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UnitedHealth hack looms over first-quarter earnings report

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LA Post: UnitedHealth hack looms over first-quarter earnings report
April 15, 2024
Sriparna Roy - Reuters

By Sriparna Roy

(Reuters) - UnitedHealth is expected to record higher medical costs in its first earnings report since a cyberattack disrupted its technology systems including those that manage prescription and medical claims, analysts said.

The attack, disclosed on Feb. 21, affected hospitals, clinicians, and pharmacies nationwide. Some providers are still unable to access medical claims and payments processing, a recent survey by the American Medical Association showed.

UnitedHealth has advanced billions of dollars in reimbursements through loans to affected healthcare providers and suspended prior authorization of medical services for some government-backed insurance plans for quicker processing.

"We are used to them delivering quite a stable double digit growth. This is clearly a very high quality company, but to use the phrase for this coming quarter - it will probably be a bit messy," said Gerrit Smit, head of global equity management at investment firm Stonehage Fleming.

Analysts on average expect the company to post an adjusted profit of $6.61 per share for the first quarter, according to LSEG data, sharply down from $6.76 earlier this month.

With some medical procedures going through without prior authorization since the last 25 days of the first quarter, Piper Sandler analyst Jessica Tassan estimates that UnitedHealth will incur an incremental $154.2 million of medical costs in Medicare.

Prior authorizations allow a health insurer a chance to review how necessary a medical treatment is and thus, help reduce its costs.

TD Cowen analyst Gary Taylor said in a research note that he expects UnitedHealth will record "extra" authorizations of medical procedures due to the suspensions as one-time costs in its medical care ratio, which measures the percentage of premiums versus medical services provided.

He estimates a first-quarter medical care ratio of 84.7%. UnitedHealth reported a ratio of 82.2% for the quarter a year earlier.

Taylor said it will be tough for UnitedHealth to separate the hack's impact and a rise in medical care use, which could make it hard to see if the rise in services utilization noted last year continued, he said.

Medical costs for insurers that provide Medicare Advantage plans for adults aged 65 and older rose in late 2023, UnitedHealth and other insurers have said.

Smit said he also expects the company to incur legal costs related to two dozen class actions accusing it of failing to protect personal data from the hack.

UnitedHealth has yet to disclose how many people with protected health information were affected by the hack. It must report that information within 60 days as required by federal law.

FAR FROM CONCLUDED

Change, which UnitedHealth bought for nearly $8 billion in 2022, is a financial clearing house connecting companies that manage drug benefits with pharmacies. It processes electronic drug coupons as well as manages claims sent to insurers and payments to providers.

Although most claims are going through at pharmacies, they are facing difficulties with processing discounts that some manufacturers offer on their drugs through electronic coupons, Ilisa Bernstein from the American Pharmacists Association told Reuters.

According to UnitedHealth's website, the company has begun releasing new medical claims-related software to thousands of customers and has restored Change Healthcare's electronic payments platform and pharmacy network services for most.

"Although getting the Change systems back online is a significant step, it is far from a conclusion to the incident," said Ben Teicher, spokesperson at American Hospital Association. Some providers are still likely using workarounds, he said.

The increased paperwork involved in claim submissions by pharmacies and healthcare providers is also expected to raise administrative costs for OptumRx, the company's pharmacy benefit manager.

Taking a one-time-charge "may be even the right thing for them to do because it is an exceptional circumstance," said Stonehage Fleming's Smit.

(Reporting by Sriparna Roy in Bengaluru; additional reporting by Michael Erman and Patrick Wingrove in New York and Julie Steenhuysen in Chicago; editing by Caroline Humer, Manas Mishra and Shinjini Ganguli)

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