One of America's biggest companies is imploding
UnitedHealth Group, one of America's biggest corporations and a member of the exclusive Dow Jones Industrial Average, is suddenly unraveling.
The crisis engulfing UnitedHealth hit a crescendo this week when CEO Andrew Witty stepped down abruptly for 'personal reasons.'
UnitedHealth also swiftly abandoned its financial guidance, blaming skyrocketing medical costs.
And then The Wall Street Journal dropped the hammer, revealing that UnitedHealth is under federal criminal investigation for possible Medicare fraud.
The developments have stunned investors, triggering a dramatic loss of confidence. UnitedHealth's (UNH) stock has lost half its value – a staggering $288 billion – in the span of a month. Its share price plunged on Thursday to its lowest level since April 2020, during the height of the pandemic.
It's a spectacular reversal of fortunes for one of America's most powerful companies and the nation's largest health insurer.
The trouble at UnitedHealth comes almost exactly six months after the murder of Brian Thompson, one of its top executives. The brazen shooting of Thompson, in Midtown Manhattan, captured international attention and surfaced deep public resentment toward the healthcare industry.
The UnitedHealth selloff gathered steam on Thursday, with the Journal report of a federal criminal investigation driving UnitedHealth shares down another 13%, leaving them on track for their worst week since 1998, according to FactSet data.
The DOJ's healthcare-fraud unit is overseeing an investigation into possible Medicare fraud at UnitedHealth, the Journal reported.
UnitedHealth responded to the report by posting a statement online that described the Journal's reporting as 'deeply irresponsible' because the paper acknowledged the precise nature of the potential criminal allegations is unclear.
'We have not been notified by the Department of Justice of the supposed criminal investigation reported, without official attribution, in the Wall Street Journal today,' UnitedHealth said in the statement. 'We stand by the integrity of our Medicare Advantage program.'
The DOJ declined to comment.
Sonnenfeld, a management professor at Yale, said the abrupt nature of the CEO transition at UnitedHealth is quite telling.
'The fact the board moved with this much speed means they obviously lost confidence in the CEO. It's got to be pretty bad if they moved this fast,' Sonnenfeld said. 'It's astounding.'
UnitedHealth described the CEO switch as a decision Witty made 'for personal reasons' and the company said he has agreed to serve as a senior adviser. But Sonnenfeld suspects Witty was forced out.
''Personal reasons' is the humiliation of this implosion,' he said.
UnitedHealth is turning to a familiar face to clean up the mess: Stephen Hemsley, its former longtime CEO and current chairman.
Hemsley praised Witty for displaying 'real integrity and compassion during one of the most difficult periods any company could endure.'
The new CEO also, however, made clear his displeasure with UnitedHealth's stumbles.
'To all stakeholders, including employees and shareholders, I am deeply disappointed in and apologize for the performance setbacks we have encountered from both external and internal challenges,' Hemsley said during a conference call on Tuesday.
Sonnenfeld hailed the decision by UnitedHealth's board to bring back Hemsley, who led the company to success between 2006 and 2017.
'He does know where the bodies are buried, and he's the perfect guy to go to,' he said.
Morgan Stanley analyst Erin Wright agrees, describing Hemsley in a research report as 'the most appropriate person to step in as CEO at this juncture in light of the recent setbacks.'
UBS analyst AJ Rice, in a report to clients, praised Hemsley as a 'steady hand to lead the company in this turbulent time.'
Hemsley will have his work cut out for him.
Beyond the reported DOJ investigation, UnitedHealth is facing intense scrutiny from multiple parts of the federal government.
In its annual report, UnitedHealth acknowledged the company 'has been involved or is currently involved in various governmental investigations, audits and reviews.'
UnitedHealth said these include 'routine, regular and special investigations, audits and reviews' by a wide range of agencies, including the DOJ, the Internal Revenue Service, the Labor Department and the Securities and Exchange Commission.
The developments have unnerved investors – especially the decision to abandon 2025 financial guidance.
Bank of America downgraded UnitedHealth from 'buy' to 'neutral' on Tuesday, warning that it could take years for the company to recover.
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