UnitedHealth Group is snapping up home-based care operators on a bet that as more Americans get older and sicker, they will want health services under their own roof. 

The insurance giant began vying to be the nation’s biggest home health provider in early 2021, acquiring Landmark Health for $3.5 billion. The following year, UnitedHealth bought LHC Group for $5.4 billion, the country’s third-largest provider by market share, according to consulting firm HealthCare Appraisers. The insurer made a bid to take over the second-largest provider Amedisys earlier this summer. 

The Covid-19 pandemic gave an unexpected lift to the company’s plans. Patients’ residences more frequently served as care settings and a rule change enabled providers to be reimbursed under Medicare for services rendered in homes. This gave UnitedHealth—the largest Medicare insurance provider—an incentive to acquire home health operators. 

“They [UnitedHealth] hate paying for it because that’s money that’s leaving their family,” said Eileen Appelbaum, a co-director and economist at the Center for Economic and Policy Research. “If they own the home health agency, that’s part of their consolidated profit.”

The heavy investments are part of Chief Executive Officer Andrew Witty’s plan to generate revenue beyond administering insurance plans and bolster its fast-growing healthcare services unit Optum Health. Witty served as head of Optum for roughly three years before becoming CEO of UnitedHealth in February 2021. The recent acquisitions expanded Optum Health’s capabilities to its customers while also cutting down its overhead by shifting patient care to a lower-cost home setting.

The deals have also helped the insurer reach more patients. From 2021 to 2022, Optum Health increased residential visits by 9.5% to 2.3 million, the most it has ever made.

Building out its home health business through acquisitions is a faster way to gain scale in a fragmented market. With demographic trends like an aging U.S. population providing a tailwind, UnitedHealth can expand its potential patient base. Regardless of whether it closes on a $3.3 billion Amedisys takeover–which U.S. regulators are scrutinizing–UnitedHealth is slated to remain competitive with peers because of its size and is likely to weather a staffing crisis that’s taking a toll on the industry.

“It’s no secret that we are very strong believers in the value of home health,” Witty said on an earnings conference call in July.  

A representative from UnitedHealth didn’t respond to a request for comment.

Providers of Medicare Advantage, a government-funded insurance plan, such as UnitedHealth, Humana, and CVS have been active in scooping up large home health agencies in recent years. All three insurers control about 58% of Medicare Advantage enrollment, according to healthcare advocacy organization KFF. And home health agencies are dependent on those plans to keep their operations running.

“So it's [home health provider] not a money-making business if you're not part of a Medicare Advantage plan,” said Appelbaum. 

Each Medicare Advantage member pays a premium to UnitedHealthcare, but the insurer must spend at least 85% of that remittance towards the patient’s care and have 15% to pay for administration costs and fees, as well as profits earned. Since UnitedHealth is more than a payer, the company can charge a home provider it owns for the services the subsidiary provides to the patient–this price exchange of services between two units within the same parent company is called transfer pricing.

Transfer pricing permits UnitedHealth to count the accrued charges on its home health units–which provide a range of services from treating an illness to administering medication to dressing a patient–towards the quota the company must spend on a patient’s wellbeing. 

“Your best customer is your home company,” said Mark Fricker, a former UnitedHealth executive who is now an advisor for a private equity firm BV Investment Partners. Another source of revenue the company’s home health operations generate is selling its services to other insurers.

Optum Health’s profits, which come from various sources including its home health segment–increased to $6 billion in 2022, the highest recorded profits since the subsidiary’s inception over a decade ago. The unit also had a higher profit margin than the main UnitedHealth insurance business. 

Revenue from the unit rose 32% in 2022 to $71.2 billion. Overall UnitedHealth revenue rose 13% to $324.1 billion in revenue in 2022, up 13% from the prior year. 

This year, analysts expect the company’s revenue to climb $368.8 billion, or $24.95 earnings per share, compared to $324.2 billion, or $22.19 per share, in 2022. The increase is driven by a growing MA enrollment and an increase in various healthcare offerings. Wall Street foresees UnitedHealth continuing to grow its home-based business through organic and inorganic expansion despite regulatory scrutiny, said Morningstar senior analyst Julie Utterback.

The company’s stock has climbed 1.0% over the past year while the S&P 500 gained 12.4%. The stock’s underperformance over the year was due to the end of a Covid rule that allowed many people to remain on Medicaid and other federal insurance plans, and uncertainty around federal bonus payments that are paid to insurers.

Another reason the company’s stock has underperformed so far this year is that many analysts are evaluating the company as a mature company rather than a growing one, according to Fricker, also a private investor who owns stock in the company. In the last two years, the insurer spent over $18 billion on expanding its home health businesses.

The S&P 500 (green) has outperformed UnitedHealth Group (blue) year-over-year by gaining 12.4% and 1.0%, respectively.

The Centers for Medicare & Medicaid Services launched a waiver program that provided reimbursements to providers for delivering home health services. The waiver is set to end by 2024 but experts are anticipating it will become permanent. Offering home-based services to an aging population that’s growing allows the company to manage people’s health more effectively while keeping operating costs down, according to Jose Pagan, a public health policy and management professor at New York University.

“The more you know where dollars are spent and what drives people's health, then the more you're able to manage a population,” he said. 

How profitable UnitedHealth’s home care business could generate depends on the Amedisys deal, which is getting a second look by the Department of Justice on antitrust concerns according to a Healthcare Dive report. Also if the new set of merger guidelines that federal agencies put forth are finalized to crack down on consolidations, UnitedHealth’s home health strategy could change if guidelines are enforced.

Even if Optum Health acquires other home health operators, it will have to fight over the limited available workers with the rest of the industry due to the labor shortage in healthcare, said Bill Dombi, president of the National Association for Home Care & Hospice, a home-care and hospice advocacy group. Home health agencies across the country are turning away 50% of patients requesting care due to staffing shortages, according to Dombi.

Amid regulatory and staffing uncertainty, what’s certain is that UnitedHealth makes the most money from seniors and will probably generate more revenue from them as America gets older.

“It’s the biggest and it’s going to continue to be the biggest with or without Amediys,” said Appelbaum.