Cyberattack costs growing at UnitedHealth Group, but profit still better than expected

Second quarter earnings beat analyst expectations at UnitedHealth Group, even as the Minnetonka-based health care giant said it saw more expenses in the fallout from a massive cyberattack earlier this year.

The company now expects cyberattack costs could reach $2.45 billion for the year, including more direct expenses for financial support for health care providers and consumer notifications that will begin later this month.

The hack forced UnitedHealth Group to shut down a widely used claims processing system at its Change Healthcare subsidiary to contain the threat.

Health care providers have struggled to bill for their services because of the system outage, prompting UnitedHealth Group to provide more than $9 billion so far in advance funding and interest-free loans — compared with more than $6 billion as of April.

“We operate in an environment where change is constant,” Chief Executive Andrew Witty said during a call with investors. “What you’ve come to see is that when changes happen, foreseen or unforeseen, we just deal with it.”

Lawmakers took Witty to task for the company’s handling of the cyberattack during a hearing in May that also raised questions about the size and scope of UnitedHealth Group.

The company said Tuesday it has restored the majority of the affected Change Healthcare services while continuing to provide financial support to the remaining health care providers in need.

Excluding one-time costs in the second quarter, the company reported an adjusted profit of $4.22 billion, down about 23% from the same period last year. On a per-share basis, adjusted earnings of $6.80 exceeded the $6.66 forecast by analysts.

Revenue for the quarter was $98.86 billion. During the first half of the year, revenue grew by nearly $14 billion, Witty said, led by double-digit growth at Optum, the company’s fast-growing health services division.

UnitedHealth Group operates UnitedHealthcare, which is the nation’s largest health insurer. Optum runs clinics, manages pharmacy benefits and consults with health care providers on IT and data needs.

In his remarks to investors, Witty seemed to reference several recent controversies involving the company without directly commenting on sources of the critiques.

Earlier this month, the Federal Trade Commission released an ongoing study finding pharmacy benefit managers may have inflated drug costs while squeezing independent pharmacies, enriching big companies at the expense of patients. UnitedHealth Group’s OptumRx business is one of the nation’s largest PBMs.

Witty, who previously was CEO of pharmaceutical giant GlaxoSmithKline, said during the conference call: “OptumRx clients continue to appreciate the efforts we make to ensure delivery of the lowest-cost drugs in the face of drug companies’ sole ability to set prices.”

Also this month, the Wall Street Journal published an investigation showing private insurers in the government’s Medicare Advantage program made hundreds of thousands of questionable diagnoses that triggered an extra $50 billion in taxpayer-funded payments.

UnitedHealthcare is the nation’s largest Medicare Advantage plan. Witty said his company’s program for sending nurses into senior homes to make diagnoses was helping catch health problems while connecting patients with needed care.

“Our home visit programs help patients live healthier lives and save taxpayers money,” he said.

Just over 49 million people in the U.S. had coverage through UnitedHealthcare at the end of the second quarter, an increase of more than 1.6 million people over June 2023.

The gains came even as UnitedHealthcare saw membership in Medicaid health plans decrease by 945,000 people with resumed eligibility checks by state governments. Meanwhile, activists have been questioning the company’s track record on coverage denials, including a protest Monday that led to 11 arrests outside UnitedHealthcare headquarters in Minnetonka.

Earlier this year, UnitedHealth Group closed on the sale of its Brazilian health plan and health care provider business, a deal that brought losses that are hitting 2024 financial results. The company still runs a large insurance and care provider business in other parts of South America, including Chile, where lawmakers in May mandated rebates by all insurers due to past overcharges, according to Bloomberg.

John Rex, the UnitedHealth Group chief financial officer, said Tuesday that UnitedHealthcare recorded during the second quarter a $220 million expense related to the change in Chile.

One-time factors such as the Chilean rebates, the Change Healthcare cyberattack and the sale of the Brazilian business are adding to medical costs, Rex said. The core medical loss ratio, however, is staying within the range UnitedHealth Group forecast in November, he said, although the company expects the full-year number will land at the higher end of the 83.5% to 84.5% initially projected.

This ratio is closely watched by investors, because increases can signal unforeseen jumps in medical expenses that can eat into earnings. Costs are running closer to the upper end of the medical loss ratio projection, Rex said, due to the mix of Medicare beneficiaries covered by UnitedHealthcare, a timing mismatch where Medicaid members have more care needs than is reflected in state payment rates and what he called a “lingering upshift in provider coding intensity.”

The company affirmed its adjusted net earnings outlook of $27.50 to $28 per share for the year, despite the growing cost of the Change Healthcare hack.

Efficiency gains help explain the performance, Witty said, pointing to examples of how artificial intelligence is helping the company grow revenue without corresponding increases in expense. Operating costs during the second quarter came in at $13.16 billion, down more than $600 million from the same quarter last year.

“Our growing AI portfolio, made up of hundreds of practical use cases, will generate billions of dollars of efficiencies over the next several years,” he said.

UnitedHealth Group shares closed Tuesday at $548.87, up 6.5% for the day.