Cyberattack could cost UnitedHealth Group up to $1.6B this year

UnitedHealth Group expects the cyberattack on its Change Healthcare unit to cost the company as much as $1.6 billion this year.

In a financial report released Tuesday, the Minnetonka-based health care giant said it spent about $872 million during the first quarter responding to the cyberattack.

The first-quarter numbers provide the fullest accounting so far of financial impacts from the hack, which forced UnitedHealth Group to shut down a widely used claims-processing system to contain the threat.

The majority of cyberattack expenses were excluded from the company’s calculation of first-quarter adjusted earnings, which came in significantly better than expected. Following the earnings release, the company’s stock price rose more than 5%.

“This was an unprecedented attack by a malicious actor on the U.S. health system,” chief executive Andrew Witty said during a call with investors. “The attack disrupted the ability of care providers to file claims and be paid for their work. We’ve moved quickly to fill this gap.”

UnitedHealth Group says it has now provided more than $6 billion in advance funding and interest-free loans to health care providers that have struggled to bill for their services due to the system outage. Health care providers are among those who have filed about two dozen lawsuits against UnitedHealth Group over effects from the cyberattack.

During the first quarter, UnitedHealth Group incurred about $593 million in direct-response costs, including spending to start restoring the Change Healthcare system as well as temporary suspension of some care management rules, such as prior authorizations, to help health care providers.

The company also posted about $279 million in expenses from business disruptions, meaning lost revenue plus the expense of maintaining operations at Change Healthcare so its ready as systems are relaunched, said John Rex, the company’s chief financial officer.

Expenses for the direct response as well as the disruption to ongoing business are extending beyond the first quarter, as UnitedHealth Group continues to report progress on restoring IT systems.

Witty told investors he thought it was “important for the country” that UnitedHealth Group acquired Change Healthcare in 2022.

“Without UnitedHealth Group owning Change Healthcare, this attack would likely still have happened and it would have left Change Healthcare, I think, extremely challenged to come back,” Witty said. “Because it was part of UnitedHealth Group, we’ve been able to bring it back — we’re going to bring it back much stronger than it was before.”

UnitedHealth Group operates UnitedHealthcare, one of the nation’s largest health insurers, as well as a health services unit called Optum, which has its headquarters in Eden Prairie. On Tuesday afternoon, protesters entered the Optum lobby and gathered outside the building to demand the company and its subsidiaries halt any delays and denials of care.

“The protest also ran concurrently with the ongoing data hack payments scandal that has left [UnitedHealth Group] collecting premiums and not paying health care providers,” organizers said in a news release.

The company did not immediately comment on the protest. During the Tuesday call with investors, Rex said that while much of Change Healthcare’s functionality already has been restored, “we are working hard to restore more.”

Adjusted earnings for the first quarter came in at $6.91 per share, better than the $6.62 per share analysts expected. The company maintained its adjusted net earnings outlook for the year of $27.50 to $28 per share.

Adjusted earnings exclude the cost of direct-response measures related to the cyberattack, but the figures include business disruption expenses.

For the three-month period between January and March, UnitedHealth Group posted a loss of $1.4 billion on $99.8 billion of revenue, due primarily to the previously announced divestiture of its large hospital and clinic business in Brazil. The company said in December it expected to lose about $7 billion on the sale due in part to foreign currency translation losses.

At the outset of Tuesday’s call with investors, Witty said the company now employs about 400,000 people — a figure that’s down roughly 10% from the 440,000 listed as the 2023 year-end headcount in a recent regulatory filing. A company spokesman said the Brazil divestiture was part of the decline, but not the only factor.

At the end of March, just over 49 million people in the U.S. had coverage through UnitedHealthcare.

Across the country, there have been signs over the past year of an uptick in health care costs for insurers due to higher patient use of medical services. First -quarter numbers on care spending fell within expectations for higher medical costs that the company set in November.

Seasonal costs related to respiratory illnesses at the end of last year subsided in the first quarter, Kevin Fischbeck, an analyst with BofA Securities, wrote in a note to investors.

“[UnitedHealth Group] expects to continue to be prudent on this for the next few quarters but largely believes that it is back to close to normal on claims submission and payment,” Fischbeck wrote. “Finally, in response to the increase in trend last year, [UnitedHealth] has heightened its vigilance on any indications that utilization is starting to change, so it has confidence in its current view on trend.”

UnitedHealth Group shares closed Tuesday at $468.89, up $23.26 for the day.