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

UnitedHealth Group said Thursday it is cooperating with a U.S. Department of Justice investigation into its Medicare business, reversing its previous denials of a probe.

The disclosure was a sharp departure from UnitedHealth’s response in May when the Wall Street Journal first reported the DOJ had opened a criminal investigation into the company. UnitedHealth attacked the Journal’s reporting in a published statement at that time, calling it “deeply irresponsible.”

The federal investigation appears to be rooted in allegations that UnitedHealth, including its massive UnitedHealthcare health insurance division, gamed Medicare’s system to wrongly inflate their federal payments.

In June, the Journal had revealed further details about the Justice Department’s probe, namely that its 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.

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

“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,” the company said Thursday in a regulatory filing. “The company has now begun complying with formal criminal and civil requests from the department.”

UnitedHealth’s critics say insurers have gamed the system to boost 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 finance director at the company, Benjamin Poehling, who made similar allegations.

In its disclosure Thursday, the company referred to 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.

The company added that independent auditors have found its “practices are among the most accurate in the industry.”

The Journal’s May article followed previous reports 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 its federal payments by billions of dollars.

Investigative reporting about the company’s risk adjustment practices, combined with public anger at the company that found a focus in the killing of a top executive on a public sidewalk in New York City in December, has built a perception that UnitedHealth Group is a company under siege.

After the Journal’s report on the criminal investigation, UnitedHealth said in a statement: “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 now, 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 added.

By the close of trading Thursday, UnitedHealth Group shares had fallen to $278.58, down 4.75% for the day. In early December, the price was $610 per share.

Part of the decline, analysts said, reflected a huge sell-off at a rival health insurer that cut its earnings guidance amid a surprising rise in medical costs.

“These now-acknowledged investigations highlight key risks that have cut into shares in recent months, and we suspect fines or clawbacks of previous overpayments related to its MA plans are possible if wrongdoing is found,” Julie Utterback, an analyst with Morningstar, wrote in a Thursday note to investors.

The unexpected departure of CEO Andrew Witty amid uncharacteristic financial missteps at the company have only fed the uncertainty on Wall Street. Longtime former Chief Executive Stephen Hemsley returned and is expected on Tuesday to reset financial guidance while reporting 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.”

Utterback at Morningstar said investors should be aware of elevated uncertainty and share volatility, while noting that, “UnitedHealth has been facing investigations into its MA practices, like risk-related upcoding, for about a decade, and it has yet to face significant financial consequences.”

Terri Cancelarich, an analyst with Gimme Credit, said she thought it was “likely” the company would end up paying a financial penalty that could total billions.

Investors would like a speedy resolution, but that may not be possible.

“We think publicly acknowledging the investigation is a step in the right direction as it removes some confusion for the investing community,” Paige Meyer, an analyst with CFRA, said in a statement. “However, the outcome of the investigations could go either way and are unlikely to be decided soon.”

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