UnitedHealth Faces $2.3 Bn Hit from Change Healthcare Cyberattack, EPS Impacted by 60-70%

The insurer's medical loss ratio (MLR) in the second quarter increased to 85.1%, compared to 83.2% in the same quarter last year. 

UnitedHealth Group has announced a significant financial hit due to a cyberattack on Change Healthcare. It expects costs to rise between $2.3 billion and $2.45 billion, impacting its earnings per share (EPS) by 60% to 70%. 

The insurer's medical loss ratio (MLR) in the second quarter increased to 85.1%, compared to 83.2% in the same quarter last year. 

UnitedHealthcare CEO Brian Thompson attributed this rise to changes in coding intensity after the insurer ended care waivers post-cyberattack.

In response to the cyberattack, UnitedHealth relaxed prior authorization and utilization management to maintain cash flow to providers. 

Thompson explained, "I feel like it's an anomaly tied to what we saw during our waiver. And we have reinforced our utilization management protocols and believe these impacts will dampen as we pace through the remainder of the year."

Additionally, the insurer cited medicare funding cuts, member mix, and medical reserve development as factors affecting the MLR.

Financial Performance

Despite the cyberattack, UnitedHealth Group posted a profit of $4.2 billion for the second quarter, surpassing Wall Street expectations. The company's quarterly revenues were $98.9 billion, up from $92.9 billion in the prior year quarter.

Through the year's first half, UnitedHealth generated $198.7 billion in revenue and $2.8 billion in profit. 

This was a recovery from a significant loss in the first quarter, attributed to the cyberattack and the sale of its Brazilian business. By comparison, the company had reported $184.8 billion in revenue and $11.1 billion in profit by mid-year in 2023.

In its earnings report, UnitedHealth provided an update on the cyberattack, stating that most services at Change Healthcare affected by the attack had been restored. To mitigate the impact, the company has paid providers $9 billion in advanced funding and interest-free loans.

UnitedHealth also revealed plans to sell off its remaining businesses in South America, building on the sale of its Brazilian business.

Andrew Witty, CEO, UnitedHealth Group, said, "The diversified, durable growth across UnitedHealth Group stems from our colleagues’ commitment to ensuring high-quality, affordable care is available to the people we serve and positions us well for the near and long term." 

Witty acknowledged the company might have been "a little over-optimistic" regarding early recovery expectations but expressed confidence in the rebuilt platform for Change Healthcare. 

"We're in a good position, and the rest of the year, we've got a clear path to how this plays out. And I think the platform we've rebuilt will serve people extremely well," he added.

While the revenue growth for the quarter was significantly driven by Optum, UnitedHealth's health services segment, which posted $62.9 billion in revenue, up from $56.3 billion in the prior year quarter. 

Optum Health saw a 13% year-over-year revenue increase as more patients entered value-based care agreements, and its providers expanded care types and levels. Optum Rx, the company's pharmacy benefit manager, reported a 13% revenue increase.

UnitedHealthcare's revenues rose to $73.9 billion from $70.2 billion in the second quarter of 2023. The company added 2.3 million domestic commercial customers over the year, bringing its total medical membership to 50.4 million as of Q2. 

This includes 26.6 million people in commercial plans, 7.8 million in Medicare Advantage, and 7.4 million in Medicaid.

UnitedHealth reaffirmed its annual earnings outlook, expecting to earn between $27.50 and $28 per share, as initially projected at its investor conference in November.