Thursday, April 17, 2014

UnitedHealth: New hepatitis C drug costs far more than forecast

Recasts to focus on hepatitis C spending

By Caroline Humer

April 17 (Reuters) - UnitedHealth Group Inc, the largest U.S. health insurer, said on Thursday it has spent more than $100 million to cover a pricey new hepatitis C drug from Gilead Sciences Inc, a higher cost than it expected by "multiples," sending shares in the sector lower.

UnitedHealth is the first insurer to put a number to what the industry may pay to cover patients using Gilead's new Sovaldi treatment, whose $84,000 price tag has spurred a national outcry over the rising costs of specialty medicines. . UnitedHealth did not disclose what it had expected to spend on the hepatitis C drug.

UnitedHealth shares fell nearly 4 percent. Rivals WellPoint Inc and Aetna Inc fell 3.8 percent and 3.4 percent, respectively.

Daniel Schumacher, chief financial officer of the group's UnitedHealthcare division, said the spending on Sovaldi could begin to moderate after the first big wave of patients are treated with the drug.

Sovaldi is widely viewed as a breakthrough in treating the liver-wasting virus, since it has been shown to cure most patients after a 12-week course of therapy.

Many doctors had waited for drug, which was approved for use in the United States in December, before prescribing treatment for their patients.

"What we're seeing is consistent with what folks are seeing across the industry, which is higher pent-up demand as there were more patients that were warehoused leading up to the launch," Schumacher said.

UnitedHealth saw increased spending levels due to Sovaldi in its Medicaid, Medicare and commercial businesses during the first quarter of 2014, he said.

The disclosure came as UnitedHealth said its quarterly profit fell due to costs and taxes related to President Barack Obama's healthcare law as well as government cuts to private Medicare funding.

The company said the costs related to the Affordable Care Act and the effects of budget sequestration last year on payments from the government negatively affected earnings by about 35 cents per share. Its Optum technology-related division, which has worked on the online insurance exchanges created by that reform law, continued to grow.

The company's quarterly results slightly beat analyst expectations. UnitedHealth said net profit was $1.1 billion, or about $1.10 per share, compared with $1.2 billion, or $1.16 per share a year earlier. Analysts had expected first quarter profit of $1.09 per share, according to Thomson Reuters I/B/E/S.

UnitedHealth stuck by its previous forecast for 2014 earnings of $5.40 to $5.60 per share and said it sees revenue growth of about 5 percent to $128 billion to $129 billion.

Government healthcare has been a fast-growing business for these companies, and in particular private Medicare, called Medicare Advantage, for older people and the disabled.

UnitedHealth provides private Medicare, Medicaid, and military health plans as well as commercial healthcare plans such as employer-based insurance. It had 44.67 million medical members at the end of the quarter, down from 45.45 million at the end of 2013, due to declines in the commercial business.

Obama signed the Affordable Care Act into law in 2010 and many of its key elements went into effect on Jan. 1, 2014, including new insurance coverage for individuals subsidized based on income and the expansion of Medicaid to people with higher income levels than was previously available.

The Obamacare exchanges were riddled with technology issues that affected the roll-out and created new business for UnitedHealth's QSSI unit, which helped fix the federal enrollment website and was also hired by some states that run their own exchanges.

Optum, which also includes other health technology related businesses, had revenue of $11.2 billion, up from $8.7 billion in the year-earlier quarter. Earnings from operations rose to $650 million from $541 million. (Reporting by Caroline Humer; Editing by Michele Gershberg and Chizu Nomiyiama)

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