Change Healthcare breach could cost UnitedHealth $1.6B this year

For the first time, UnitedHealth Group is offering a closer look at the financial fallout stemming from the cyberattack on its Change Healthcare subsidiary two months ago that has wreaked havoc on the healthcare system.

During the company's first-quarter earnings call with financial analysts Tuesday, UnitedHealth Group CEO Andrew Witty described the quarter as a “bit more complex,” given the unprecedented cyberattack and widespread network outage.

Executives disclosed the cyberattack’s total financial impact is projected to cost between $1.35 billion and $1.6 billion this year. It has already cost  UnitedHealth Group $872 million since the Feb. 21 breach that led the company to take its systems offline, Chief Financial Officer John Rex said on the call. 

Of the costs so far, $593 million has gone toward direct response expenses such as the restoration of its clearinghouse platform. About $279 million was attributed to business disruption impacts, including loss of revenue from the affected platforms, Rex said.

For the quarter ended March 31, UnitedHealth Group reported a net loss of $1.22 billion, compared with net income of $5.77 billion in the year-ago quarter. Net earnings from operations dropped 1.9% to $7.9 billion, compared with $8.1 billion for the year-ago quarter. Revenue rose 8.6% to $99.8 billion, compared with $91.9 billion in the prior-year period. The growth was attributed to its Optum health services unit and its UnitedHealthcare insurance division.

Related: Health sector wary as Congress starts Change hearings

The company estimated an additional $800 million of claims reserves in its earnings report given disruptions during the quarter. “We'll probably continue with a judicious view over this during the next several quarters,” Rex said.

Change Healthcare’s presence is felt widely throughout the healthcare system and touches insurance companies, government payers, health systems, hospitals, nursing homes, pharmacies and other healthcare organizations. It processes 15 billion transactions annually and provides vital platforms that enable claims processing, provider payments, prior authorizations, prescription management and benefits verification. 

Progress restoring Change Healthcare’s systems is ongoing, and its pharmacy, claims and payment platforms are at 80% functionality, said Roger Connor, CEO of data and analytics unit Optum Insight. More products are expected to come online in the coming weeks, he added.

"While much of Change Healthcare functionality and services have been restored, we are working hard to restore more, and the objective we all share is for an even stronger Change Healthcare to be fully returned to expected [financial] performance levels next year," Rex said on the call.

UnitedHealth Group acquired Change Healthcare and incorporated it into its Optum brand in 2022 through a deal totaling $13 billion, after facing challenges from regulators. Executives affirmed that Change Healthcare was a valuable acquisition for UnitedHealth Group, and they continue to see opportunities with the asset.

“This cyberattack has, unfortunately, created another true validation of why that was the right thing to do because it meant the UHG was in position to resolve this much more quickly than I think would ever have been imaginable in a stand-alone situation,” Witty said.

On the insurance side, membership in UnitedHealthcare's commercial and Medicare Advantage businesses increased compared with the year-ago quarter. Commercial plans enrolled more than 29 million individuals, up more than 2 million, or 7.6%, which executives said is the segment’s strongest growth in years. Nearly 7.8 million enrollees are covered by its Medicare Advantage business, a 2.8% increase.

Medicaid membership totaled 7.7 million, down nearly 8.4%  compared with the prior-year quarter, which executives attributed to program redeterminations.

While UnitedHealth Group and its competitors have been dealing with higher medical costs and utilization for nearly a year, executives said care patterns are in line with their expectations and consistent with higher levels in the first half of last year. UnitedHealthcare recorded an 84.3% medical loss ratio for the first quarter, compared with 82.2% in the prior-year period.

Also during the call, Witty declined to answer questions about the Justice Department’s reported antitrust investigation of UnitedHealth Group regarding the relationship between its health insurance and care delivery units and its effect on competition.