UnitedHealth Group's fastest-growing subsidiary announced on Wednesday it will pay approximately $8 billion to acquire Change Healthcare, in a move to drive greater connection and patient care among its healthcare delivery systems.
The company's subsidiary Optum will pay $25.75 per share in cash, up 41% over Change Healthcare's final closing price on Tuesday of $18.74. The deal includes $5 billion in debt owed by the Nashville-based data analytics and revenue cycle management company, bringing its total value to $13 billion.
Neil de Crescenzo, CEO of Change Healthcare, will lead OptumInsight once the acquisition closes. The agreement is expected to close in the second half of 2021 and is subject to Change Healthcare shareholders' and federal regulators' approval. Private equity funds affiliated with the Blackstone Group, which owns 20% of Change Healthcare, have agreed to the acquisition.
In a research note, SVB Leerink analysts Stephen Tanal and Stephanie Davis wrote that the deal will expand OptumInsight's provider business, which currently represents just 35% of its revenue. The majority of Change Healthcare's revenue, 60%, comes from healthcare provider customers.
Optum will also be able to capitalize on Change Healthcare's "sizable" clinical and financial data to inform its value-based care initiatives for payers and providers, the analysts said. Optum said Change Healthcare will offer clinicians immediate, analytical insight on how best to care for individual patients. The company also plans to integrate Change Healthcare's patient engagement tool—which reaches more than 200 million people per year—with individuals' health benefit plans to make it easier for consumers to take advantage of incentive programs that reward healthy behaviors.
In addition to expanding OptumInsight's healthcare provider business, A.J. Rice, managing director of equity research at Credit Suisse, said the deal will scale the company's payment processing and claims review systems. Optum aims to integrate its billions of claims data and automated payment processing tool with Change Healthcare to more quickly process payments for providers and more transparently bill payers and patients.
"United has said that OptumHealth and OptumInsight are two businesses that, over five to 10 years, could be multiple times their current size," Rice said. "These are clearly areas where they think there's a lot of organic growth, but where they will also be looking to make acquisitions."
As healthcare delivery continues to fragment and become more complicated, and consumers cry for more streamlined services and greater care, Rice estimated that healthcare companies will continue to invest in data analytics capabilities that bridge gaps in care and promote interoperability between systems.
Last year, Cigna established its Evernorth division; on Monday, Centene announced a $2.2 billion play to acquire Magellan Health; and Anthem is hiring data analytics experts to build an internal system, Rice said. He expected an increasing number of healthcare data companies to be acquired, go public or receive venture capital investment in the next few years.
SVB Leerink analysts wrote that they expected tech companies like Health Catalyst, Inovalon Holdings, Premier and Progyny to receive heightened interest from healthcare companies and venture capital firms.
They expected UnitedHealth Group to finance the Change Healthcare deal by taking on new debt at a 3% interest rate.
At the end of its most recent third quarter ended Sept. 30, OptumInsight accounted for $2.76 billion in revenue, up from $2.61 billion during the same period in 2019. It accounted for about 4% of the company's total overall earnings. That includes revenue from outside clients as well as "affiliated customers" within UnitedHealth Group. UnitedHealth expects Change Healthcare to increase its earnings per share by up to $0.50 by 2022.
By that point, SVB Leerink analysts expect the deal to achieve $345 million in pre-tax synergies with the company. They noted that OptumInsight and Change Healthcare have similar operations and that UnitedHealth Group's insurance subsidiary UnitedHealthcare has previously been a customer of Change Healthcare.
"UnitedHealthcare could potentially leverage (Change Healthcare's) solutions early on to serve its own existing businesses, which could allow for a relatively immediate pick-up in earnings within OptumInsight," they wrote.