UnitedHealth Group, one of the nation's largest health insurers, is accused in a scheme that allowed its subsidiaries and other insurers to improperly overcharge Medicare by "hundreds of millions — and likely billions — of dollars," according to a lawsuit made public Thursday at the Justice Department's request.
The accusations center on Medicare Advantage, a program through which people 65 or older agree to join private health maintenance organizations, or HMOs, whose costs the government reimburses.
The program was created in 2003 after UnitedHealth and other insurers said that managed care could help contain the overall cost of Medicare, which has strained the federal budget by rising faster than the rate of inflation.
Instead of slowing Medicare costs, UnitedHealth may have improperly added excess costs in the billions of dollars over more than a decade, according to the lawsuit, which was unsealed in U.S. District Court in Los Angeles.
A spokesman for UnitedHealth disputed that assertion, saying it was based on faulty interpretations of Medicare rules.
"We reject these more than five-year-old claims and will contest them vigorously," said the spokesman, Matthew A. Burns. He said the company served millions of Medicare Advantage members and was "proud of the access to quality health care we provided, and confident we complied with the program rules."
Insurers and the federal government have been at odds for years over how private plans bill Medicare. A number of UnitedHealth companies sued the Health and Human Services Department last year, challenging proposed rules for how companies should handle overpayments by Medicare.
At the same time, whistle-blowers have filed lawsuits against insurers, claiming they overcharged the programs, and government audits have uncovered a widespread problem with private plans overcharging Medicare over a number of years.
The Justice Department's court notice that it was joining the case involving UnitedHeath was filed by Chad Readler, a lawyer who joined the agency's civil division as part of the Trump administration. It is intervening in the whistle-blower's claims about erroneous coding and inflated billing but is not taking part in other claims. The government has 90 days to file its own complaint.
The newly public accusations were first made in 2011, when a former UnitedHealth executive, Benjamin Poehling, filed a complaint under the False Claims Act, a federal law that allows private citizens to take legal action when they believe a government program has been defrauded.
Such cases are typically filed under seal to give federal or state investigators time to follow up and decide whether to join the litigation. In successful False Claims Act cases, where the government ultimately recovers money, the original whistle-blower receives a portion.
Poehling's complaint, which was among the documents unsealed Thursday, named 15 companies as defendants. Of those, the Justice Department told the court it wanted to intervene in the cases involving two, UnitedHealth and WellMed Medical Management, which UnitedHealth acquired in 2011.
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The Justice Department asked the court to grant access to all documents produced while Poehling's case against the other defendants proceeds, and it reserved the right to join those cases later.
Poehling was finance director for UnitedHealthcare Medicare and Retirement, a subsidiary that works with the Medicare Advantage program. His complaint describes "a corporate culture that demands and rewards financial success from its employees," including initiatives to increase a billing practice known as "risk adjustment."
The federal government has allowed people to receive Medicare benefits through private HMOs for decades as an alternative to conventional fee-for-service Medicare.
Medicare initially paid the HMOs a fixed rate per member, no matter what chronic conditions members had. That made the HMOs avoid signing up unhealthy people, because they required more care, reducing the companies' profits.
The approach changed in 2003, when the Centers for Medicare and Medicaid Services added a "risk adjustment factor" to its reimbursement schedules for managed care. That made HMOs more willing to sign up unhealthy people, but it also gave them a new incentive: to make people appear sicker than they were. UnitedHealth had a unit that helped its subsidiaries and other insurance companies perform risk adjustment calculations.
Poehling said that he and other employees were given "risk adjustment" targets and their performance was evaluated based on how well they achieved them. In a 2008 performance review, for example, he was judged on whether he had increased risk scores by 3 percent.
"There were no similar performance goals for the overall accuracy of risk adjustment submissions," he wrote in his complaint. "Nor was there any accountability assigned for reducing the number of false claims" submitted to the Medicare program for reimbursement.
Attached to his complaint was an email message from his division's chief financial officer, Jeffrey J. Knutson, urging staff members "to really go after the potential risk scoring that you have consistently indicated is out there."
"Let's turn on the gas!" Knutson wrote. "What can we do to make sure we are being reimbursed fairly for the members and risk we take on more than what we are currently doing.
"When we meet next on our steering committee, I'd like to see what it would take to add another $100M to our 2008 revenue from where we are. What would be doable? What resources would you need? What technology would you need?"
Medicare Advantage's rules require that for patient care to qualify for risk adjustment factors, a patient's condition must be verified in person on a regular basis by a qualified professional.
But Poehling said that coding specialists would instead mine patient records, looking for hints of a possible long-term condition. When they found one, they would request the higher payment without going through the required in-person evaluation.
The realization that medical records could be mined for extra money appears to have given rise to a cottage industry of consulting firms offering to screen patient histories and look for indications of long-term health problems that could be used to increase Medicare reimbursements.
Federal audits of the Medicare Advantage program have suggested that HMOs have driven Medicare costs higher, but a federal effort to issue tighter rules in 2014 was unsuccessful. The proposed rules were withdrawn, and UnitedHealth subsequently sued.