In a reversal, UnitedHealth says it’s cooperating with DOJ investigation into Medicare practices

Reversing its recent public statements, UnitedHealth Group said Thursday it’s cooperating with a U.S. Department of Justice investigation into its publicly funded Medicare business, complying with formal criminal and civil probes.

One of the largest health care companies in the world, Eden Prairie’s UnitedHealth saw its stock price decline more than 2% early Thursday, continuing an an unprecedented drop since December in the company’s $260 billion value.

The disclosure Thursday morning was an about-face from the company’s response to allegations in May, when the Wall Street Journal first reported on a criminal investigation by the DOJ — an article the company called at the time “deeply irresponsible.”

Subsequent reporting in June said the Justice Department’s criminal health care fraud unit was investigating how UnitedHealth Group deployed doctors and nurses to collect diagnosis data to boost government payments to the company’s privatized Medicare plans.

“UnitedHealth Group proactively reached out to the Department of Justice after reviewing media reports about investigations into certain aspects of the company’s participation in the Medicare program,” UnitedHealth Group said Thursday in a regulatory filing. “The company has now begun complying with formal criminal and civil requests from the department.”

The company’s massive health insurance arm, UnitedHealthcare, is a leading provider of privatized “Medicare Advantage” plans that Americans aged 65 and older can enroll in each fall and winter.

At the apparent root of the federal investigation are allegations that insurers including UnitedHealthcare have gamed Medicare’s system in order to wrongly inflate their federal payments.

Critics say the gaming has boosted corporate profits at the expense of taxpayers, because Medicare pays insurers to provide care for members in the privatized plans. Insuring patients with more health conditions leads to higher federal payments, creating financial incentives to make patients look as sick as possible on paper.

This is not the first time the company has faced such accusations. UnitedHealth Group is still fighting a whistleblower lawsuit filed in 2011 by a former insider named Benjamin Poehling, who made similar allegations.

In the disclosure Thursday, the company referenced the Poehling case by saying “a court-appointed Special Master concluded there was no evidence to support claims of wrongdoing.”

“The company has full confidence in its practices and is committed to working cooperatively with the department throughout this process,” UnitedHealth Group said in the filing, which asserted “a long record of responsible conduct and effective compliance” as shown in government audits.

The Journal’s article in May followed reports earlier this year that the company’s Medicare Advantage business was the subject of a civil probe, after it had been singled out in a federal watchdog report for the questionable use of Medicare diagnosis data to boost payments by billions of dollars.

Investigative reporting by the Wall Street Journal about the company’s risk adjustment practices, combined with public anger at the company following the killing of a top company executive on a public sidewalk in New York City last December, has built perceptions that UnitedHealth Group is a company under siege.

After the Journal’s report in May on the criminal investigation, UnitedHealth Group said in a statement: “We have not been notified by the Department of Justice of the supposed criminal investigation reported, without official attribution, in the Wall Street Journal today. The WSJ’s reporting is deeply irresponsible, as even it admits that the ‘exact nature of the potential criminal allegations is unclear.’"

While striking a different tone on Thursday, the company cited its previously announced plan for a series of third-party reviews on risk assessment coding, managed care practices and pharmacy services, saying they would “provide our stakeholders transparency and confidence in the company’s practices.”

“The company is committed to maintaining the integrity of its business practices and serving as reliable stewards of American tax dollars,” the company said in its filing.

As of 10:30 a.m., UnitedHealth Group shares were trading at $284.04, down about 3%. In early December, the price was $610 per share.

Investors have been rattled this year by the surprise departure of CEO Andrew Witty amid uncharacteristic financial missteps at the company. Long-time Chief Executive Stephen Hemsley has returned to the CEO suite and is set Tuesday to re-set financial guidance for the company as it reports second quarter earnings.

“Since pulling guidance after [the first quarter], investor sentiment has deteriorated significantly amid a series of negative headlines spanning both company-specific and broader industry headwinds,” analysts at Deutsche Bank wrote in a note to investors earlier this week. “These include ongoing investigation into medical coding practices.”

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