UnitedHealth Estimates Change Hack Costs Could Reach $1.6B
Executives of UnitedHealth Group Inc. said April 16 that the broad cybersecurity breach at the company’s Change Healthcare unit cost it $872 million in the first quarter and added that they expect that figure to grow to between $1.35 billion and $1.6 billion on a pre-tax basis.
Those cost estimates, provided as part of United’s first-quarter earnings report, cover both spending related to responding directly to the hack by securing Change’s network and dealing with affected providers and partners as well as broader business disruption costs. They do not, however, include another $800 million United’s leaders are setting aside as claims reserves to cover potential claims from providers that have been lost in the wash since United reported the breach Feb. 21.
Speaking to analysts after the publication of United’s earnings, President and CFO John Rex said it’s likely the final payouts from that extra pool of reserves won’t be the full $800 million but that the Minnesota-based company’s leadership team is being careful with estimates.
“There clearly had to be some disruption in the quarter in claims patterns and so you’re trying to make some estimation in that zone to anticipate that,” Rex said. “And you should expect that we’ll probably continue with a judicious view over this, over the next several quarters actually […] We really want to be careful on that because we know there are certain care providers out there that may have been left out.”
Some of our other coverage of the Change hack and cybersecurity in healthcare
April 9 – Cyber Threat: Why We Continue to Get It Wrong
April 5 – Change Healthcare Requests Consolidation of Breach Lawsuits
March 25 – Amidst Lawsuits, UnitedHealth Publishes Timeline for Product Restoration
March 15 – Cyberattack Costing Hospitals $2 Billion a Week in Cash Flow, Report Shows
March 6 – CMS Assists Providers After Change Healthcare Cyber-Attack
March 1 – Ransomware Group Blackcat Behind Cyberattack on Change Healthcare
Feb. 23 – Cyber Attack at Change Healthcare Affects Pharmacies Nationwide
Roger Connor, CEO since September of the Optum Insight division that houses Change, said his teams have restored 80 percent of the functionality of the unit’s vital pharmacy, claims and payment operations and are adding to that number every day. As that happens, he added, United also is looking to add new features and to lure back clients who have migrated to other clearing houses during this crisis. O’Connor expressed confidence that the company can do that.
“We’ve got more work to do,” Connor said. “This has been a heavy lift and we’re going to continue that work.”
CEO Andrew Witty said on the conference call that United has so far helped providers to the tune of more than $6 billion to help offset the hack’s disruption. (The company’s early response on that front met with criticism from a number of healthcare stakeholders, including the American Hospital Association.) Despite the scale of the breach—Witty noted that Change would have been “extremely challenged to come back” had it still been a stand-alone entity—the initial cost estimates came in below most observers’ estimates.
That helped United beat analysts’ projections for adjusted profits during the quarter, when the company also booked a roughly $7 billion charge related to the sale of its operations in Brazil. Operating earnings during the quarter clocked in at $7.9 billion, down from $8.1 billion in the first three months of last year. Revenues climbed to $99.8 billion from $91.9 billion in early 2023.
Shares of United (Ticker: UNH) jumped on the earnings report and ensuing commentary. In afternoon trading April 16, they were up more than 5 percent to roughly $469 on heavy volume. They are, however, still down 10 percent since mid-February, a move that has shrunk the company’s market capitalization to about $434 billion.
