NEW YORK – Investors in UnitedHealth Group were caught off guard by recent setbacks from the once-reliable healthcare company, yet they are tentatively optimistic about potential strategic shifts in Medicare Advantage’s health insurance sector in the upcoming year.
On Wednesday, a report from the Wall Street Journal revealed that the Department of Justice is conducting a criminal investigation into UnitedHealth. In addition, the company has retracted its financial projections and announced that CEO Andrew Witty has stepped down.
This situation has diminished the allure that UnitedHealth once had for investors.
Shares of UnitedHealth plummeted 14% during Thursday’s afternoon trading, landing at $274.35, nearing a five-year low. Earlier in the week, stocks had already dropped 18% on Tuesday, despite the company’s attempts to reassure Wall Street during a conference call. Overall, this year has seen a 46% decline.
“Considering the brief gap since investors’ calls and the lack of specifics, they’re watching for further developments,” remarked James Harlow, senior vice president at Novare Capital Management, which has a stake in UnitedHealth.
The DOJ’s investigation focuses on claims practices within the company’s Medicare Advantage division for the Elderly and People with Disabilities, as per the Journal’s report. UnitedHealth stated that numerous government agencies are currently involved in investigations, audits, and reviews.
In a statement made on Wednesday, UnitedHealth asserted it had not been informed of a criminal investigation and expressed support for the integrity of the Medicare Advantage program.
Investors are now hoping that the company can stabilize its profit forecasts by 2026 at the earliest.
Jeff Jonas, a portfolio manager at Gabelli Funds, mentioned that he plans to pull back from a profit-challenged market focused on selling Medicare Advantage plans for seniors over 65, advocating instead for redesigning insurance plans and emphasizing cost-effective generic medications over pricier branded options.
Even with potential corrections in planning, investors still need to factor in the costs of likely legal settlements, which could exceed $1 billion, according to Jonas.
Moreover, traditional cost management strategies that insurers have relied on, such as requiring advance approvals and denying claims, have faced public and legislative scrutiny since the tragic death of United Healthcare executive Brian Thompson last December.
During its first-quarter revenue call, the company indicated that consultations with specialized care providers within the Optum Health Services unit have significantly increased costs.
