United HealthCare Corporation

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United HealthCare Corporation

300 Opus Center
9900 Bren Road East
Minnetonka, Minnesota 55343
(612) 936-1300
Fax: (612) 939-7752

Public Company
Employees: 3,200
Sales: $1.44 billion
Stock Exchanges: New York
SICs: 6324 Hospital and Medical Service Plans; 8099 Health Allied Services

United HealthCare Corporation is a national leader in health care management programs, serving about two million health plan enrollees through about 20 locally based health maintenance organizations (HMOs) the company owns or manages. The company also serves about 20 million people in all 50 states through other managed-care specialty services, including preferred physician organizations (PPOs), pharmaceutical cost management services, managed mental health and substance abuse services, workers compensation/casualty services, employee assistance services, Medicare and managed care programs for the elderly, health care evaluation services, health care information systems, and administrative services.

United HealthCare Corporation informally traces its roots to the development of the HMO as a model for organized health care. The HMOs leading spokesperson, Dr. Paul Ellwood, helped develop several HMO companies in Minnesota and nearly single-handedly thrust managed health care onto the national stage during the early 1970s. In 1970 Ellwoodwho later became known as the Father of the HMOfounded the Minnesota-based health care think tank, Interstudy, and later succeeded in getting congressional approval for his HMO model. In 1971 Ellwood hired Richard Burke to help put the HMO model to practice. Three years later Burke founded United HealthCare as a Minnetonka, Minnesota-based for-profit company organized to manage the newly created Physicians Health Plan of Minnesota, which under Minnesotas HMO law at the time was required to be a non-profit company.

In January 1977 the company was incorporated as United HealthCare Corporation. Through acquisitions and expansion of its management services United grew steadily as an owner and manager of HMOs, and by 1984 the company was running 11 HMOs in ten states.

With plans to step up expansion and acquisition efforts, United HealthCare went public in 1984 and began trading as an over-the-counter stock. Soon thereafter the company launched an ambitious national expansion program, which included starting new HMOs and acquiring multi-state HMO companies.

In June 1985 United HealthCare made its first major acquisition since going public, acquiring Share Development Corporation, an Indiana-based multi-state HMO through a stock swap valued at nearly $60 million. Share Development increased United Healthcares health plan membership by 167,000 enrollees, and by the end of the year United HealthCare and its subsidiaries were active in 22 states, covering 822,400 members through company owned or managed health plans.

In November 1986 United HealthCare paid $83 million to acquire the Colorado-based Peak Health Care Inc., a four-state HMO network with 104,000 enrollees. By the end of the year United HealthCare owned or managed health care plans serving about 1.6 million people. The expansion efforts paid short-term dividends, and for the year the company earned $7.2 million on revenues of more than $216 million, which was more than double the companys 1985 revenues and more than six times United HealthCares 1984 revenues.

In April 1987 Kenneth Simmons, the former president of Peak Health Care, was named chief operating officer of United HealthCare, succeeding Robert Ditmore, who remained president. Seven months later Simmons was named to replace Richard Burke as chief executive in order to pacify Physician Health Plan (PHP) doctors who were balking at Burkes management style. Burke, who remained chairperson, also gave up his post as chief executive of PHP in November 1987 and lost his status as the companys largest shareholder that month when United HealthCarewith finances strained by rapid expansion turned to the New York investment group Warburg, Pincus Capital Company L.P. for an infusion of cash. With an annual loss looming as a result of unprofitable and marginally profitable HMO startups, Warburg agreed to purchase $9.8 million worth of newly issued preferred voting stock and acquire a 39.5 percent stake in the company.

Although United HealthCare doubled its revenues in 1987 to more than $440 million, its operating expenses had grown at a faster rate, and the company lost $15.8 million for the year while its stock value fell from a 1986 high of $15.88 to $4.25 by the end of 1987. Unsteady market conditions, excessive administrative costs and price competition battles with traditional insurance companies led United HealthCare to abandon several health plans, including HMO startups in six large cities and another well-established HMO operation in Phoenix.

In 1988 United HealthCare completed its restructuring program, selling several unpromising businesses in areas where it had entered highly competitive markets too late. In another restructuring move designed to shore up its relationship with PHP, United agreed to a new five-year contract in April 1988, which gave the PHP board of directors the power to appoint its own chief executive and other key officers.

In September 1988 United sold its interest in Peak Health Care Corporation for $41.5 million and raised an additional $31.6 million through a secondary public stock offering. Despite revenues, which reached nearly $440 million that year, the company lost $36.7 million, bringing the cost of its extensive two-year restructuring to $53 million.

