UnitedHealth purchase could offset company's health reform worries

UnitedHealth Group placed a big bet to hedge against the uncertainties of health reform, announcing a deal Wednesday to buy Executive Health Resources, a Pennsylvania-based medical compliance company.

The giant Minnetonka-based health insurer said Executive Health Resources will be folded into a subsidiary, Ingenix. The move beefs up Ingenix, UnitedHealth's fast-growing health information and services unit.

Terms were not disclosed, but some analysts estimate that UnitedHealth will pay between $1 billion and $1.5 billion.

Among other things, Ingenix provides data management services to managed care companies. Executive Health Resources helps hospitals and health systems comply with federal health programs to make sure they don't get stiffed on claims for reimbursement.

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UnitedHealth said in a statement that the acquisition will help it thrive in the changing regulatory environment for health care.

It makes a lot of sense for UnitedHealth to pair the two operations, said David Heupel, a portfolio manager with Thrivent Financial.

"They really want to get more exposure outside the core traditional regulated insurance business," he said.

Heupel said there's a lot of uncertainty around health reform's impact on UnitedHealth's insurance business. But that's not the case for its non-insurance subsidiaries like Ingenix.

Heupel said the purchase of Executive Health helps keep UnitedHealth diversified.

"There's an inherent benefit to having some exposure to these areas that just aren't going to go through the turmoil of health care reform that managed care will deal with over the next few years," Heupel said.

Some analysts say the purchase of Executive Health could position UnitedHealth to capitalize on health reform. Under the new health care law, payments to hospitals will shrink, making Executive Health's reimbursement expertise more valuable.

Sheryl Skolnick, an analyst with CRT Capital Group, said UnitedHealth is good at identifying such opportunities.

"I see Ingenix continuing that legacy, as it were, by taking advantage of opportunities created by legislative or regulatory change, even as those same pieces of regulation or legislation compress margins and opportunities to grow revenues in the rest of the business," said Skolnick.

Skolnick cautions, though, that Ingenix is digesting other acquisitions, and combining them all could lead to difficulties.

The Executive Health deal is the fourth acquisition announcement this year for Ingenix.

The purchase is subject to regulatory approval and is expected to close by the end of the year.

UnitedHealth shares jumped 1.5 percent in trading Wednesday.