(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 fell 9%, weighing on the broader Dow Jones Industrial Average, which was down nearly 1%. Shares of rival insurers were caught up in the sell-off, with Humana down 4% and CVS Health slipping 1.5%.
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.
Medicare Advantage plans are offered by private insurers who are paid a set rate by the U.S. government to manage healthcare for older adults.
“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 own 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.
With only 15% of members in UnitedHealth’s insurance business covered by Medicare Advantage, the steep share decline may be an overreaction to the lawsuit, said Julie Utterback, an analyst at Morningstar.
Earlier this week, CNBC reported that the company’s insurance unit is offering employees in its benefits unit the option to accept buyouts, and may pursue layoffs if the resignation quota is not met.
