UnitedHealth's AI Bet: A Smart Move or Just Another Gamble?

UnitedHealth Group is making waves in the artificial intelligence arena with its new tool, Optum Real. This AI system is designed to streamline medical claims processing, making it both easier and faster.

How Optum Real Works

• Simplifies Insurance Rules: Translates complex insurance rules into straightforward instructions.
• Early Approval Insights: Helps doctors and billing teams quickly determine if a claim will likely be approved.
• Reduces Denied Claims: Early tests at Allina Health in Minneapolis have shown promising results, particularly in cardiology and radiology departments.
• Speeds Up Approvals: Accelerates the process of getting approvals before treatment.
• Spots Incomplete Claims: Identifies incomplete claims before they are submitted, reducing paperwork for both healthcare providers and insurers.

Current and Future Use

• Current Users: Only UnitedHealthcare is currently using Optum Real.
• Future Expansion: Plans to expand its use to other insurers and providers, potentially lowering administrative costs across the healthcare industry.

Business Model

• Basic Functions: Free of charge.
• Additional Services: Plans to make money from services like digitization support and advanced analytics tools.

Stock Performance and Challenges

Despite these innovations, UnitedHealth's stock has taken a hit, down over 40% from its highest point due to rising healthcare costs and regulatory pressures.

Financial Expectations

• 2025 Forecast: Lowered expectations for 2025, with medical costs expected to be $6.5 billion higher than previously thought.
• CEO's Promise: Stephen Hemsley promised big changes to focus on transparency and better engagement with stakeholders.

Cost Overruns

• Medicare Advantage Plans: Account for over half of the increase in costs.
• Commercial Business and Medicaid: Also facing higher costs.
• Unanticipated Trends: The company admitted they didn't anticipate the rising medical trends and didn't adjust their plans accordingly.

Future Plans

• Value-Based Care: Committed to improving value-based care despite challenges.
• Acquisition: Moving forward with the acquisition of Amedisys.
• AI Integration: Plans to use AI to improve forecasting, efficiency, and decision-making across its operations.
• Leadership Changes: Underway to restore performance and meet stakeholder expectations.

Analyst Opinions

• Divided Views: Some see it as a strong buy, while others recommend holding or even selling.
• Average Price Target: Around $363, which is close to its current price.