United Health, the world's largest insurance company, has been in turmoil recently. First, in February, Change Healthcare, the medical technology arm of UnitedHealth Group, was attacked by a cyberattack. Then, affected by the cyber attack, in the first quarter financial report released, United Health confirmed a loss of $1.4 billion; Almost at the same time, news broke that UnitedHealth's Optum business units had laid off nearly 1,000 employees.
The direct cause of the layoffs was the hacking of Change Healthcare, a technology unit of UnitedHealth, resulting in a loss of $1.4 billion in the first quarter, and the deeper reasons were the challenges of the telemedicine model in the post-epidemic era, the ethical issues of payment technology involving AI applications, and the decline in the reimbursement rate on the policy side.
UnitedHealth layoffs: Healthcare division Optum laid off 1,000 jobs
According to the news released in mid-to-late April by employees of Optum, the healthcare arm of UnitedHealth, Optum is laying off employees across the entire department, including Optum Virtual Care, Navihealth, and Landmark Health, a California home care unit, with an estimated number of 1,000 employees.
裁撤远程医疗业务Optum Virtual Care
Optum Virtual Care, a telehealth business owned by UnitedHealth, began in 2021 in response to COVID-19 and provides virtual services to physicians and nurse practitioners in all 50 states.
The exact scale of the layoffs in this department is unknown, but the core reason is the closure of the business. It is reported that UnitedHealth has confirmed the closure of this business.
Although during the COVID-19 period, offline medical visits could not be satisfied, which promoted the development of telemedicine, and in the post-epidemic era, telemedicine has also been vigorously deployed by health insurance companies and medical companies due to cost savings, convenience, accessibility and other reasons, but after all, time has passed, and telemedicine is likely to be short-lived.
According to Kaiser Healthcare, virtual visits have been declining since 2021. In addition, Teladoc Health, one of the largest providers of telehealth services in the United States, made another layoff in January, following layoffs in early 2023. Let's Talk Interactive, a software company specializing in telehealth, also filed for bankruptcy protection in September 2023.
Acute care software service naviHealth
Another piece affected by the layoffs is naviHealth. It is reported that naviHealth has laid off 114 employees, equivalent to 15.2% of the number of people in Tennessee and telecommuting.
In addition, naviHealth has undergone leadership changes, with CEO Harrison Frist stepping down this summer and being replaced by Heather Jarrett, senior vice president of government clinical programs at Allied Health.
naviHealth, part of Optum Care Solutions, is an after-the-scenes care management software services company that was acquired by Optum for $1 billion in 2020.
NaviHealth works with health plans, hospital systems, risk-taking physician groups, and other healthcare providers to coordinate clinical decisions through technology tools and track patient data. The Company administers post-acute services for approximately 4.5 million Medicare Advantage members and serves more than 140 hospitals in the Centers for Medicare and Medicaid Services' Care Improvement Advanced Bundle Payments program.
However, it is reported that Optum has been under great pressure after the acquisition, and NaviHealth has been criticized. In October 2023, NaviHealth was criticized by Congress for using algorithms to cut patient care costs, when Optum decided to rename the business as in-home and community-based care.
But even so, NaviHealth continues to have problems. In November 2023, the families of two deceased Medicare Advantage members filed a class action lawsuit, alleging that NaviHealth's internal algorithm denied claims from people in need of care, with a 90% error rate. The lawsuit also alleges that naviHealth employees were forced to use the technology and were counting on patients who were reluctant to appeal their decisions due to lack of resources.
裁撤居家健康业务Landmark Health
In addition to these two businesses, Landmark Health, a division of UnitedHealth, has also downsized its workforce in various states. The exact size of Landmark Health's layoffs is unclear, but people familiar with the matter said Landmark laid off more than 370 employees across the U.S., with affected positions including medical services supervisors, senior operations managers, care coordinators and more. According to some anonymous posts, up to 500 employees at Landmark Health's subsidiary have been affected by the layoffs. According to S&P Capital, Landmark had 2,534 employees in 2022 and operates in 37 states. According to this estimate, the company's layoff rate is 20%.
Headquartered in California and acquired by Optum in April 2021, Landmark Health is a home-based healthcare company focused on the sickest and most frail populations. Landmark's physician-led teams work with individuals' existing health care providers to provide care to tens of thousands of patients, including home health, mental health, and social care, through in-person, phone, and video conferencing; urgent care visits; routine visits; Post-discharge hospital visits as well as 24/7 phone support. Some of the conditions covered include cuts, wounds, and rashes; fever, cold, pneumonia, upper respiratory tract infection; urinary tract infections; Intravenous fluids, intravenous medications, catheter insertion/removal, etc. Building on this, Landmark also extends beyond care, inspecting users' homes for fall hazards and other safety issues to ensure overall wellness.
Why the layoffs?
Hacker attack losses become the fuse, and business attributes are the underlying causes
The most direct reason for the layoffs at this point in time is the first-quarter loss caused by the cyberattack on the medical technology division, and the deeper reason has a lot to do with the nature of each business.
Hacking incurs billions of dollars in damages
In late February, Optum's medical technology unit, Change Healthcare, was hacked, causing problems including data breaches, claims disruptions, and dispensing difficulties, which also hit UnitedHealth's first-quarter results, resulting in a net loss of $1.4 billion.
