UNITEDHEALTH FACES A RECKONING AFTER A $280 BILLION MELTDOWN

HOW SICK IS UnitedHealth Group?

- BY GEOFF COLVIN

After a few decidedly strange weeks this spring, investors, competitors, regulators, and, yes, some patients are wondering what kind of trouble is going on inside the biggest, most powerful, most aggressive, most successful company in the U.S. health care sector. Some severe industrywide trend? A run of bad luck? Plain poor management? Or, just maybe, some of each?

What's certain is that in April, CEO Andrew Witty delivered first-quarter results so alarming that the stock plunged, knocking 22% off the company's share price within hours. Twenty-six days later, on May 13, the company sent out an early morning statement announcing Witty had resigned for unspecified personal reasons, and Stephen Hemsley, the board chairman and a previous CEO, would be CEO once more. The stock plunged again. The next day, the Wall Street Journal reported that the Department of Justice is investigating UHG for possible criminal Medicare fraud. The company said it hadn't been notified of any such investigation, but the stock plunged yet again.

UHG, a colossal company, No. 3 on this year's Fortune 500, had lost more than half its worth in less than a month—vaporizing $280 billion in market value. “This is a stock that every growth-oriented portfolio manager in the world owned for a decade and made money on it like clockwork,” says Whit Mayo, an analyst at Leerink Partners, a health care investment bank. “It’s stunning. It’s unthinkable.”

Now the great questions are: What on earth happened, and what does it mean? The answers are important because UHG is the biggest company in the biggest sector of the biggest economy in the world, and the U.S. health care system is widely regarded as broken.

Indeed, UHG's status as a symbol of that system was made clear in December when the CEO of its insurance arm was murdered, allegedly by a man motivated by a conviction that big insurers put profit ahead of patients' welfare.