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UnitedHealth beats on revenue despite Change attack, DOJ probe

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Illustration: Natalie Peeples/Axios

UnitedHealth reported better-than-expected revenue growth in its first earnings report since a wide-ranging cyberattack caused nationwide disruptions to its technology.

Why it matters: The conglomerate is under intense scrutiny following the attack on Change Healthcare and an antitrust investigation by the DOJ.

By the numbers: UNH reported a loss of $1.41 billion in Q1, or $1.53 per share, with adjusted earnings coming to $6.91 per share, beating analyst predictions.

  • Q1 revenue of $99.8 billion exceeded analysts' estimates of $99.3 billion.
  • Optum, UNH's sprawling subsidiary, reported $61.1 billion in revenue for Q1, up from $54.1 billion in the same period last year.

Zoom in: The company reported a medical cost ratio — the amount of premium dollars that went toward medical costs — of 84.3% in Q1.

  • That includes 40 basis points of impact from the cyberattack.

The big picture: UNH posted adjusted earnings of $6.91 per share for the first quarter, beating analyst average estimates of $6.59.

Flashback: Disclosed on Feb. 21, the Change Healthcare attack caused nationwide disruptions for hospitals, providers and pharmacies. Some providers are still unable to access medical claims and payment processing, per an April survey from the American Medical Association.

  • Fallout from the attack is ongoing, per an April 12 Wired article, and on Tuesday morning hackers started to leak stolen information.

Follow the money: The Change hack had a $0.25 per share impact on UNH.

  • The attack's total first quarter impact was $0.74 per share, and UNH estimates a full-year impact of $1.15 to $1.35 per share.
  • Direct response costs (excluded from adjusted EPS) are projected to be $0.85–$0.95 per share for the year.
  • UNH said it advanced more than $6 billion in funding and interest-free loans to providers.

Context: UNH bought Change, a financial clearinghouse that links companies that manage drug benefits with pharmacies, for nearly $8 billion in 2022.

  • The subsidiary of UnitedHealth's sprawling Optum division includes 90,000 doctors under Optum Care.
  • OptumRx, one of the largest pharmacy benefits managers in the U.S., processes electronic drug coupons and manages insurer claims and provider payments.

Reports also emerged in February of a DOJ investigation into relationships between UnitedHealth's insurance unit and Optum's health services arm.

  • Optum owes about one-third of its growth to acquisitions, but the probe could slow that, per a Tuesday note from Jefferies analyst David Windley.

Between the lines: UNH earnings got a 46-cent boost from a lower-than-projected 16.6% tax rate and posted lower-than-expected operating expenses, Windley noted.

Reality check: Despite rosy earnings, challenges to UNH's long-term annual earnings growth target of 13%–16% include lower-than-expected Medicare Advantage payment rates and potentially slower growth for its Optum division.

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