Feds probing UnitedHealth Group's Medicare billing practices, reports say

The Justice Department is reportedly investigating UnitedHealth Group's Medicare billing practices, focuing on whether UnitedHealth inflated patient diagnoses to secure higher government payments for its Medicare Advantage plans.

Reports of the probe drove the giant insurer's stock price plummeting on Friday. UnitedHealth has vehemently denied the reports.

"The Wall Street Journal continues to report misinformation on the Medicare Advantage (MA) program," the company said in a prepared statement. "We are not aware of the 'launch' of any 'new' activity as reported by the Journal."

We are aware, however, that the Journal has engaged in a year-long campaign to defend a legacy system that rewards volume over keeping patients healthy and addressing their underlying conditions. Any suggestion that our practices are fraudulent is outrageous and false

A series of articles in the Journal last year alleged that Medicare paid UnitedHealth billions of dollars for questionable diagnoses. Attorneys with the Justice Department as recently as Jan. 31 interviewed medical providers named in the articles, the newspaper said.

UnitedHealth denied that report as well.

"We are aware ... that the Journal has engaged in a year-long campaign to defend a legacy system that rewards volume over keeping patients healthy and addressing their underlying conditions. Any suggestion that our practices are fraudulent is outrageous and false," the company's statement continued.

Medicare Advantage works more like an HMO than traditional health insurance. Instead of billing Medicare for every bandaid and splint, insurers are paid a lump sum to oversee enrollees' Medicare benefits. When patients have certain diagnoses, the payments go up, creating an incentive to diagnose more diseases. 

The investigation comes amid increasing regulatory scrutiny of the insurance industry, triggering a Wall Street sell-off that also impacted rival insurers.

Despite UnitedHealth's denials, the market reaction reflected broader investor anxiety over potential regulatory action against the Medicare Advantage sector.

Pressures mount

In addition to the DOJ investigation, UnitedHealth is already battling an antitrust lawsuit from the Justice Department, which aims to block its $3.3 billion acquisition of home health provider Amedisys.

Further complicating matters, the company’s pharmacy benefit manager, OptumRx, is under regulatory scrutiny over its role in rising healthcare costs. Reports indicate that UnitedHealth’s insurance division is also facing internal pressures, with buyouts and possible layoffs on the horizon.

Wall Street analysts are divided over the stock’s dramatic drop. Some argue that the reaction is overblown, as Medicare Advantage constitutes only about 15% of UnitedHealth’s insurance business. Others caution that ongoing legal uncertainties could weigh on the company’s performance for months to come.

Medicare Advantage under fire

At the heart of the DOJ probe is a broader concern about the Medicare Advantage system itself. Critics argue that insurers have long taken advantage of the program by adding extra diagnoses to justify higher payments from the government.

Reports suggest UnitedHealth encouraged physicians to document additional medical conditions, sometimes offering financial incentives for doing so. This practice has supposedly led to billions in additional federal payouts.

If the investigation gains momentum, the fallout could extend beyond UnitedHealth, prompting industry-wide reforms to Medicare billing practices. Investors are now grappling with whether this is a temporary regulatory challenge or the beginning of a fundamental shift in how insurers interact with Medicare.