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UnitedHealth launches venture fund as it tries to stay ahead of Amazon, Apple

  • UnitedHealth shares fell Monday after the company issued its 2018 forecast, but shares recovered Tuesday as the company laid out its plans at an investor meeting.
  • The company launched Optum Ventures and will invest $250 million to fund digital health-care firms.
  • The company also has new programs to use Optum's data and apply machine learning to improve patient engagement and outcomes with its enrolled customers.
UnitedHealth office
Michael Nagle | Bloomberg | Getty Images
UnitedHealth office

For UnitedHealth Group the focus next year is more about getting ahead of potential competition from tech heavyweights such as Amazon and Apple than getting bogged down in the twists and turns of health reform in Washington. That was the underlying message from new CEO David Wichmann at the health-care company's analyst day in New York.

"People have asked me, 'What's going to be different now that you're CEO?' My short response is that very little will change and everything will change," said Wichmann, who succeeded Stephen Hemsley as chief executive in September, after serving as UnitedHealth's chief financial officer for five years.

"This is a restless company, dissatisfied with the status quo in health care," he said.

UnitedHealth is forecasting 2018 revenue growth of roughly 12 percent, to $223 billion to $225 billion, which is above the consensus estimate of analysts surveyed by Thomson Reuters. The main growth drivers are expected to be the company's Optum data analytics and health-care services business, and growth in the Medicare Advantage membership on the health insurance side.

Executives said the return of the Obamacare health insurance tax next year will pose a 75-cent-per-share headwind to profits. They are projecting full-year earnings of $10.55 to $10.85 per share, excluding items.

Beyond its financial goals, UnitedHealth executives outlined a number of programs that tap Optum's data and apply machine learning to improve patient engagement and outcomes with both commercial employer members and Medicare enrollees.

Asked about the potential threat of Amazon and other tech giants entering the health-care market, Larry Renfro, the chief executive of the insurer's Optum unit, said the company is trying to catch up when it comes to early-stage companies.

Renfro announced the launch of Optum Ventures during the meeting, which is committing $250 million to fund digital health-care firms. Among the fund's first investments are Apervita, a cloud-based analytics platform; SHYFT Analytics, a cloud-based pharmaceutical research platform, and Mindstrong Health, which uses machine learning to help patients assess their mental health disorders through their smartphones.

"Optum Ventures is uniquely positioned to help develop and grow start-ups and early-stage companies through capital investment, Optum's decades of experience in health care, and our access to the health-care marketplace," said Renfro.

In addition, the firm recently completed its $1.3 billion acquisition of the Advisory Board's consulting unit. As a result of that deal, UnitedHealth has a 5.5 percent stake in hospital IT firm Evolent Health, making it the firm's largest stakeholder.

The Advisory Board acquisition was one of three transactions the health insurer made this year, including a $2.3 billion deal for Surgical Care Affiliates, and a $2.8 billion deal for Chilean insurer Banmedica.

UnitedHealth's acquisitions have helped drive double-digit revenue growth in the current decade.

In the wake of failed health insurance mergers earlier this year, some of its competitors are now eyeing the UnitedHealth model of vertical integration. Sources tell CNBC that CVS Health has explored a merger with Aetna, valued at upwards of $66 billion. Both companies will hold their investor updates next month.

UnitedHealth's new CEO may not be looking over his shoulder with worry, but he told investors he's not going to rest on the company's laurels.

"We know we can perform better," Wichmann said. "We are more than willing and capable of stepping up our game."

UnitedHealth's shares were down more than 1 percent in the premarket, following the company's initial guidance for 2018, but shares turned positive as the company's presentation concluded late morning, and closed Tuesday up 1.7 percent.

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