Forget about Amazon: UnitedHealth is a bigger competitor for CVS and Aetna

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A portion of UnitedHealth Group Inc.'s campus in Minnetonka, Minn. UnitedHealth is the nation's largest health insurer.

As soon as word surfaced last week about the potential merger of CVS Health and Aetna, all eyes turned to the looming threat from Amazon.

The online retailer's flirtation with the pharmacy business is a factor, no doubt. But many industry experts say CVS and Aetna have another huge competitor on their minds: UnitedHealth Group.

UnitedHealth is best known as the nation's largest health insurer, with more than 45 million clients in the United States. But behind the scenes, it has extended its reach deep into America's medicine cabinets, operating rooms, and doctors' offices.

Its Optum unit fills more than 100 million prescriptions per month as a pharmacy-benefits manager, poaching big customers from rivals CVS and Express Scripts. UnitedHealth also owns more than 400 surgery centers and urgent-care clinics, and runs medical practices for about 22,000 physicians nationwide.

"People have gotten carried away with Amazon," said Ana Gupte, a health-care analyst at Leerink Partners. "CVS and Aetna are Optum wannabes. UnitedHealth is the winning business model, and Optum is showing the way."

UnitedHealth's expansion into dispensing prescription drugs and treating patients has put the company on track to reach $200 billion in annual revenue this year, and profits for the first nine months of 2017 have topped $7 billion.

The company is admired on Wall Street for its dependable results and diverse stable of businesses, which helps insulate it from rough patches in the insurance sector. However, the prospect of further industry consolidation alarms some consumer advocates and health-policy experts. And they say UnitedHealth hasn't always been a good role model.

In 2009, Senate investigators said the company built an industrywide database that deliberately understated what insurers should pay for out-of-network care, exposing consumers to hundreds of millions of dollars in extra charges.

More recently, patients have accused the company's prescription-drug business, OptumRx, of overcharging for routine medications to pocket a pharmacy "clawback" that boosts profits. The company has denied any wrongdoing in response to lawsuits over drug pricing.

Employers, lawmakers and consumer groups accuse the three largest pharmacy middlemen - Express Scripts, CVS and UnitedHealth - of keeping drug prices high and pocketing too many of the discounts they negotiate with pharmaceutical companies.

Consumer advocates also are concerned about the prospect of companies mining a vast supply of consumer data to maximize profits rather than improve care.

"It is hard to find instances where these very large companies used their market power for the good of consumers rather than for their shareholders," said Lynn Quincy, a consumer advocate and director of the Healthcare Value Hub at Altarum Institute, a nonprofit think tank. "The lack of transparency at these really large companies is appalling. That's why we're skeptical it will make things better."

In a statement, UnitedHealth said that it is committed to "helping people live healthier lives," and that its Optum unit is trying to make the health system work better.

In the past, company executives have said they're fighting on behalf of employers and consumers against high costs, as well as poor outcomes and mind-boggling complexity.

Before the merger news, executives at Aetna and CVS already hinted at working together to tackle many of same those issues through the retailer's vast network of stores.

In general, these companies are trying to address a problem familiar to most Americans: poor coordination of care. Doctors rarely talk to each other. It's hard to share medical records among providers or even with patients. Despite a lot of talk about linking pay to performance, a surprising amount of medical care is still reimbursed under the fee-for-service model, which rewards quantity over quality.

"One of the big failures of the U.S. health-care system has been fragmentation, and these vertical mergers are trying to cure that problem," said Thomas Greaney, a former federal antitrust lawyer and now a professor at the University of California's Hastings College of the Law in San Francisco.

Kaiser Health News, a nonprofit health newsroom whose stories appear in news outlets nationwide, is an editorially independent part of the Kaiser Family Foundation.