UnitedHealth Stock Crashes 17% as DOJ Criminal Probe Uncovers Possible Medicare Fraud

UnitedHealth Under Criminal Investigation: What We Know So Far

The healthcare giant UnitedHealth Group is facing a serious crisis as reports emerged that the U.S. Department of Justice is conducting a criminal investigation into the company for possible Medicare fraud. According to The Wall Street Journal, which first reported the news on Wednesday, May 15, 2025, the DOJ's healthcare-fraud division is leading the investigation, focusing specifically on UnitedHealth's Medicare Advantage operations. While the exact nature of the potential criminal charges remains unclear, sources familiar with the matter indicate the investigation has been ongoing since at least last summer.

This revelation comes at a particularly turbulent time for UnitedHealth, as it follows just one day after CEO Andrew Witty unexpectedly resigned and the company withdrew its financial outlook for 2025 due to soaring medical costs. In response to the report, UnitedHealth issued a statement claiming it had not received any notification from the DOJ regarding the alleged criminal investigation and affirmed its confidence in the integrity of its Medicare Advantage program, calling the Wall Street Journal's coverage deeply irresponsible.

The market reaction has been severe, with UnitedHealth's stock plummeting approximately 14% on Thursday to $274.35, approaching a five-year low. This follows an 18% drop on Tuesday after the CEO's departure announcement. Overall, UnitedHealth shares have decreased by a staggering 46% this year, wiping out more than $300 billion from its once $600 billion market capitalization in just one month.

The Medicare Advantage Controversy at the Heart of the Investigation

The DOJ's criminal investigation centers on UnitedHealth's Medicare Advantage business, which has been under increasing scrutiny. Medicare Advantage allows private companies like UnitedHealth to offer Medicare-approved plans that enhance basic Medicare coverage for seniors aged 65 and older by including additional services such as dental and vision care.

At issue is whether UnitedHealth exaggerated patient diagnoses to obtain higher reimbursements from Medicare. Under the Medicare Advantage program, insurers receive larger payments for covering patients with more serious health conditions, creating a potential incentive to report extensive diagnoses, sometimes in questionable ways.

This is not the first time UnitedHealth's Medicare Advantage operations have faced federal examination this year. In February 2025, The Wall Street Journal reported that the DOJ was conducting a civil fraud investigation to determine if the company had inflated diagnoses to secure additional payments. At that time, UnitedHealth dismissed the report as misinformation and claimed it was unaware of any new investigations.

However, an internal email from a UnitedHealth attorney dated March 11, which was revealed in a shareholder lawsuit, acknowledged that the government had posed questions regarding Optum's coding practices and referred to the investigation as being in the early stages.

Leadership Crisis and Return of Stephen Hemsley

In response to the mounting challenges, UnitedHealth has reinstated Stephen Hemsley as CEO, replacing Andrew Witty who resigned for personal reasons according to the company's statement. Hemsley, who previously led the organization for over ten years until 2017, now faces the daunting task of navigating the company through multiple federal inquiries, escalating costs, and the aftermath of a cyberattack.

Jeffrey Sonnenfeld of the Chief Executive Leadership Institute noted that the rapid transition in leadership at UnitedHealth is quite significant: The speed at which the board acted indicates a clear loss of confidence in the CEO. It must be serious if they moved this quickly. Its remarkable.

While UnitedHealth characterized Witty's departure as his own choice and mentioned that he will continue as a senior adviser, some analysts speculate that Witty may have been compelled to leave. Sonnenfeld suggested that personal reasons is a euphemism for the embarrassment of this collapse.

Hemsley, in taking over, commended Witty for showing real integrity and compassion during one of the most challenging times any company could face. However, he also expressed dissatisfaction with UnitedHealth's recent troubles and will need to quickly address the company's numerous challenges.

The Tragic Backdrop: Brian Thompson's Death and Its Aftermath

Adding to UnitedHealth's troubles is the tragic backdrop of Brian Thompson's death in December 2024. Thompson, who was the CEO of UnitedHealthcare (the insurance division of UnitedHealth Group), was shot while arriving at a Manhattan hotel for UnitedHealth's annual investor day. This shocking incident reignited discussions about insurers profiting from the denial or delay of medical care-issues that may have contributed to the violent act.

