The Justice Department has sued UnitedHealth Group, saying that senior executives knew the company was overbilling Medicare by hundreds of millions of dollars a year, and halted a repayment plan in 2014 so the money could be used to meet Wall Street’s revenue expectations.
In a complaint filed Tuesday in United States District Court in Los Angeles, the Justice Department said UnitedHealth routinely combed through millions of patients’ medical charts, searching for data it could use to make patients look sicker than they really were, in what the lawsuit called “strictly a one-sided revenue generating program.”
Under the government’s popular old-age health program, Medicare Advantage, reporting unhealthier customers led to bigger payments from the federal government — $3 billion worth to UnitedHealth from 2010 to 2015 alone, according to the complaint. The Justice Department said misrepresenting people’s health was a civil fraud and sued for triple damages and other penalties.
A spokesman for UnitedHealth, Matthew Burns, said the lawsuit showed that the Justice Department “fundamentally misunderstands, or is deliberately ignoring, how the Medicare Advantage program works.”
He said that reviewing patients’ charts and correcting errors was “an appropriate and expected part of the Medicare Advantage program,” and that questions about such activities “reflect at most a policy disagreement.”
“We are confident our company and its employees complied with the government’s Medicare Advantage program rules,” he said.
How Medicare Payments Work
The traditional Medicare program reimburses doctors directly for procedures they perform — but that can promote unnecessary treatments and inflate costs. So Medicare Advantage was set up differently: The government contracts with for-profit insurers to manage health care for the elderly, and pays insurers a yearly fee for each member they enroll. That fee is higher for patients recently treated for certain conditions, creating an incentive for Medicare Advantage insurers to search for diagnoses of illness in their patients, even where none may exist.
In filing its complaint on Tuesday, the Justice Department joined a whistle-blower suit filed earlier by a former UnitedHealth finance director, Benjamin Poehling, who worked at the company from 2002 to 2012. Mr.
Poehling filed his suit in 2011 under the False Claims Act, a law that allows private citizens to sue on behalf of government agencies they believe to have been defrauded. Such lawsuits are typically kept under seal by the court at first, to allow law enforcement agents to investigate the allegations quietly.
Mr. Poehling’s lawsuit was made public in February, when the Justice Department announced that it had decided to join his litigation.
Both lawsuits seek to recover money for the Centers for Medicare and Medicaid Services, or C.M.S., the federal agency that administers Medicare, the program that provides health coverage to people over 65. If the litigation succeeds, Mr. Poehling would get a percentage of the recovery.
The litigation revolves around Medicare Advantage, a 14-year-old program that allows Medicare beneficiaries to get their health coverage from private insurers, rather than from the government. When Congress established Medicare Advantage, the lawmakers expected insurers to use managed-care principles to reinvigorate the 52-year-old Medicare program, giving rise to better health care at a lower cost to taxpayers.
One of the biggest changes was the payment system: The government pays insurers a predetermined amount for each person they enroll in Medicare Advantage, rather than paying doctors and hospitals a fee for every service provided. And to keep the insurers from enrolling only healthy people, the government agreed to pay them more for unhealthy enrollees. How much more depends on a complex “risk scoring” system, established by Medicare.
That’s the problem, the Justice Department lawsuit argues. “This payment model creates powerful incentives” for the insurers “to exaggerate the expected health care costs for their enrollees,” it says.
Mr. Poehling’s complaint said UnitedHealth and other insurers used sophisticated data-mining programs to look for people whose risk scores could be raised by adding new diagnosis codes. As a finance director in UnitedHealth’s Medicare & Retirement unit, he was expected to monitor the revenue increases that resulted.
He said these initiatives did little or nothing to find errors in the system that worked in the other direction: inaccurate diagnosis codes that, if corrected, would lower the payments.
“UnitedHealth’s chart-review program gave it all the information it needed to identify and delete hundreds of thousands of false claims it had previously submitted,” said Tim McCormack, a lawyer with the firm of Constantine Cannon who is representing Mr. Poehling. “United broke the law by ignoring that information and keeping the money.”
The Justice Department’s complaint said much the same thing.
To illustrate the problem, it included a list of sample diagnostic coding errors that would have reduced UnitedHealth’s revenues if corrected. They came from data that UnitedHealth itself had collected in a quality-control program that it operated from 2011 to 2014, then shut down.
One unnamed patient was described to Medicare as having metastatic cancer, acute leukemia and unspecified stroke, for example, even though those diagnoses were not borne out by the patient’s charts. That one invalid claim cost the government $24,380 in 2011, and there were hundreds of thousands more, the complaint said.
The Justice Department said Medicare Advantage insurers are required to make good-faith efforts to submit accurate and complete data to Medicare, and if they corrected only errors in their own favor, they were out of compliance.
The Price of Risk
The Medicare Advantage program pays insurance companies a yearly fee for each person they enroll. And it pays more for people who are sick, to keep insurers from rejecting them because their care will cost more. The practice, called “risk adjustment,” gives insurers an incentive to tell the government that people are sicker than they may, in fact, be.
Mr. Burns disagreed with that. He said Medicare first proposed the “look both ways” rule in 2014 but withdrew it.
“Yet the Department of Justice claims the rule existed all along,” he said. “This makes no sense.”
The errors compiled by the Justice Department were not corrected, according to the complaint, because they were found as part of a short-lived quality-control program at UnitedHealth. It got off the ground in 2011, with a reserve set up to hold the money that might one day be returned to Medicare: $208 million for overpayments for 2012, and up to $180 million for 2013 and $175 million for 2014.
Delay followed delay, and there was still money in the reserve in April 2014, when senior executives at the insurer realized that the company’s second-quarter revenues were falling $500 million short of the budgeted amount. Detailed slides from an internal presentation showed that top executives saw the liability accrual reserve as a place to get $250 million, to cut the revenue gap in half, according to the complaint.
But the company executives were concerned about the legal consequences of taking back money earmarked for repaying Medicare, especially because the agency had recently proposed a rule requiring insurers to “look both ways” when checking the accuracy of their diagnosis codes.
In the end, UnitedHealth shut down the quality-control program anyway, according to the complaint. It did not correct the invalid diagnoses, and it shifted the reserve money back into revenues.
Top executives, including UnitedHealth’s chief executive, Stephen J. Hemsley, wanted the money to cut the revenue gap, the Justice Department said.
“This was important to all of them, because they wanted to represent to investors that UnitedHealthcare Medicare & Retirement’s actual revenues were on target,” the complaint said. It cited an internal document stating that the company’s reported results in 2014 benefited from a one-time policy change, “which investors are unaware of.”
Mr. Burns, the spokesman, said the episode was “entirely irrelevant to what this matter is actually about, and that is unclear C.M.S. policy.”