UnitedHealth Stock Is Falling. Insurer ‘Complying’ With Justice Requests.

UnitedHealth Group said in a securities filing that it was following ’formal criminal and civil requests’ from the Justice Department. (Courtesy UnitedHealth Group)

Shares of UnitedHealth Group fell sharply after the healthcare company said it was “complying with formal criminal and civil requests” from the Department of Justice.

In a Form 8-K filed with the Securities and Exchange Commission on Thursday, UnitedHealth said it had “full confidence in its practices” and was “committed to working cooperatively” with the DOJ.

The Wall Street Journal earlier this year reported that the DOJ was investigating the company’s Medicare billing practices, but UnitedHealth never formally confirmed the news. The company said Thursday it had “proactively reached out to the Department of Justice after reviewing media reports about investigations into certain aspects of the Company’s participation in the Medicare program.”

This month, UnitedHealth said it would initiate a third-party review of the company’s medical-coding oversight and audit process to supplement the existing quality-assurance program.

The company’s UnitedHealthcare division handles health insurance, while the Optum unit is its health-services branch. Shares have been beaten down this year, cratering 44% amid rising medical costs and a string of underwhelming earnings reports.

The stock remains down 52% since the close on April 16, before UnitedHealth posted its first-quarter results.

While confirmation of the DOJ investigation was a “disappointment,” the risk is likely embedded in its valuation, Mizuho analyst Ann Hynes asserted on Thursday.

She noted that UnitedHealth had a “strong track record of proper conduct and compliance, and has consistently passed routine audits from the Centers for Medicare and Medicaid services.”

Although a decade-long lawsuit is ongoing, based on allegations that UnitedHealth violated the False Claims Act through improper risk adjustment, a court-appointed special master recommended the judge dismiss the case in March.

The next hearing is scheduled for September, and the final outcome in that case, particularly a dismissal, “could serve as a catalyst,” Hynes wrote. “Additionally, the outcome could set precedent for future Medicare Advantage risk adjustment cases given the lack of previous case law on the topic.” She rates UnitedHealth stock at Outperform with a $350 price target.

UnitedHealth fell 3.7% to $281.71 on Thursday. Shares of peers were also declining, with insurers Elevance Health, Cigna, and Humana down 4.9%, 3.2%, and 3%, respectively. CVS Health, a more diversified player with a pharmacy benefits manager, fell 3.3%.

UnitedHealth is slated to disclose its second-quarter earnings on July 29.

Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com