In the wake of Thompson's death, UnitedHealth committed to easing processes that could limit treatment approvals. This shift in approach may have contributed to the unexpected increase in medical costs that the company cited when withdrawing its 2025 financial outlook.

A group of shareholders has since initiated legal action against UnitedHealth, claiming the company concealed a corporate strategy aimed at denying medical care and obscured the implications of Thompson's murder on its operations. Filed in federal court in Manhattan, the lawsuit seeks class action status, asserting that shareholders suffered losses as a result of these actions.

The lawsuit targets damages for those who acquired UnitedHealth shares between December 2024 and April 2025, with the company stating its intention to contest the claims. The plaintiffs allege that the financial forecasts for 2025, released before Thompson's death, quickly became misleading amidst the ensuing chaos, yet the company continued to affirm these projections earlier this year.

Financial Impact and Market Reaction

The financial impact on UnitedHealth has been devastating. Since the earnings report in April 2025, which significantly fell short of analysts' predictions, the company's stock has plummeted by 33%, wiping out over $150 billion in market capitalization and marking its lowest point since the summer of 2021.

Thursday's additional 14% decline following the criminal investigation news has further eroded investor confidence. Jared Holz, a healthcare equity strategist at Mizuho, noted in an email on Thursday that there is a risk of the company being removed from the Dow Jones Industrial Average unless more consistent evidence emerges.

Investors are now warily expecting strategic changes in UnitedHealth's Medicare Advantage health insurance business over the next year. Strategies under consideration may include withdrawing from less profitable markets where it offers Medicare Advantage plans, as well as redesigning health insurance plans to facilitate access to cost-effective healthcare providers and emphasizing lower-cost generic medications over expensive branded ones.

Even after addressing issues with their plans, investors may still need to account for a legal settlement that could exceed $1 billion. Additionally, traditional cost-control strategies typically used by insurers, such as prior authorizations and claim denials, have faced public and legislative backlash since Thompson's tragic death.

Broader Implications for the Healthcare Industry

The UnitedHealth crisis has broader implications for the entire healthcare industry, particularly for the Medicare Advantage program. This investigation comes amid increased scrutiny of Medicare Advantage, with the DOJ recently filing a lawsuit against three of the largest health insurers in the U.S., accusing them of paying substantial kickbacks to brokers in exchange for directing patients toward their Medicare Advantage plans.

Approximately half of the 65 million individuals covered by Medicare are enrolled in Medicare Advantage plans managed by private insurers. These plans have been growing in popularity, but the current investigations may lead to significant reforms in how these programs operate and are regulated.

Central to the DOJ's investigation is a longstanding critique of Medicare Advantage itself, where insurers receive larger reimbursements for documenting additional diagnoses, often with minimal medical justification. Reports suggest that UnitedHealth encouraged physicians to record extra conditions, even incentivizing them, which resulted in billions of dollars in additional federal funding.

Should the investigation gain momentum, it might not only alter UnitedHealth's trajectory but also transform the entire industry's methodology regarding Medicare billing. The outcome could potentially reshape how private insurers interact with government healthcare programs, with far-reaching consequences for both the industry and the millions of Americans who rely on these services.

Legal Challenges and Shareholder Actions

Beyond the DOJ's criminal investigation, UnitedHealth faces multiple legal challenges. A securities fraud lawsuit was filed on behalf of UnitedHealth Group investors, with a deadline of July 7, 2025, for investors to join the class action. The complaint asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 on behalf of investors who purchased UnitedHealth securities.

The lawsuit alleges that the Company has long engaged in a corporate strategy of improperly denying health coverage to boost profits. This strategy led to regulatory scrutiny and public angst which ultimately resulted in the death of Brian Thompson in December 2024. In response to the outrage, UnitedHealth eased its strategy of improperly denying health insurance claims. Despite this shift in strategy, the Company maintained its previous financial guidance, which the lawsuit claims was misleading.

In addition to this securities fraud lawsuit, UnitedHealth is contending with an antitrust lawsuit initiated by the DOJ, which seeks to prevent its $3.3 billion acquisition of home healthcare provider Amedisys. The company is also under scrutiny regarding its pharmacy benefit manager, OptumRx, as regulators investigate its contribution to escalating healthcare expenses.

Previously, shareholders had sought to hold the company accountable, with a coalition of faith-based investors urging an investigation into how care denials affect the business, the economy, and patients overall. However, this proposal was withdrawn last month after UnitedHealth blocked it.