Analysis: the Happy New Year not good for Unitedhealth

It goes without saying that last year was anything but easy for Unitedhealth Group.

As one of the largest health companies in the United States, it has long been reliable to invest. But in recent months, its stock has dropped by almost 50%, He changed CEOs and seems to be on the backfoot – a surprising development for one of the biggest names in health care. How has it all happened and, more importantly, can it dig up?

First of all, let’s start with the cause of the drop in stock.

The first major decline occurred in April after Unitedhealth Group announced disappointing results in the first quarter. The health care giant has also revised its results adjusted per share for 2025 between $ 26 and $ 26.50, compared to its previous forecasts between $ 29.50 and $ 30. An analyst’s note from Leerink Partners described it as “unusual failure” for Unitedhealth Group.

Then, Unitedhealth Group announced this month that CEO Andrew Witty would resign for “personal reasons” and had been replaced by Stephen J. Hemsley, who was CEO of the company from 2006 to 2017. “This made the stock drop.

To make matters worse, the Wall Street Journal reported this month that Unitedhealth Group was under a criminal investigation by the Ministry of Justice for a possible Medicare fraud. The survey is linked to the Medicare Advantage activity of United, although the exact nature of the allegations is not clear. The company said in a statement that it had not been informed by the Ministry of Justice of this investigation and qualified the report of the “deeply irresponsible” review.

Another publication also targeted the insurance giant and the largest employer of doctors in the country.

The Guardian reported at the end of May that Unitedhealth secretly paid thousands of dollars in bonuses to nursing homes so as not to transfer patients to hospitals, which would cause more expensive care. These patients were all part of the Medicare Advantage plans of Unitedhealth whose members are residents of nursing home houses and for which Unitedhealth receives dollars from taxpayers.

In addition, Unitedhealth Group was continued by its shareholders this month, which accused the company of having cheated on them after the December murder of the CEO of Unitedhealthcare, Brian Thompson. The trial allegedly alleged that Unitedhealth Group had underestimated the impact of the murder of Thompson on the company. A company spokesperson said that Unitedhealth Group “denies any allegation of reprehensible acts and intends to defend the question vigorously”.

So why is the company assaulted by so many problems?

During a conference on May 13, following the announcement of Witty’s departure as CEO, the financial director John Rex said that his challenges could be submitted in three categories:

“An impact, larger than expected on Unitedhealthcare, of the state of health of new members,” he said. “Two, additional acceleration of use in the advantage of Medicare. Third, the indications for expanding this higher trend in other areas and we cautiously anticipate these trends can go even further. ”

During the same conference call, Hemsley said he was “deeply disappointed and apologize for the performance backwards we met in external and internal challenges. Many problems behave to achieve our goals, as well as our opportunities, are largely under our control. ”

What is notable in the challenges of Unitedhealth Group is that other public insurers, such as Eleveance, Aetna or Centene, do not undergo the same fate, according to an industry expert.

“Historically, they were considered a best -managed health plan,” said Ari Gottlieb, director of the A2 Strategy Corp consulting group, in an interview. “And so you expected that if United is drunk, everyone is too, but that seems to be a problem that is mainly limited to United at the moment. We have certainly not seen other health insurers going out and say:” We see the same thing. “… Everyone has somehow said:” Things are somehow trendy as we expected. ” »»

He added that part of United’s challenges can be explained by their too aggressive advantage this year. The health benefits offered by the company were “superior to the market and what the reimbursement has argued,” he said. In other words, the design of the plan was too generous, which caused increased use while the costs of the associated advantages were not properly covered by the reimbursement rates.

Another expert argued that the health care industry has evolved, and things that have gone unnoticed in the past now catch up, such as refusal of complaint.

“”[Witty’s] The strategy was really from the old game book, which is the way you succeed is that you are increasing the medical losses ratio, by which I mean that you reduce the value, which means that you invest less in the provision of real care. He does so by many prior authorization, a huge denial of complaints, “said Dr. Robert Pearl, a former CEO of the Medical Group, who is currently a professor at the Stanford University School of Medicine and the Stanford Graduate School of Business, as well as an author and a health care podcaster.

“The game book that worked in a different period, in another congress, a different economic state of mind, which has changed,” he continued. “People who will succeed will be those who can not only answer, but who can anticipate and move forward. And Unitedhealthcare did not do this. ”

While Unitedhealth Group points to higher use than planned in Medicare Advantage as one of the main engines of their difficulties, there is a broader problem at stake, supported Dr. Adam Brown, an emergency doctor and founder of the Abig Health health care consulting company, as well as a professor of practice at the University of North Carolina.

The health care giant has its insurance tentacles with Unitedhealthcare, supplier services under social benefits and pharmacy with Optum RX. And people are starting to wonder if this vertical integration has exceeded its limits.

“I don’t think it’s just a boost on the stock market,” said Brown. “I believe that this is a bit of an account where United, in recent years, has built an empire on the advantage of health insurance and on vertical integration. And remember, the advantage of health insurance is taxpayers’ dollars.… I think that regulators, politicians – we even see it in a bipartite way – and of course patients are similar questions.

What awaits us for Unitedhealth Group?

Although Brown does not think it’s just a “Blip” for Unitedhealth Group, Gottlieb seems to be in disagreement. He thinks that the problems of the company will be solved in about a year. He gave the example of CVS Health, which would have explored a break in October.

“They managed to change things, at least about insurance,” he said. “I think they still have difficulties on their Oak Street clinics and some of the other assets. So these things are resolved. It will take a while. “

Reducing Hemsley will also offer a certain stability to United, he noted. To solve their financial problems, they will probably reduce the advantages of their master’s dealers, starting with additional advantages, Gottlieb said.

He added that the DOJ survey is probably minimal to the company.

“You do not normally see the federal government really go after large companies and take important measures for me, it is probably a lot of noise,” he said, noting that there may be penalties that they will have to pay, but nothing substantial.

Pearl has agreed that Unitedhealth will likely come out.

“They will not fail. They also have large reserves, so they will not make their doors,” he said. “They are not going to lack money, but they will have to put their feet on the ground and understand what they are going to do in the next 10 years.”

Brown has argued that the company probably does not risk failing from the point of view of profitability. However, it could be at risk of certain threats from a regulatory point of view due to the examination of the DOJ, the FTC, the HHS and the Congress. In addition, with the drop in shares, the public can see the company differently.

“I think that if all these different verticals speak and control more, it can give us more to point out where things go with this business and other companies like it,” he said.

Photo: Tero Vesalainen, Getty Images