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Investors say cost-cutting measures will be needed, a

challenging feat amid public backlash

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Shares of UnitedHealth ( UNH ) are near five-year lows

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The company's tight integration makes a breakup less

likely

By Amina Niasse

NEW YORK, May 16 (Reuters) - UnitedHealth Group ( UNH )

investors, stunned by missteps at the once predictable

healthcare giant, are warily expecting strategic changes in its

Medicare Advantage health insurance business over the next year.

On Wednesday, the Wall Street Journal reported that

UnitedHealth ( UNH ) was the subject of a criminal probe at the Justice

Department, just one day after the company withdrew its

financial outlook and said Group CEO Andrew Witty was leaving.

The blows are eroding the allure the healthcare behemoth

once held for investors.

UnitedHealth ( UNH ) shares fell 14% in afternoon trading on

Thursday to $274.35, near a five-year low. Shares had already

plunged 18% on Tuesday, even as the company tried to assuage

Wall Street concerns in a conference call. They are down 46%

this year.

"Given that the investor call earlier this week was so brief

and had a lack of detail, investors are on the lookout for

another shoe to drop," said James Harlow, senior vice president

at Novare Capital Management. The firm owns shares of

UnitedHealth ( UNH ).

The DOJ criminal probe concerns the company's billing

practices in its Medicare Advantage unit for older adults and

people with disabilities, the Journal reported. UnitedHealth ( UNH ) has

said in regulatory filings that investigations, audits and

reviews by a dozen different government agencies are underway.

UnitedHealth ( UNH ) said in a Wednesday statement that it had not

been notified of a criminal probe. "We stand by the integrity of

our Medicare Advantage program," the company added.

Investors said they expect the company to turn around its

profit outlook in 2026, at the earliest.

Exiting less profitable markets where it sells Medicare

Advantage plans for people aged 65 and older and making health

insurance plan design changes to offer access to lower-cost

healthcare providers and a focus on cheaper generic drugs,

rather than pricey branded ones, could be under consideration at

UnitedHealth ( UNH ), said Jeff Jonas, a portfolio manager at Gabelli

Funds.

Even after fixing plan issues, investors will likely need to

price in a legal settlement that could cost the company over $1

billion, said Jonas.

And traditional cost-management measures that insurers have

historically deployed, such as the use of prior authorizations

and claim denials, have come under public and legislative

criticism since the killing of UnitedHealthcare executive Brian

Thompson last December, Jonas added.

In a first-quarter earnings call, the company noted that

specialty care visits had generated higher costs after patients

saw providers who are part of its Optum health services unit.

"Optum and OptumHealth are UnitedHealth's ( UNH ) supposed antidote

to the low-margin business," said Kevin Gade, chief operating

officer at Bahl & Gaynor. "The fact that OptumHealth is at the

epicenter only magnifies this stock move."

Optum is too tightly integrated with the company's Medicare

Advantage plans for investors to expect a breakup of the

insurance business and other healthcare operations, Jonas said.

Harlow at Novare Capital Management said that without

strategic details on a turnaround for its insurance business, a

breakup would not assuage low morale from investors.

For investors planning to ride out the challenges, last

year's difficulties in CVS Health's ( CVS ) Aetna insurance business

come to mind. The company in 2024 missed earnings expectations

for the first three quarters after facing rising healthcare

costs and difficulty restructuring.

"There's no doubt UnitedHealth ( UNH ) got behind the pricing curve

relative to peers for 2025," said Gade, who added the company

still has value due to its average $20 billion in free cash

after covering expenses.

"I don't think it's as existential as the stock price may

appear."