UnitedHealth Group’s Optum is poised to solidify its position as the largest physician employer, but its proposal to acquire Steward Health Care’s physician group will likely meet stiff regulatory scrutiny.
Optum Care, a subsidiary of Optum, plans to buy Stewardship Health, the physician arm of the ailing for-profit Steward health system, according to regulatory filings with the Massachusetts Health Policy Commission. If the proposal goes through, Optum would add thousands of physicians across nine states to its rapidly growing network of 90,000 doctors. Steward could use the proceeds to pay down debt and reimburse vendors and landlords after missing months of payments.
Related: UnitedHealth Group's Optum to buy Steward physician group
“We continue to anticipate transactions like this where vertically integrated entities have more control over the healthcare dollar,” said Rick Kes, a healthcare senior analyst at accounting firm RSM. “However, especially when you have entities that are already getting a lot of news and are part of congressional and state-level discussions, these kinds of deals will get a lot of regulatory attention.”
Here’s what to know about the proposal, Optum and Steward.
What does the Optum-Steward proposal entail?
Optum and Steward said in regulatory filings the proposed acquisition would bolster the physician group’s operations and recruitment of primary care physicians, as well as other providers, to eastern Massachusetts.
Optum already provides management services to Massachusetts practices Atrius Health and Reliant Medical Group, the company noted in the filings.
Under the proposed transaction, Optum would acquire all of the issued and outstanding stock in Stewardship Health. The filings did not include a purchase price or the number of physicians employed by Stewardship. Neither Optum nor Steward replied to requests for comment.
Dallas-based Steward does not expect the proposed acquisition to reduce service offerings, workforce or clinical autonomy, the organization said in filings.
How does Steward fit into Optum’s growth strategy?
Optum has built a massive physician network, allowing its parent company UnitedHealthcare to control more parts of the system.
Optum CEO Dr. Amar Desai said in November physician employment was up almost 30% from the beginning of 2023. Optum will continue to grow its provider network to treat UnitedHealthcare enrollees, said Stephen Shortell, a health policy and management professor emeritus at University of California, Berkeley.
“Steward has a lot of the care management capabilities that Optum looks for in their acquisitions,” he said, drawing comparisons to Optum's $4.3 billion DaVita Medical Group acquisition. “Unlike private equity, Optum is in it for the long run.”
Insurers including UnitedHealthcare have grown revenue by sending cash not spent on medical and quality improvement expenses to clinicians they own, financial analysts and insurance experts said. This offers insurers a workaround to the Affordable Care Act's medical loss ratio policy, physician employment experts said.
The medical loss ratio requires health plans spend 80% of individual and small group premiums and 85% of large group and Medicare Advantage plans on quality improvement and healthcare services. Otherwise, they must repay consumers the difference.
What will regulators review in the Optum-Steward proposal?
State and federal lawmakers will likely review potential market overlap between Optum and Steward’s physician networks, as well as how the proposed acquisition would affect the viability of Steward’s nine Massachusetts hospitals, antitrust experts and researchers said.
For instance, if Optum takes over the Steward physician practices and decides to pull doctors out of a hospital like St. Elizabeth’s Medical Center in Brighton, Massachusetts, it could be the death knell for the hospital, said John McDonough, a public health professor at Harvard University.
“That's a lot of power to give to a single company,” he said. “Those kinds of choices are quite possible and are really hard to detect from a regulatory perspective.”
UnitedHealth Group and Optum are already under a Justice Department investigation, which was first reported by the Wall Street Journal. That includes a review of UnitedHealth Group's pending $3.3 billion acquisition of Amedisys, a Baton Rouge, Louisiana-based hospice and home healthcare provider, according to the Journal.
UnitedHealth Group has been roundly criticized following the Feb. 21 cyberattack on the claims processing technology of its subsidiary Change Healthcare, which dented many providers’ cash flow.
Sen. Elizabeth Warren (D-Mass.) noted the investigation in a statement Tuesday as she raised concerns with the the Optum-Steward proposal.
“Optum, a UnitedHealth Group subsidiary, is already the largest employer of physicians in the country — controlling over 10% of American doctors — which means this deal raises significant antitrust concerns in Massachusetts and nationally,” she said in the statement. “The Justice Department is already reportedly investigating UnitedHealth’s relationship with its Optum health services arm.”
Steward’s latest plan “raises more serious questions about the future of the Massachusetts healthcare system,” after years of Steward's “gross profiteering and mismanagement,” Warren added.
Optum may test what’s known as the “failing firm defense,” which is when merging parties say a proposed transaction should be allowed because an organization would otherwise close. However, that theory is narrow in scope, according to merger guidelines, which federal regulators updated in December.
Even so, that argument will likely bolster Optum and Steward’s case, said Abiel Garcia, an antitrust lawyer at law firm Kesselman Brantly & Stockinger.
Steward ran into financial trouble after it converted from a small Catholic health system in Massachusetts to a sprawling hospital chain. The transition was fueled by investment from private equity firm Cerberus Capital Management and real estate investment trust Medical Properties Trust.
The Massachusetts Health Policy Commission will have 30 days to determine if it will pursue a cost and market impact review of the proposed Optum-Steward deal.
What’s Steward’s next move?
Steward, which recently closed or announced plans to close hospitals in Texas and Massachusetts, has been looking to sell more facilities.
On March 11, a Steward spokesperson said in a statement the system has received “strong interest” in its Massachusetts hospitals.
In Tuesday’s regulatory filings, Steward said it plans to submit documents with the Health Policy Commission for “certain acute care hospitals and other provider operations in the next 12 months.”
“Steward Health Care is working with state officials and others to transition ownership of the Massachusetts hospitals in a way that everyone agrees is best for patients, our employees and the Commonwealth,” the spokesperson said.
Lauren Berryman contributed.
