Eden Prairie-based Optum awarded contracts for veterans health

Eden Prairie-based Optum has been awarded government contracts worth up to $55.2 billion to manage a network of private health care providers where veterans could use their VA benefits under certain circumstances.

The awards announced in late December by the U.S. Department of Veterans Affairs call for Optum to manage provider networks within Community Care Network, the next program for veterans to obtain health care services from private clinics depending on drive-times to a VA Medical Center and waits for care in the government-run system.

Such programs for accessing community health care providers are critical for helping veterans receive needed care, advocates said, but they also worry such efforts could effectively pull money out of the main health care system at the VA.

"This [new contracts are] a good thing," said Jeremy Wolfsteller of the American Legion's division in Minnesota. "Yet, we want to ensure that VA is still strong and still has the funding necessary to provide the services to veterans that seek the care internally."

Optum is the health services division of Minnetonka-based UnitedHealth Group, which also runs UnitedHealthcare, the nation's largest health insurer. In December, VA announced that Optum Public Sector Solutions, Inc., had been awarded contracts to manage provider networks in the VA community-care program across 36 states including Minnesota. VA said that Community Care Network would become the standard contract vehicle that allows the government to purchase care for veterans from community health care providers.

The website Military.com reported in early January that the contracts are for a base period of one year, with seven renewable one-year options through 2026. If all options are exercised, the news website reported, they would be worth a total of $55.2 billion. The profit margin is likely just a fraction of that, analysts said.

Among other things, the new program is a replacement for Veterans Choice, which also sought to give veterans access to private clinics but turned out to be a bureaucratic mess. Patients struggled to get timely appointments, while private clinics had trouble getting paid.

"We designed the new network based on feedback from veterans and other stakeholders, along with lessons learned from the Veterans Choice program," said VA Secretary Robert Wilkie in a December statement about the Optum contract. "We are confident this new network will greatly improve customer service for veterans and timeliness of payments to community providers."

VA officials last week said they could not comment further "due to protests to these contract awards" from other companies that bid on the work.

Lawmakers created Veterans Choice in 2014 in the wake of a scandal in Arizona over long waits at a VA hospital. The health care provider network in Veterans Choice has been managed by different private companies over the years; the program is expected to continue until implementation of the new Community Care Network.

Last year, Congress passed legislation called the VA Mission Act to launch the new effort with the goal of streamlining a variety of VA community-care efforts into one permanent program. VA issued new draft rules last week for the new community-care program — a process that's piqued concerns the Trump Administration is pushing a privatization of VA health care services.

"Although these new standards represent an important win for America's veterans, they will not be without controversy," Wilkie, the VA secretary, said in a statement last week. "Some will claim falsely and predictably that they represent a first step toward privatizing the department."

Optum did not publicize the contract award in December, and declined an interview request. Asked about the contract in January during UnitedHealth Group's fourth-quarter earnings call, executives said the company would help provide care to more than 6 million veterans.

"These contracts administer regional networks of high-performing licensed health care providers who will work together with the VA to provide medical, dental and pharmacy services to veterans who are unable to receive care at their local VA Medical Center," said Andrew Hayek, the chief executive of OptumHealth, a division that includes a growing network of medical practices, surgery centers and urgent care clinics.

UnitedHealth Chief Executive David Wichmann said during the call that the contract would be "a bit of a drag to earnings" in 2019 during implementation, with returns coming in subsequent years.

"It's just another example of when there is tension in health care, particularly with the government, that they seek a public-private partnership," Wichmann said.

While the contract's revenue potential is large, it's not clear exactly how it will affect earnings, said Charles Rhyee, an analyst with Cowen Inc. who first asked UnitedHealth executives about the deal. Rhyee called the contract one example of how OptumHealth has been growing at a double-digit pace for several years now.

With a growing network of clinics and surgery centers plus a bank for administering Health Savings Accounts, OptumHealth had sales of $24.1 billion last year, up 17 percent from 2017.

"It's already embedded in their guidance for Optum," Rhyee said. "These are the kind of contracts that the company has consistently gone out and won. ... That's helped fuel this type of impressive growth."

The access standards released last week by VA specify average drive times for veterans to health care providers shouldn't exceed 30 minutes or 60 minutes, depending on the type of care being provided, and appointment wait-times shouldn't exceed 20 or 28 days, depending on the specialist. Veterans who can't access care within those standards would be able to select between care at eligible community provides and a VA medical facility.

The drive-time and wait-time standards are longer with the current Veterans Choice.

Beyond the access standards, VA also announced last week there would be access to urgent-care clinics as part of the new care program.

"Eligible veterans will have access to urgent [walk-in] care that gives them the choice to receive certain services when and where they need it," VA said in a statement. "To access this new benefit, veterans will select a provider in VA's community care network and may be charged a co-payment."

OptumHealth is one of the nation's largest operators of urgent-care clinics through its MedExpress business, which has more than 240 locations across the country including clinics in Brooklyn Park, Hilltop and West St. Paul. The company and VA officials didn't say, however, whether the new contract would give veterans access to MedExpress clinics.

The draft rules released last week were applauded by the Concerned Veterans for America, an advocacy group backed by billionaire industrialist Charles Koch that has pushed for giving veterans more choice with private-sector health care.

"While we would prefer the primary care wait time standard be shorter, these access standards are still a significant step forward in giving veterans more control over their health care," said Dan Caldwell, executive director of Concerned Veterans for America, in a statement.

The American Legion said it supported the new guidelines, noting they're based on VA's analysis and research. Even so, the group said it would carefully monitor how the program works.

"If it is discovered that a large amount of care is being purchased in a particular area, then the American Legion will call on the VA secretary and Congress to evaluate whether or not VA should build internal infrastructure in that area to supplant purchased care," said Brett Reistad, the American Legion national commander, said in a statement.

The contract awards for Optum have not yet been finalized. Later this year, VA expects to issue other contracts for managing health care provider networks that cover 14 western states plus Alaska and several islands in the Pacific Ocean.

"We are excited to partner with Optum as we continue to expand and institute better processes for a robust network of high-performing community providers," said Dr. Kameron Matthews, a VA official overseeing community care, during a conference call this month.

Christopher Snowbeck • 612-673-4744 Twitter: @chrissnowbeck