Nevertheless, the restructuring program eventually returned United to profitability, and by the end of 1989 it was one of the largest publicly traded HMOs in the United States, serving about one million people in 15 states. The company was not only managing PHP, the largest HMO in Minnesota, but it was also managing Share Health Plan, the states fourth largest HMO. For the year, United HealthCare earned $13.6 million on revenues of $412 million.

With its restructuring completed, the company began buying up specialty companies designed to control some of the most exorbitant medical costs, including companies that managed programs for the aged, prescription drugs, mental health treatments, and organ transplants. At the same time, the company launched a new expansion and acquisition plan under the direction of Dr. William McGuire, a former Peak Health Care president who was promoted to United HealthCare president in 1989. The new program focused on geographic markets where the company was already operating.

In March 1990 United HealthCare held a secondary public offering of three million shares, adding about $100 million to the $60 million the company had at its disposal for acquisitions and operations. That month United HealthCare acquired Prime-Care Health Plan Inc., a Milwaukee-based HMO and the second largest HMO in Wisconsin with 103,000 members. The acquisition was designed to complement the services of a growing United HealthCare subsidiary, Diversified Pharmaceutical Services, Inc. (DPS), a provider of managed-care drug services to about 200,000 members of several Wisconsin HMOs. The acquisition also sent a signal to the business world that United HealthCare was ready to spend more of its resources to continue expanding its core business.

In July 1990 United became the first managed health care company to go after clients already associated with other HMOs, offering three types of health care services separately rather than in a package. The new services were designed to attract customers who already belonged to an HMO but wanted programs to further contain exorbitant medical costs. The services included: United Resource Network, a program designed to manage the delivery of high cost, low volume procedures such as organ transplants; Healthmarc, a program offering health care utilization review and case management services for workers compensation claims; and Employee Performance Design, a group of employee assistance programs offering financial, personal, legal, and other advice to workers.

By the close of 1990 United HealthCare, with about 1.5 million members enrolled in its health plans, was serving more patients than any other independent HMO company. The companys members included those belonging to United HealthCare-owned HMOs in Chicago, Atlanta, Salt Lake City, Des Moines, and Milwaukee, as well as members belonging to HMOs United HealthCare was contracted to manage in other areas.

In capitalizing on the growing trend towards managed health care and the monitoring of medical expenses and claims procedures, United HealthCares net income surged from $13.7 million 1989 to $33.9 million in 1990, as revenues rose from $412 million to $605.5 million. Pacing the revenue growth was the increasing numbers of customers served by HMOs that United HealthCare owned or managed, as well as the companys growing list of specialty programs, particularly DPS.

In February 1991 McGuire was named to the additional positions of chair and chief executive, succeeding Burke and Simmons. In April 1991 United acquired the Institute of Human Resources (IHR), a Rockville, Maryland-based employee assistance company operating of one of the largest networks of employee counselors in the United States and providing phone counseling services to workers with mental health, drug abuse, or alcohol problems. United HealthCares own employee assistance operation, Employee Performance Design, was merged into IHR with the combined operation comprising 2,650 mental health and employee assistance professionals working in 15 separate specialist networks in various regions of the United States.

In July 1991 two of the largest HMOs United HealthCare was managing, PHP and Share Health Plan, were merged into a single company, bringing more than 480,000 Minnesota medical plan enrollees together under one HMO. The merger allowed the new company, Medica, to provide for a wider range of health care benefit packages offered by a single company and also served to shore up the Share Health Plan organization, which had been experiencing financial difficulties and was losing members. As a result of the merger, PHP was renamed Medica Choice, and Share Health became Medica Primary.

In July 1991 United purchased the Wauwatosa, Wisconsin-based Samaritan Health Plan Insurance Corporation, one of the first hospital-sponsored HMOs in the country. Four months later Samaritan was merged into PrimeCare, creating the second largest HMO in the Milwaukee area with a total 157,000 members. The following month United expanded its presence in New England when it acquired Ocean State Physicians Health Plan, a Rhode Island-based HMO previously managed by United HealthCare. By the time United HealthCare closed its books on 1991 it was trading on the New York Stock Exchange and had more than doubled its previous years income to $74.8 million on revenues of $847.1 million.

