By Sriparna Roy and Amina Niasse

(Reuters) – The U.S. Justice Department is investigating UnitedHealth’s Medicare billing practices, the Wall Street Journal reported on Friday, while the health insurer said it was unaware of any new probe underway.

UnitedHealth Group shares were down 7.3%, weighing on the broader Dow Jones Industrial Average, which was down more than 1%. Shares of rival insurers were caught up in the sell-off, with Humana down 5.5% and CVS Health off 2.3%. 

The civil fraud investigation, which was launched in recent months, is examining the company’s practices for recording diagnoses that trigger extra payments to its Medicare Advantage plans, the Journal reported, citing people familiar with the matter. 

The newspaper has run a series of stories over the last several months detailing how UnitedHealth profited from using Medicare billing rules to its favor.

UnitedHealth said the report contained misinformation about its Medicare Advantage plans, without providing details.

“The government regularly reviews all MA plans to ensure compliance and we consistently perform at the industry’s highest levels on those reviews,” UnitedHealth said in a statement. 

The Department of Justice declined to comment.

Nearly half of the 65 million people covered by Medicare, the U.S. program for people aged 65 and older or with disabilities, are enrolled in Medicare Advantage plans run by private insurers. Insurers are paid a set rate for each patient, but can be paid more for patients with multiple health conditions.

Standard Medicare coverage is managed by the government.

“Investors are selling because it creates an unknown that is hard to quantify. It’s impossible to truly know at this point how the investigation will unfold and what the ultimate impact will be on UNH’s profitability,” said James Harlow, senior vice president at Novare Capital Management, which owns UnitedHealth shares.     

United has several businesses including a large pharmacy benefit manager. The company’s margins are already under pressure from rising medical costs in its insurance business.

The reported investigation is the latest in a series of recent setbacks for UnitedHealth. 

Its shares have come under pressure since Brian Thompson, who was CEO of its insurance business, was fatally shot in New York on December 4, sparking conversation around frustrations with navigating the U.S. insurance system.

AN OVERREACTION?

With only 15% of members in UnitedHealth’s insurance business in Medicare Advantage, the steep share decline may be an overreaction to the lawsuit, said Julie Utterback, an analyst at Morningstar. 

The Wall Street Journal reported that the company had revenue increases generated from diagnoses made by Minneapolis-area doctors employed by UnitedHealth. An additional $8.7 billion in federal funds was paid to the company in 2021 for diagnoses patients were never treated for, the Journal reported last year.

The company’s unit that employs nurses to check on patients at home was one source of the Medicare payments.

“I think it is fair to say that regulators may look beyond UnitedHealth for potential wrongdoing, which has driven the shares of other (managed care organizations), particularly those with concentrations in Medicare Advantage like Humana and CVS, down today, too,” Utterback said.

A spokesperson for CVS said the company had not been approached regarding an investigation on billing practices at its Aetna health insurer. Humana did not immediately respond to a request for comment.

Earlier this week, CNBC reported that UnitedHealthcare was offering employees in its benefits operations unit the option to accept buyouts, and may pursue layoffs if the resignation quota is not met. UnitedHealth told Reuters it was offering a voluntary option to team members.

The healthcare conglomerate was also sued by the DOJ late last year to block its $3.3 billion purchase of home health services provider Amedisys. 

The Justice Department has a long-running lawsuit pending against UnitedHealth over Medicare Advantage, scheduled to go on trial in October.    

Lawmakers and the Federal Trade Commission have also been investigating the role in rising healthcare costs of pharmacy benefit managers such as UnitedHealth’s OptumRx, which act as middlemen between drug companies and consumers.

(Reporting by Sriparna Roy in Bengaluru and Amina Niasse in New York; Editing by Shailesh Kuber, Devika Syamnath and Bill Berkrot)