United Made Piles of Money Last Quarter, But Slowing Growth Set Off Alarm Bells

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INFLECTION POINT/ United Made a Ton of Money Last Quarter. But Not Enough Money

Four times a year, I hop up and down and point to the giant profits that UnitedHealth Group reports. Friends, today is one of those four days. 

United reported earnings this morning, and, sure enough, it’s the best first quarter in the company’s history. Great quarter, guys. 

To be clear: This is my narrative. 

The narrative for everyone else today is going to focus on the fact that United is not growing nearly as fast as expected and that slower-than-expected growth should continue throughout the year. The company missed analyst expectations for the first time in a decade (!) and cut its forecast for the year. 

Shares are, accordingly, getting hammered. 

Something is amiss, too, at Optum Rx, where United’s PBM is tucked away. That unit reported $1.147 billion in earnings from operations, which is precisely the figure -- to the third decimal point -- from the first quarter of 2024. Revenue was up, but margin was down. 

But I don’t want to lose track of the broader picture here: Optum Rx made a billion dollars in pure profit, and yet: 

1. If you talk to any provider about services from health insurers as a whole, they will spit nails. The customer service is miserable. It is not miserable because the companies are unable to invest in making the whole experience better for providers or others. It is because they are unwilling to make that investment.
   

2. Each year, PBMs come out with a raft of new approaches designed to assuage critics worried that PBMs are diverting money out of the supply chain into their own coffers. And yet PBM profits are remarkably consistent over time (without the value provided changing all that much), suggesting that whatever evolution PBMs are going through, it’s not denting their ability to mint money.
   
   Now, zero growth is certainly a red flag, and if any executive or analyst blames the flat growth on efforts to make PBMs more patient-friendly, you can rest assured that will be the top item tomorrow. 

REBOUND/ EO, EO, It’s Off to Work We Go

I was so eager to get into the meat of the Trump executive order on drug prices yesterday that I fear I missed the big picture. The president offered a dozen different approaches to driving down prices, but I never really grappled with the big question. 

Will any of this actually of those policies, if implemented, actually make a difference in the lives of patients? 

And the short answer is, “Eh, probably not.” That doesn’t mean that there aren’t legitimate efforts that might cut what the government pays. Fully implemented, the elements of the order might rewire the system in a way that is more fair and transparent. But I have a hard time seeing a lot in the EO that someone will point to in five years as being the linchpin to better affordability. 

The one other mistake I made yesterday was suggesting that international reference pricing was off the table. I found that the lack of any explicit mention of the disparity between U.S. and global prices to be a telling omission. 

But Howard Deutch of ZS Associates made the point on LinkedIn that the language in Sec. 4 of the EO mirrors the language in the Trump 1.0 effort to tie Medicare prices to international prices. So proceed with caution there. 

If you can’t get enough EO content, Rachel Sachs from Wash U wrote an exhaustive explainer at Health Affairs. Zach Brennan at Endpoints listed the issues on which pharma was a “winner” or “loser.” The National Association of Community Health Centers is not happy. And STAT noted that a lot of these solutions look awfully familiar. 

QUICK TURNS/ Maybe Tomorrow’s Edition Will Be Tariff-Free (Today: Not So Much)

So it’s a lot of tariff stuff today. There’s not some central narrative here, so you’re getting quick bullets instead of a Grand Unified Theory of what’s happening. Because, you know. 

• Johnson & Johnson earnings report highlighted that the company expects a $400 million hit from tariffs, but that’s mostly on medical devices, so you may not care. The company spun the just-initiated Section 232 investigation as -- paradoxically -- positive (maybe): “In some respects, it could very much be good news,” CFO Joe Wolk told Bloomberg. Certainly, any formal process offers an opportunity to showcase the human suffering that may result from tariffs.

• Great Endpoints piece here on how smaller biotechs are preparing for the eventuality of tariffs. Shit is getting real. 

• If you want to give feedback to the government on the Section 232 investigation into the national security implications around pharma imports, here’s your chance.

• I’m sorry, but I have one more tariff link. Here’s Reuters making what is an increasingly obvious point: Brand-name manufacturers are going to have to eat tariff-related costs. This is basically what J&J said this week, too, so it’s pretty much conventional wisdom at this point.

• The Arkansas bill that would bar PBMs from owning pharmacies is now law. Cue the lawsuits. Reid Strategic has an in-house counsel (like, she’s literally in the house) who predicts that we’re going to see takings-related arguments and claims related to contractual relationships.

• Guess who owns the biggest specialty pharmacies in the land, per Adam Fein? Yup: Still the PBMs.

• This is a nice Healthcare Brew piece on PDABs. But read all the way to the end, where the real crux of the matter is exposed: These efforts, whatever they may be doing, are probably not going to actually improve the lives of patients any. Which begs the question of why this is so popular.

• It’s outside of the usual wheelhouse here, but you should still read this Washington Post piece on a leaked version of Trump’s budget plan for HHS, which calls for mammoth cuts, particularly to NIH. The budget carries no legal or legislative weight, but it’s a reminder that, as bad as the research-funding environment looks right now, the president wants to make it worse.

Cost Curve is produced by Reid Strategic, a consultancy that helps companies and organizations in life sciences communicate more clearly and more loudly about issues of value, access, and pricing. We offer a range of services, from strategic planning to tactical execution, designed to shatter the complexity that hampers constructive conversations. 

To learn more about how Reid Strategic can help you, email Brian Reid at [email protected].