MW UnitedHealth fights back: Blame drugmakers for high costs, not the 'middlemen.'

By Emily Bary and Tomi Kilgore

Healthcare giant's stock cuts more than 150 points off the Dow's price after a rare miss in quarterly revenue and as medical costs continue to rise

Shares of UnitedHealth Group Inc. were headed sharply lower in early trading Thursday, after the healthcare giant missed quarterly revenue expectations for the first time in more than four years.

And while the company continued to beat profit expectations, medical costs were still rising more than forecast.

The stock $(UNH)$ sank 4.7% in morning trading, enough to lead the Dow Jones Industrial Average's DJIA decliners. The stock's price decline of $25.52 shaved about 157 points off the price of the Dow, which was down 83 points.

On the post-earnings call with analysts, Chief Executive Andrew Witty addressed the recent public backlash over high drug costs and transparency of coverage, particularly following killing of Brian Thompson, who headed the company's UnitedHealthcare unit.

See: FTC takes fresh swipe at drug middlemen, says some prices marked up over 1,000%.

Also read: UnitedHealthcare head Brian Thompson's killing shines light on health-insurance denial rates.

Regarding the recent criticism by both political parties of pharmacy-benefit managers, referred to as drug "middlemen," he said it is misdirected.

Witty acknowledged that Americans pay "disproportionately more" for drugs than people in other countries, using the example of one obesity drug costing $900 in the U.S. versus about $90 in Europe. But he stressed that PBMs, such as UnitedHealth's Optum Rx, aren't at fault, and are actually helping keep prices down.

"Pharmacy-benefit managers play a vital role in holding those prices down, which is why drug companies and their allies have spent the past several years attacking them," Witty said, according to a FactSet transcript. "Optum Rx alone delivers many tens of billions of dollars in savings annually, versus the pricing set by the manufacturers."

He noted that in 2024, Optum Rx passed through to clients more than 98% of rebate drug discounts that have been negotiated with drugmakers, and plans to pass through 100% by 2028 at the latest.

"This will help make more transparent, who is really responsible for drug pricing in this country? The drug companies themselves," Witty said.

He also touched on the recent outcry over insurance denials, saying the company is moving toward making health interactions "as intuitive and seamless" as other areas of activity, such as banking, shopping and video streaming.

"We're eager to work with policy leaders to use standardization and technology to speed up turnaround times for approval of procedures and services for Medicare Advantage patients, and to materially reduce the overall number of prior authorizations used for certain MA services," Witty said.

Ultimately, he said the way to improve healthcare is to address the root cause of healthcare costs, which is basically driven by providers, rather than insurers and drug distributors.

For the fourth quarter, the company operating costs climbed 7.3% from a year ago to $93.03 billion, as the cost of products sold jumped 22.3% and medical costs increased 7.7% to offset a 6.3% decline in operating costs.

For the full year, the medical-loss ratio, or the percentage of premium dollars spent on services - lower is better - increased to 85.5% from 83.2% in 2023, citing reductions in government funding of Medicare. That was above the FactSet consensus of 85.1%.

Mizuho analyst Ann Hynes said she believes the higher-than-expected cost trend, coming with elevated utilization, as well as increased prescribing of specialty medication, will "likely remain an overhang heading into 2025."

Total revenue for the quarter increased 6.8% from a year ago to $100.81 billion, but was below the FactSet consensus of $101.60 billion. That snapped a 17-quarter streak of revenue beats.

Revenue for its Optum business increased 9.4% to $65.1 billion, while the UnitedHealthcare business saw revenue rise 4.7% to $74.1 billion.

Net income grew to $5.54 billion, or $5.98 a share, from $5.46 billion, or $5.83 a share.

Excluding nonrecurring items, adjusted earnings per share rose to $6.81 from $6.16 and topped the FactSet consensus of $6.73. The company has beat EPS expectations for at least 21 straight quarters according to available FactSet data.

The company still expects to report 2025 revenue of $450 billion to $455 billion and adjusted EPS of $29.50 to $30.00.

UnitedHealth's stock has shed 9.4% over the past three months, while the S&P 500 index SPX has gained 1.8%.

-Emily Bary -Tomi Kilgore

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January 16, 2025 10:47 ET (15:47 GMT)

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