UnitedHealth Under DOJ Scrutiny: Market Reacts to Medicare Billing Investigation

UnitedHealth Group (UNH) is facing intense market pressure after reports emerged that the U.S. Department of Justice (DOJ) has launched a civil fraud investigation into its Medicare billing practices. The inquiry, triggered by a series of Wall Street Journal reports, focuses on how UnitedHealth records diagnoses that could increase federal payments to its Medicare Advantage plans. The company’s stock plummeted nearly 10% in pre-market trading, falling below the 200-week moving average and approaching its 2024 low of $436. The news has also weighed on the broader healthcare sector, with shares of Elevance Health (ELV), CVS Health (CVS), Centene (CNC), Cigna (CI), and Humana (HUM) all trading lower.

The DOJ investigation is examining allegations that UnitedHealth has encouraged physicians within its provider network to record additional diagnoses that would lead to higher payments from the Medicare program. Reports indicate that UnitedHealth’s use of proprietary software may have suggested conditions that were not treated by doctors but were still added to patient records, potentially inflating government reimbursements. The probe comes amid growing scrutiny of Medicare Advantage plans, where insurers are compensated on a risk-adjusted basis, meaning payments increase for sicker patients. If the allegations prove substantial, UnitedHealth could face regulatory fines and restrictions that could alter its business model.

Despite the significant market reaction, UnitedHealth’s business model differs from some of its peers, potentially making the broad selloff in healthcare stocks an overreaction. Unlike insurers that primarily process claims, UnitedHealth has a vertically integrated model that includes its own network of doctors, clinics, and a pharmacy-benefit manager. This structure has allowed the company to capture a larger share of Medicare payments but also exposes it to greater regulatory scrutiny. While the DOJ probe presents risks, the broader Medicare Advantage sector may not face the same level of exposure, suggesting that other managed care stocks could recover more quickly.

UnitedHealth’s sharp decline is also having a major impact on the Dow Jones Industrial Average, given that UNH is the second-heaviest weighted stock in the price-weighted index at 7.02%. With Goldman Sachs (GS) also under pressure recently, the selloff in UnitedHealth is creating a significant drag on the Dow. Investors will be closely watching for updates on the DOJ investigation and potential penalties for UnitedHealth. The company is already under a separate antitrust investigation related to its $3.3 billion bid to acquire home-health firm Amedisys (AMED), adding further regulatory headwinds. With shares now testing key technical levels, the outcome of these legal battles will be critical in determining whether UnitedHealth can recover or if further downside risks remain. More details on the investigation are expected to emerge in the coming months, shaping sentiment for the healthcare sector and determining whether this selloff presents a buying opportunity or a warning sign for investors.