UnitedHealth shares surge on Q1 earnings update, cyberattack costs

UnitedHealth Group shares moved firmly higher in early Tuesday trading after the health insurance giant reiterated its full-year profit outlook despite a surge in medical payouts and a costly cyberattack.

UnitedHealth (UNH) said adjusted earnings for the three months ending in March came in at $6.91 a share, up 10.4% from the same period last year and 30 cents ahead of the Wall Street consensus forecast.

Group revenues, UnitedHealth said, rose 8.55% to $99.8 billion, again topping analysts' estimates of an $99.29 billion tally, with Optum revenue rising 22.2% to $61.1 billion.

Optum, which UnitedHealth purchased in 2011, is the main driver of the group's overall earnings, is the nation's largest physician employer, with around 90,000 doctors under its wing.

UnitedHealth is reportedly faced an antitrust probe linked to its Optum business as well as soaring medical costs and a damaging cyber attack.

UnitedHealth's medical-cost ratio, meanwhile, rose nearly 2 percentage points higher from last year to 84.3%, suggesting a larger portion of its collected premiums were paid out on insurance claims. Overall premiums were up 7.1% to $72.79 billion while medical costs rose 9.8% to $65.74 billion.

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Looking into the group's financial year, UnitedHealth reiterated its adjusted earnings forecast of between $27.50 and $28 per share. But it noted that reported earnings would take an $872 million hit from the so-called Blackcat cyberattacks that disrupted its Change Healthcare unit earlier this year.

"The core story at UnitedHealth Group remains our colleagues delivering improved experiences for the people we serve and driving balanced growth even while swiftly and effectively addressing the attack on Change Healthcare," said CEO Andrew Witty.

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UnitedHealth shares were marked 7.15% higher in pre-market trading to indicate an opening bell price of $4757.50, a move that would still leave the shares down more than 10% for the year.

Further pressure was added to the sector last month when the U.S. Centers for Medicare and Medicaid Services said Medicare Advantage payments would rise only an average of 3.7% next year.

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Analysts were looking for an increase of around 4.7%, based on the CMS's January proposal of 3.7% and following increases of around 1.22% each year between 2019 and 2024, according to preliminary CMS figures.

The payments, which reimburse insurers for treatment of U.S. patients over age 65, will be effectively lower than current levels when adjusted for costs and inflation.

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The U.S. Federal Trade Commission is also continuing its probe into the three largest pharmacy-benefit managers – CVS's Caremark, Cigna's Express Scripts, and UnitedHealth's OptumRx – and has warned the group of likely changes to the industry's broader regulation.

"As drug prices have soared and independent pharmacies have shuttered, scrutinizing the practices of [pharmacy-benefit managers] is more critical than ever," the FTC said in a statement on July 20.

"The FTC is now pursuing an inquiry into the PBM industry, one that is designed to capture and detail the current realities on the ground in this complex marketplace," the statement added.

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