Decision in Medicare case could have bigger upside for UnitedHealth

A federal judge in Washington has handed UnitedHealthcare a legal victory in an ongoing lawsuit against Medicare, in a decision that may also help the Minnetonka-based for-profit insurance giant fight off two ongoing whistleblower cases pursued by the Trump administration.

On Friday, U.S. District Judge Rosemary Collyer in Washington published a 19-page opinion with a seemingly mild conclusion: When Medicare unveiled new rules in 2014 governing how insurers must return overpayments, those rules imposed new auditing responsibilities for insurers.

But Collyer's ruling was important for at least two reasons. First, it kept alive UnitedHealthcare's ongoing litigation against Medicare, which is seeking to overturn the 2014 Medicare rule requiring overpayments to be returned to the U.S. Treasury within 60 days. Medicare's lawyers had wanted the judge to toss out the case on procedural grounds, but Collyer's decision clears the way for a potential trial in the case.

Second, Friday's decision may also help the insurer's parent company, UnitedHealth Group, as it fights the Justice Department over allegations in two whistleblower cases that the company fraudulently held onto millions of dollars in overpayments from the Medicare Advantage program. Both whistleblower cases were filed by private whistleblowers; the Justice Department has joined them as plaintiffs since Donald Trump took office in January.

In joining the cases, the federal government leapt into a legal battle with one of its largest Medicare contractors. Forty-one of UnitedHealth's state-based insurance subsidiaries collectively serve about 3.5 million people, or roughly one in every five participants in the Medicare Advantage program, legal filings say.

Medicare is the $632 billion federal insurance program for Americans aged 65 and older. Medicare Advantage is a smaller program in which private insurers like UnitedHealth Group handle the claims and payments for Medicare patients up front and then get reimbursed by the Centers for Medicare and Medicaid Services (CMS) later on. About a third of all Medicare beneficiaries have a Medicare Advantage plan.

Under normal Medicare, payments are made for each diagnosis code submitted by the doctor's office or hospital, even though such codes are wrong at least 20 percent of the time. That error rate is particularly problematic under Medicare Advantage, because the program pays private insurers like UnitedHealth based an estimate of average per-patient Medicare costs, rather than the actual expenses — an indirect system called "capitated" payment.

Government lawyers had argued that UnitedHealth couldn't legally challenge the overpayment rule in a lawsuit because Medicare Advantage insurers like UnitedHealth have long been required to audit individual patient medical records in fine-tuning their capitated payments. Medicare also argued that such a rule challenge should be handled through administrative proceedings, not a court challenge.

Collyer ruled on Friday, however, that the requirement to inspect individual Medicare patient records to ensure their accuracy does indeed go beyond the long-standing requirement that insurers must exercise simple "due diligence" in the program. Further, she ruled that UnitedHealth can bypass the normal administrative-review system for challenging federal rules because that system would plunge the matter into a risky "procedural quagmire."

"To challenge the CMS rule administratively, plaintiffs would first have to facially commit 'fraud' without correction, because [making a] correction to avoid possible civil penalties and disbarment from Medicare could moot any challenge to the CMS rule," Collyer wrote. "This conundrum presents a systemic risk for all Medicare Advantage insurers that might want to challenge the CMS rule."

The ruling allows UnitedHealth's lawsuit against the CMS to proceed. But it may also be important for UnitedHealth's defense against the whistleblower cases because those complaints, when finalized, may end up accusing UnitedHealth of not complying with auditing standards before 2014. Collyer's ruling shows that CMS increased its expectations for the auditing insurers must do in 2014 and afterward.

"The government is trying to hold health plans to a standard the court has now said didn't exist, and the government should not rely on that nonexistent standard in future filings," UnitedHealth said in a statement.