UPDATE 2-New UnitedHealth CEO vows to restore shareholder trust

UnitedHealth Group's new CEO Steve Hemsley on Monday told shareholders he was determined to earn back their trust after its surprising earnings shortfall earlier this year, saying the company was evaluating trends in medical costs and how that will affect its future performance. Hemsley replaced Andrew Witty as chief executive in May after the company's first earnings miss since 2008. UnitedHealth also suspended its earnings outlook as it reckons with higher-than-expected costs for its Medicare Advantage unit for adults 65 and older and people with disabilities.

"We are well aware we have not fulfilled your expectations or our own. We apologize for that performance, and we're humbly determined to earn back your trust and your confidence," Hemsley said at the company's annual shareholder meeting. UnitedHealth shares are down 40% this year, but rose 1% on Monday. The company is facing several challenges, including rising medical costs, regulatory scrutiny of its drug pricing negotiations and reported probes on its billing practices.

"When you have a significant earnings miss and then corporate practices are highlighted... that is not warranted for any fund manager to hold the stock," said Tom Hulick, CEO of Strategy Asset Managers. "We took the loss, and we're going to wait and see." Hemsley said the company will factor in higher cost of care into its private insurance plans and next year's Medicare Advantage plans.

Shareholders on Monday approved Hemsley's three-year pay package, including shares of the company worth $60 million. The two major proxy advisory firms split on whether that package should be approved, with Institutional Shareholder Services urging shareholders to reject the package, while Glass Lewis recommended a yes vote. Hemsley, who served as CEO from 2006 to 2013, will earn a base pay of $1 million a year.

A separate unsuccessful investor proposal challenged Hemsley's compensation and asked voters to limit "golden parachutes," the payments to executives in case of departure or a change in their position. Hemsley also said UnitedHealth will review its practices across its businesses, which include pharmacy benefit manager Optum Rx and health insurer UnitedHealthcare.

UnitedHealthcare's CEO Brian Thompson was shot and killed outside a Manhattan hotel in December while heading to a company investor day event. The Wall Street Journal has reported the U.S. Department of Justice is investigating billing practices at Optum related to services provided for UnitedHealth's integrated Medicare Advantage business.

UnitedHealth has said it has not been notified of a criminal probe. "We stand by the integrity of our Medicare Advantage program," the company said.

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