In January 1992 United HealthCare paid $84 million to acquire Physicians Health Plan of Ohio, a Columbus-based HMO with 154,000 members. In March United HealthCare staged another secondary public offering, generating $200 million. Then, in July, United HealthCare acquired the assets of HealthPro, Inc., a Massachusetts-based benefits management company providing utilization management and medical review services to government agencies, labor union health and welfare funds, and corporations. One month later United HealthCare agreed to acquire a 50 percent stake in Physicians Health Plan of North Carolina, a 50,000-member health plan.

By end of 1992 United HealthCare was considered an industry leader in product diversification among managed health care companies, as well as an HMO force in Minneapolis, and a growing HMO factor in Milwaukee, Ohio, and Rhode Island. Acquisitions, enrollment growth, and increased sales in specialty operations all contributed to significant financial gains, and for 1992 United Healthcares revenues leaped 70 percent to $1.4 billion, while income rose 54 percent to $111.5 million.

In early 1993 United HealthCare became Ohios preeminent HMO when it paid $100 million to acquire Western Ohio Health Care Corporation, a 185,000-member health plan and the largest HMO in Dayton, Ohio. The deal was the fifth and largest acquisition of an HMO by United HealthCare since 1991 and gave United HealthCare 338,000 HMO members in Ohio, or 20 percent of the states HMO enrollment.

In March 1993 DPS reconfigured its product lines in order to become more competitive and began targeting the public sector market, including state and federal government health insurance programs. In May United agreed to acquire HMO America Inc. in an exchange of stock valued at more than $370 million. HMO America was the second largest HMO in Chicago, owning and operating a 300,000-member plan, Chicago HMO Ltd. This operation was combined with United HealthCares Share Illinois company, a 97,300-member plan, to form the largest managed-care health system in the Chicago area. That month, on the heels of the HMO America deal, United HealthCare agreed to make its first divestiture since 1987, selling its Des Moines-based health plan with about 26,000 members.

As it moved towards the mid-1990s United HealthCare appeared financially prepared for additional HMO acquisitions and growth in major market areas. The company anticipated that the demand for its specialty services, particularly DPS and those designed to contain low volume, high cost medical expenses, would continue to grow rapidly. In late 1993, with health care reform hitting the national spotlight, United Health-Care appeared poised to take advantage of increasing numbers of public and private sector customers and providers.

Principal Subsidiaries

United Behavioral Systems, Inc.; Diversified Pharmaceutical Services, Inc.; UHC TPA, Inc.; United Health and Life of New England, Inc.; UHC Management Company, Inc.

Further Reading

Booth, Michael, The Latest From the Father of the HMO, Corporate Report Minnesota, October 1991, p. 28.

Freudenheim, Milt, Market Place: Picking Winners Among H.M.O.s, New York Times, April 27, 1992, p. D6.

Gold, Jacqueline S., Future Doc?: Meet the Current Health-Care Darling, Financial World, November 10, 1992, pp. 2526.

Hirschman, Carolyn, United HealthCare to be Ohios Largest HMO, Business FirstColumbus, January 25, 1993, p. 3.

Howatt, Glenn, United HealthCare Corp. to Buy Chicago-Based HMO America, Star Tribune, May 14, 1993.

Nissen, Todd, United HealthCare Adds Three Divisions, Minneapolis-St. Paul CityBusiness, July 30, 1990, p. 8.

____. United HealthCare Again Looking to Buy, Minneapolis-St. Paul CityBusiness, December 11, 1989, p. 6.

____. With an M.D. as CEO, Firm Hopes for Health Growth, Minneapolis-St. Paul CityBusiness, March 18, 1991, p. 1.

Pact Is Signed to Sell Stake To Warburg Pincus Capital, The Wall Street Journal, November 17, 1987, p. 5.

Reilly, Lucy, Health Probe Leads to Baltimore Indictments, Washington Business Journal, October 3, 1988, p. 18.

Stocker, Susan J., Despite Conviction, Felon Remains on State Board, Washington Business Journal, March 13, 1989, p. 6.

Straumanis, Andris, United HealthCare: Not Just an HMO Manager, Corporate Report Minnesota, February 1991, p. 60.

Tooher, Nora Lockwood, Local HMO Parent Has Big Plans to Extend Reach, The Providence Journal-Bulletin, September 29, 1991, p. Fl.

United HealthCare Says Charge to Result In Loss for 3rd Period, The Wall Street Journal, November 4, 1987, p. 59.

Valentine, Paul W., D.C. Clinic Kickbacks Admitted: Md. Executive Guilty In 2 Health Schemes, Washington Post, March 8, 1989, pp. Cl, C7.

Roger W. Rouland

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