rx's commitment to passing through all of its rebates is linked to the idea that people may lose track of money put into the ecosystem under the traditional rebate model, and that's the source of much of the frustration with how PBMs operate, Witty said.
So it's with that in mind that the UnitedHealth team is approaching conversations with policymakers on this topic, he said.
"That's how we're going to engage this year with policymakers and others across the country," he said.
UnitedHealth Group reported $5.5 billion in profit for the fourth quarter of 2024, on par with its haul a year prior.
However, profits for the full year were down significantly, according to its earnings report released Thursday morning. For all of 2023, UHG brought in $22.4 billion in profit. For 2024, that shrunk to $14.4 billion, according to the report.
Revenue, by comparison, was up year over year, both for the fourth quarter and the full year. In the fourth quarter of 2024, UnitedHealth posted $100.8 billion in revenue, growing from $94.4 billion in the prior-year quarter.
Revenue for the full year 2024 was $400.3 billion, up from $371.6 billion for 2023.
“The people of UnitedHealth Group remain focused on making high-quality, affordable healthcare more available to more people while making the health system easier to navigate for patients and providers, positioning us well for growth in 2025,” said Andrew Witty, CEO of UHG, in a press release.
2024 was certainly a complicated one for the healthcare giant, starting in February with the cyberattack on Change Healthcare, which played a role in the diminished profits compared to 2023.
The company also faced similar headwinds to its peers in the insurance industry throughout 2024: elevated utilization, changes around Medicare Advantage reimbursement rates and updates to the star ratings methodology that hindered bonus payments across the board.
Then, in December, UnitedHealthcare CEO Brian Thompson was shot and killed ahead of UHG's investor day, sparking a wave of online vitriol targeting the health insurance industry.
In the earnings report, the UnitedHealthcare unit reported $298.2 billion in revenue for the full year, up 6%. The company's medical loss ratio was 85.5% in the quarter, still higher than in 2023.
The health insurance division added 2.4 million commercial members across 2024, according to the report, and the number of people enrolled in its Medicare Advantage and dual special needs plans grew to 9.4 million. Total domestic medical membership was 49.3 million as of Dec. 31.
At Optum, full-year revenues were up by 12%, reaching $253 billion. Its Optum Health segment served 4.7 million through value-based care arrangements last year and expects to add 650,000 additional patients in 2025.
Revenue at Optum Rx, the company's pharmacy benefit manager, increased by 15% in 2024 as it added new clients and built on the relationship with existing ones. It also enhanced the pharmacy services it made available to customers throughout the year, according to the report.
Based on the results, UnitedHealth reaffirmed its guidance for 2025 and expects to bring in between $450 billion and $455 billion in revenue as well as earnings per share ranging from $29.50 to $30.