Why UnitedHealth, CVS are reworking Optum, Oak Street contracts

Modern Healthcare – Monday, November 17, 2025
By Nona Tepper

It seems UnitedHealthcare may be subsidizing Optum Health for a while longer.

Next year, Optum Health aims to save at least $2 billion by renegotiating contracts with payers. If that strategy is to produce maximum impact, it would have to include securing better terms from UnitedHealthcare, Optum Health’s sister subsidiary under parent company UnitedHealth Group that covers two-thirds of its value-based care patients. That would be on top of the at least 17% more on average that UnitedHealthcare already pays Optum Health compared with other payers, according to a study published in the journal Health Affairs this month.

Similar negotiations are underway within CVS Health, which owns the insurer Aetna and the struggling primary care chain Oak Street Health.

Healthcare conglomerates’ reliance on their insurance divisions to buoy their clinical assets challenges the viability of the value-based care model, said Michael Ha, a senior research analyst at the financial services firm Baird.

“You can drive earnings performance from insurance repricing, but that doesn’t fix the structural wounds within Optum and Oak Street. It’s like putting a Band-Aid over a deep cut,” Ha said.

Aetna contracts with Oak Street Health the same way it does with other providers, a spokesperson said in a statement. Optum referred Modern Healthcare to its third-quarter earnings call.

A little more than a decade ago, insurance companies established or acquired healthcare service arms as growth engines amid persistently rising healthcare costs, federal profit margin caps and a narrowing market. UnitedHealth Group is a champion of the vertically integrated model, and its Optum Health clinics employ nearly 10% of all U.S. physicians, which amounts to 90,000 doctors.

Risk-bearing providers such as Cano Health that went public in the early days of the COVID-19 pandemic gave investors insight into the dealings and profit margins businesses such as Optum Health could achieve. Their large valuations also sparked an acquisition race among insurance companies that lacked provider arms. CVS Health purchased Oak Street Health for $10.6 billion in 2023 after reportedly mulling deals to buy Cano Health and other risk-bearing provider groups.

The same year, the Centers for Medicare and Medicaid Services unveiled a new coding standard that would eventually expose the cracks in some of these companies’ business models. The policy known as “v28” eliminated billing codes that CMS suspected Medicare Advantage insurers most commonly misused to extract higher payments.

Companies such as Cano Health, which lacked built-in insurance arms and operated in markets where value-based care was not a historically established practice, did not survive the coding change. The Miami-based primary care chain filed for Chapter 11 bankruptcy protection last year.

Cano Health’s struggles presaged what Optum Health and Oak Street Health are experiencing today, said Ari Gottlieb, an independent healthcare consultant.

“They had a theory that they could get value-based care to work faster by optimizing the business through aggressive coding,” Gottlieb said.

On the surface, Humana appears to stand out as an outlier in how it has navigated v28. The company’s partnership with private equity firm Welsh, Carson, Anderson & Stowe to jointly develop its CenterWell clinics offers some financial insulation from the unfavorable coding change, said Whit Mayo, senior managing director at the investment bank Leerink Partners.

“They’re carrying more losses off the balance sheet,” Mayo said.

Among the remaining value-based care providers, Optum Health has the most to lose. The company has the largest risk-based membership and had been coding more aggressively before the change. The Justice Department is investigating whether UnitedHealth Group’s Medicare billing practices constitute fraud, which the company denies.

Earlier this year, UnitedHealth Group said the coding update would reduce Optum Health revenue by $11 billion. Although the v28 revisions took effect in 2024, UnitedHealth Group had not publicly detailed how it was navigating the reimbursement change or how much of the revenue impact would be on its risk-bearing providers before this year. CVS Health has not quantified the financial effects on Oak Street Health.

Next year, both Optum Health and Oak Street Health have named driving harder bargains with payers as key to offsetting v28.

UnitedHealthcare and Aetna significantly raised premiums and reduced Medicare Advantage supplemental benefits in 2026, which indicates they are trying to boost the margins of their affiliated risk-bearing providers, Mayo said.

“When you cut benefits, that is going to directly create some favorability for your risk-bearing providers,” Mayo said.

Along with renegotiating contracts, the companies are closing clinics. That is a far cry from when CVS Health purchased Oak Street Health and pledged to operate 300 locations by 2026. Instead, the company will shutter 16 clinics next year. CVS Health wrote down the value of Oak Street Health by $5.7 billion last month.

Optum Health is also closing practices and renegotiating contracts, which cover 200,000 value-based care patients, back to fee-for-service. Over the next 18 months, UnitedHealth Group is focused on integrating Optum Health clinics into the larger organization.

And like CVS Health, UnitedHealth Group lowered the long-term earnings potential of its provider arm.

“The foundation of Optum Health may have been built on this aggressive risk coding, rather than a fully integrated, tightly operated, coordinated care model that actually bends the cost curve,” Ha said.

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