UnitedHealth facing more lawsuits from disgruntled shareholders
UnitedHealth Group is facing another round of shareholder lawsuits citing the alleged Medicare fraud investigation reported by The Wall Street Journal in May.
Steve Silverman, a UHG shareholder since 2003, filed a second shareholder derivative lawsuit last week in U.S. District Court for the District of Minnesota.
A shareholder derivative suit is a lawsuit filed by a shareholder on behalf of a corporation against its own directors, officers or even third parties, with the litigant alleging that the corporation has been harmed by their actions.
Silverman alleges breaches of fiduciary duties, insider trading, unjust enrichment and violations of the Securities Exchange Act of 1934. Defendants include returning CEO Stephen J. Hemsley, former CEO Andrew Witty, and several current and former board members.
Silverman’s lawsuit cites several media reports on UnitedHealth’s “questionable billing tactics,” culminating with a May 14 Wall Street Journal scoop that the Department of Justice was preparing to initiate a criminal investigation into the insurer.
“Despite repeated warnings, UnitedHealth’s reliance on inflated coding practices continued through at least 2023 and apparently into 2024,” Silverman’s lawsuit claimed. “These tactics yielded billions of dollars in excessive reimbursements, a sum so large that it vastly inflated the Company’s financial results and stock price.”
UnitedHealth did not respond to a request for comment.
The Department of Justice began investigating the health insurer last summer, The Wall Street Journal reported, citing unnamed people familiar with the matter. In a widely distributed statement following the WSJ May story, UnitedHealth said the DOJ has not notified it of any investigation.
“We stand by the integrity of our Medicare Advantage program,” the statement added.
Other shareholder lawsuits
Shareholder Joseph Crognale filed a similar lawsuit June 30 against the same 14 defendants named in the Silverman complaint. Likewise, shareholder Merry Kogut filed a June 14 shareholder derivative lawsuit alleging ongoing fiduciary lapses by Hemsley, Witty and seven board members.
Kogut repeats claims that UnitedHealth executives and board members failed to disclose a DOL investigation into the insurer in late 2023. In the four-month interim, defendants “breached their fiduciary duties by causing UnitedHealth to repurchase its own stock at prices that were artificially inflated due to the foregoing misrepresentations,” Kogut’s complaint said.
“Between April 2022 and February 2024, UnitedHealth repurchased approximately 14 million shares of UnitedHealth common stock, costing the Company approximately $7.3 billion,” the lawsuit stated.
Kogut alleges that Hemsley reaped $211.5 million from UHG shares sold while the DOJ investigation remained unknown to the public. Witty made $11 million from share sales, Kogut claimed.
Payment practices questioned
All three lawsuits focus on investigations into UnitedHealth’s Medicare billing practices and the associated reporting. The insurer’s Medicare business proved lucrative but also generated negative publicity that damaged share prices, plaintiffs said.
For example, in an Aug. 4, 2024, article titled, “The One-Hour Nurse Visits That Let Insurers Collect $15 Billion From Medicare,” The Wall Street Journal detailed how UnitedHealth’s software frequently suggested obscure, high-reimbursement conditions, the Silverman lawsuit said.
A former nurse recalled being prompted to diagnose hyperaldosteronism, a rare condition seldom found in Medicare Advantage patients. Between 2019 and 2021, this diagnosis was logged 246,000 times through in-home assessments, Silverman noted, producing $450 million in added payments.
Since 2016, UnitedHealth Group has been a defendant in a False Claims Act lawsuit related to a whistleblower complaint of improper coding, Silverman noted. The False Claims Act permits private parties to sue on behalf of the United States for false claims for government funds, and to receive a share of any recovery. The False Claims Act permits the government to intervene.
UHG repeatedly acknowledged the FCA lawsuit, beginning with a 2017 Form 8K filing, Silverman noted, “making it a consistent point of disclosure and an unmistakable red flag to its Board.”
“The ongoing FCA litigation should have prompted the Board to curb the Company’s upcoding practices,” Silverman’s lawsuit stated. “However, the Individual Defendants allowed these behaviors to persist well after they came under public and legal scrutiny.”
UnitedHealth is reeling from a tsunami of bad news. The insurer is expected to report second-quarter earnings on July 29, along with a revised earnings guidance for investors. Witty resigned May 12 and UHG abandoned the earnings guidance it issued less than four weeks earlier.
Hemsley, who led UHG from 2006 to 2017, emphasized the discipline he is bringing back, along with “a fresh perspective.”
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