Posted by on February 17, 2017 3:35 pm
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Categories: Business Credit Suisse Department of Justice DJIA DOJ Dow 30 Dow Jones Industrial Average Economy Economy of the United States Evercore headlines Law Medicare Medicare Advantage Social Issues stock market Trump Administration UNH UnitedHealth Group WellCare

The Dow Jones “Industrial” Average is suffering one of its worst intraday declines in weeks as a result of a 3.6% drop in UnitedHealth shares, which are sinking on news that the DOJ joined a whistleblower lawsuit against the insurer filed by a former executive claiming the country’s largest health insurer overcharged Medicare hundreds of millions of dollars.

The company denied the allegations, with UnitedHealth spokesman Matthew Burns saying in a statement that “we reject these more than five-year-old claims and will contest them vigorously.” 

Alleging insurance fraud, the lawsuit which was filed in 2011 and unsealed on Thursday, claims UnitedHealth Group overcharged Medicare by claiming the federal health insurance program’s members nationwide were sicker than they were, according to the law firm Constantine Cannon LLP. Overnight, the DOJ also joined in allegations against WellMed Medical Management Inc, a Texas-based healthcare company UnitedHealth bought in 2011.

The lawsuit by whistleblower Benjamin Poehling, a former UnitedHealth executive, has been kept under seal in federal court in Los Angeles while the Justice Department investigated the claims for the past five years. Constantine Cannon posted the lawsuit online when it was unsealed on Thursday.  No total damages were specified in the lawsuit.

UNH’s drop is the biggest contributor to the DJIA’s intraday slide, accounting for nearly 80% of the total point loss in the index.

Despite the lawsuit, Wall Street’s sellside analysts – most of whom are bullish on the company – have quickly come to its defense, via Bloomberg

Oppenheimer (Michael Wiederhorn)

  • DOJ claims center on UNH’s efforts to improve coding, date back to 2011
  • While headlines aren’t positive, these processes take a long time and “typically result in manageable settlements”
  • Expects UNH will get past this overhang, sees weakness as buying opportunity
  • Rates UNH outperform, PT $186

Leerink (Ana Gupte)

  • Risk is overblown; recommends buying UNH, Humana, WellCare and other Medicare Advantage (MA) stocks on weakness today
  • Expects Trump administration will favor private MA plans with deregulation and more industry-friendly policies
  • Rates UNH outperform, PT $195

Credit Suisse (Scott Fidel)

  • DOJ joining whistleblower case is negative headline, especially since market has been bullish for prospects for MA under Republican leadership
  • Even so, regulatory scrutiny isn’t new issue and Centers for Medicare & Medicaid Services has said MA revenue should benefit from more accurate risk coding
  • Rates UNH outperform, PT $180

Evercore ISI (Michael Newshel)

  • While DOJ joining case adds to risk, complaint doesn’t have “any particularly damning new evidence”
  • Believes many of coding optimization practices described are common to industry
  • Rates UNH buy, PT $185

The unsealed lawsuit is below:

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