UnitedHealth Group (UNH) shares declined more than 11% in premarket trading after The Wall Street Journal reported that the Justice Department has launched a civil fraud investigation into the company’s Medicare billing practices.
Shares were trading around $443.53 following the report.
The probe examines how UnitedHealth records diagnoses that lead to increased payments from Medicare Advantage, a privately administered version of the federal health program for seniors.
According to the report, the government is scrutinizing whether the insurer’s physician groups have engaged in practices that inflate reimbursements.
The Justice Department’s move comes amid broader concerns about the rising costs of Medicare Advantage.
In a 2024 report, congressional Medicare advisers highlighted an “urgent need for a major overhaul” in the program’s payment system, which they believe is vulnerable to manipulation.
This investigation adds to the company’s challenges as the DOJ is also attempting to block UnitedHealth’s $3.3 billion acquisition of Amedisys (NASDAQ:AMED) over antitrust concerns.
UnitedHealth’s buyout program
Separately, UnitedHealth has initiated a voluntary buyout program for some employees in its UnitedHealthcare division.
The Voluntary Resignation Separation Program, as it is called, applies to workers in the benefits operations unit.
Employees who choose to resign by March 3 will receive a financial package, while those who decline the offer will either retain their current jobs or be moved to comparable roles, sources told CNBC.
The internal memo seen by CNBC indicated that the buyout applies to full-time and part-time workers across four subdivisions: corporate, consumer operations, core services, and provider services.
While UnitedHealth has not disclosed the total number of employees offered buyouts, the program reportedly affects up to 30,000 workers.
A company spokesperson stated that the initiative is aimed at ensuring UnitedHealth’s workforce remains well-positioned to serve its customers effectively.
However, sources noted that if the company does not meet a specific resignation target, layoffs may follow.
Bernstein reaffirm Outperform rating
Bernstein analysts, including Lance Wilkes, on Friday reaffirmed their Outperform rating on UnitedHealth Group (NYSE: UNH), maintaining a price target of $697.00.
The analysts noted that UnitedHealth’s diversified business model—including its Optum segment, which focuses on value-based care—positions it for continued growth.
The buyout program aligns with UnitedHealth’s broader cost-cutting strategy, analysts said.
The company has managed to keep its total operating expenses flat for 2024 and expects only a modest increase in 2025.
Analysts forecast that the company will reduce its operating expense ratio by 1.5% this year, with an additional 1.0% decline projected for 2025.
UnitedHealth’s cost-cutting measures primarily focus on its core health insurance business, UnitedHealthcare, with anticipated improvements in claims processing, customer service, and other operational areas.
While UnitedHealthcare undergoes efficiency-driven changes, continued investment is expected in the Optum units, particularly Optum Insights and Optum Health, which focus on value-based care.
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