In its first-quarter earnings report, UnitedHealth said it posted a net loss of $1.4 billion in the first quarter of 2024 following an unprecedented cyberattack on Change Healthcare.
In the first quarter, the cyberattack caused an impact of $0.74 per share, and the full-year impact is expected to be in the range of $1.15 to $1.35 per share. The overall impact in the first quarter was $872 million, including support for direct response efforts such as reinstatement of the clearing house platform, suspension of some care management processes, assistance to providers, and more, with the full-year impact expected to increase to $1.6 billion. The company has made more than $6 billion in upfront payments to providers.
Despite this emergency, UnitedHealth as a whole remained stable, with total revenue of US$99.8 billion in the first quarter, an increase of 8.6% year-on-year; Operating profit was US$7.931 billion, down 1.92% from the same period last year.
Among them, the insurance division UnitedHealthcare had a total revenue of $75.4 billion in the first quarter, a year-on-year increase of 7%; Operating profit was $4.4 billion, up 2.3% year-over-year, with an operating margin of 5.8%. Optum's total revenue in the first quarter was $61.1 billion, up 12.9% year-over-year, led by Optum Health and Rx; Operating profit was $3.5 billion, down 3.5% year-over-year. Operating margin for the first quarter was 5.8%.
The total number of domestic members in the insurance sector was 49.2 million, up nearly 2 million in the first quarter. Among them, the number of commercial members is 29.4 million, and the number of Medicaid members of the federal subsistence business is 7.7 million; 7.8 million Medicare Advantage members; 4.3 million Medicare supplemental plan members; 3.1 million members in Part D plans.
But then again, the cyberattack took a toll on UnitedHealth, forcing it to pay a ransom to redeem its data, temporarily provide payments to other partners, and invest in platform recovery and response, as well as exposing it to regulatory investigations.
Therefore, taken together, these are the direct reasons for the layoffs of United Health at this juncture, that is, to minimize the impact of unprofitable and problematic businesses on the group's performance, so as to partially offset the heavy damage to the performance of Internet companies.
From the perspective of business, the layoffs in each part are actually related to the attributes of the business itself.
The end of the telehealth 1.0 era
From the perspective of Optum Virtual Care, a telemedicine business, the core reason for the layoffs is the effectiveness of the telemedicine model in a specific context, that is, during the epidemic period when offline social interaction was disrupted, telemedicine developed as an alternative to the offline medical treatment model. When a certain period passes, the popularity of telemedicine will inevitably fade with the choice of consumers, and the effectiveness of the telemedicine model will also be marked with a question mark.
In fact, in addition to Optum, the shutdown of telehealth businesses has become a common trend in the industry. Walmart is also reportedly shutting down the telehealth service, with news that Walmart will shut down all 51 health centers and their virtual care services.
Three years ago, Walmart Health, the healthcare arm of Walmart, acquired MeMD, a multispecialty telehealth provider, and a year later renamed it Walmart Health Virtual Care and integrated it into its healthcare business. Now, the Walmart telehealth shutdown is essentially the same as the Optum telehealth shutdown.
However, many digital health activists say these initiatives do not mean the end of the telehealth era, and while the boom during the pandemic is certainly over, the virtual care market is evolving and moving away from commoditized models such as virtual urgent care. At this stage, the market is witnessing the decline of telehealth 1.0, and a new telehealth model may be needed in the future.
naviHealth technology rejects claims, pointing to AI ethics issues
The layoffs at naviHealth, an acute care software service, may have a lot to do with the challenges of the business itself and its reputation. According to the previous article, naviHealth's problems are numerous, and its nH Predict AI algorithm has been accused of falsely denying extended care claims to elderly patients, including in inpatient and home care in skilled nursing facilities. When these claims were appealed to a federal administrative judge, about 90 percent of the judgments were overturned, highlighting the inaccuracy of the algorithm. Allegedly, the lawsuit involved thousands of people and cost billions of dollars.
At a time when U.S. regulators are focusing on the ethics of AI applications in the healthcare sector, naviHealth's business and the lawsuits it faces have not been able to generate good profits for the group, so layoffs are not warranted.
Affected by the reduction of payment on the policy side, the home health business was laid off
The influencing factor for Landmark Health's layoffs was the Centers for Medicare & Medicaid Services (CMS) cuts. On November 2, 2023, the Centers for Medicare and Medicaid Services (CMS) issued a final rule announcing final policy changes to Medicare payments based on the Physician Fee Schedule (PFS) and other Medicare Part B.
PFS is a payment method that was adopted in 1992. Under this model, Medicare pays physicians and other billing professionals for services provided in a variety of settings, including doctors' offices, hospitals, ambulatory surgery centers (ASCs), skilled nursing and other post-acute care facilities, hospice facilities, outpatient dialysis facilities, clinical laboratories, and patients' homes.
Under the 2024 final rule, the overall payout rate for PFS will be 1.25% lower than in 2023, which will result in a reduction in reimbursement for care provided by healthcare providers, which will lead to insurers cutting back and laying off staff for these services.
In summary, after the cyber attack and the net loss in the first quarter, UnitedHealth quickly laid off Optum to partially offset the negative financial performance. The deep-seated reason for layoffs and losses is the nature of the business itself, and the direct cause is this unprecedented cyber attack, which points to the performance adjustment of insurance companies, and also points to the importance of cyber security to insurance companies, sounding the alarm for the industry.