UnitedHealth To Buy Equian & Foray Into Healthcare Payments

UnitedHealth Group, Inc. (NYSE:UNH) , the leading U.S. health insurer, might buy the healthcare payments company Equian for nearly $3.2 billion, per multiple sources.

Equian delivers payment integrity solutions through proprietary content, enabling technology and highly responsive customer service. The company analyzes healthcare and insurance data to ensure that payments are fair, accurate, and paid by the correct party—resulting in billions of dollars in savings.

This buyout will allow UnitedHealth to add a new niche business to its health services segment, Optum, which deals in health management and engagement, health financial services, health IT, benefit operations, care operations and pharmacy care services. Over the years, Optum has grown to contribute an increasing proportion of total revenues.

UnitedHealth anticipates huge growth opportunity in the healthcare payments space, which is still dominated by manual functions leading to billions of waste in administration, thus calling for an urgent need of an overhaul.

The digital age has brought new spending habits for consumers, giving rise to the on-demand economy and overall growth in eCommerce spending. But healthcare has lagged in its adoption of technological advances of the digital age, thus causing consumer payments experience to suffer.

Although payment responsibility has increased dramatically in the recent years, healthcare organizations have continued to communicate with consumers, as they did half a century ago, through mailed paper statements. The content and layout of those statements have not changed much either.

To put this into perspective, nearly 90% of providers leverage paper and manual processes for collections, 53% of payers still deliver checks to providers and 93% of consumers were surprised by a medical bill in 2018.

The opportunity in this space has come to the notice of players outside the healthcare industry as well. An example of this is the recent agreement by J.P. Morgan Chase & Co. (NYSE:JPM) to buy Philadelphia based InstaMed, a healthcare payment processor.

Equian handles nearly $500 billion in healthcare payments annually for nine out of the 10 healthcare companies. It would allow UnitedHealth to foray into the expanding healthcare payments industry, whose growth is directly linked to the increasing health spending in the United States. The Centre for Medicaid and Medicare Services projects healthcare spending in the United States to grow at an average rate of 5.5% annually to $6 trillion by 2027.

Alongside its proprietary use of Equian payments systems, UnitedHealth can also offer payment services to other insurers as the former currently serves almost 90% of the healthcare companies. UnitedHealth will also be able to serve Equian’s clients, which are insurers outside the healthcare space.

UnitedHealth has been a bellwether in the industry, staying proactive in the face of continuous challenges and changes that are imposed from regulations. Now that the Trump administration has signed an executive order to make the contracts pricing between insurers and hospitals open to patients and Bernie Sanders campaign on ‘Medicare-for –All’ proposal, to reform Healthcare, a continuous overhang remains on the health insurance business.

In order to decrease its dependency on this heavily regulated business and to diverse its revenue sources from less or non-regulated business like Optum, UnitedHealth has made several acquisitions over the years in this segment. The Equian deal also falls in the same line.

Year to date, the stock is down 2.3%, compared with the industry’s rise of 0.85%.

UnitedHealth carries a Zacks Rank #3 (Hold). Some better ranked stocks in the space are Magellan Health, Inc. (NASDAQ:MGLN) and Molina Healthcare, Inc. (NYSE:MOH) . Both the stocks carry a Zacks Rank # 1 (Strong Buy). Magellan and Molina Healthcare’s earnings for 2019 are expected to grow by 59.35% and 3.02%, respectively.

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