UnitedHealth’s Profit Takes $872M Hit After Change Healthcare Hack
UnitedHealth Group revealed on Tuesday that it anticipates absorbing a financial blow of up to $1.6 billion this year in connection with a data breach at its Change Healthcare unit. This disclosure marks the company’s first comprehensive public acknowledgment of the cyberattack’s financial repercussions.
Despite the disruption caused by the breach, the healthcare behemoth surpassed expectations for its first-quarter adjusted Profit and upheld its forecast for 2024. Consequently, its shares surged by 7.3% in premarket trading. Since the revelation of the ransomware attack on February 21, UnitedHealth’s shares have dipped by nearly 15%.
The breach at Change Healthcare, a central financial clearinghouse in the U.S., disrupted payments to healthcare providers nationwide for approximately a month, significantly impacting community health centers catering to over 30 million underserved patients.
In response to the hack, UnitedHealth eased or eliminated prior authorization procedures for specific claims, raising concerns about potential increases in medical costs. Additionally, claim submissions were delayed as healthcare providers grappled with administrative challenges.
During the quarter, the company incurred $872 million in data breach costs, predominantly one-time expenses. However, UnitedHealth maintained its adjusted profit forecast 2024 at $27.50 to $28 per share.
According to Morningstar analyst Julie Utterback, the robust performance in the first quarter likely offset the hack’s impact on an adjusted basis. Operating Profit, excluding restructuring charges, unexpectedly rose to approximately $394 million despite a 15% decline in sales.
Utterback noted that the trends in demand for medical care appeared to align with management’s expectations, which relieved industry investors concerned about elevated costs.
UnitedHealth reported a rise in the medical care ratio, indicating an increase in premiums allocated to medical care, from 82.2% to 84.3% year-over-year.
The company projected that the disruptions from the breach would dent Profit by $1.15 to $1.35 per share this year.
Shares of other health insurers, including Elevance, CVS Health, Cigna, Centene, and Humana, experienced gains ranging from 2% to 5.5% in premarket trading.
UnitedHealth is yet to disclose the extent of the personal data breached in the attack, a disclosure mandated by federal law within 60 days.
For the quarter, UnitedHealth reported an adjusted profit of $7.16 per share, excluding a 25-cent impact from business disruptions triggered by the data breach. However, the healthcare conglomerate recorded a net loss of $1.53 per share, primarily attributable to a $7 billion charge related to the sale of its Brazil unit, Amil.
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