By Mackenzie Tatananni

UnitedHealth Group stock fell sharply Friday following a report that said the Justice Department had launched a civil fraud investigation into the company's Medicare billing practices.

The DOJ probe aims to examine the healthcare company's practices for documenting diagnoses that trigger extra payments to its Medicare Advantage plans, The Wall Street Journal reported, citing people familiar with the matter.

Shares of UnitedHealth Group sank 9.4% to $455.34, putting them on pace for the lowest same-day percentage decrease since March 18, 2020, according to Dow Jones Market Data.

Under the current system, the federal government pays insurers a fixed amount each month to oversee enrollees' Medicare benefits. These payments can increase when patients have certain diagnoses.

An official Medicare booklet notes that each Medicare Advantage plan "can charge different out-of-pocket costs and have different rules for how you get services."

UnitedHealth denounced the Journal's report as "misinformation" in a statement, adding that any suggestions of fraudulent practices were "outrageous and false."

"The government regularly reviews all MA plans to ensure compliance and we consistently perform at the industry's highest levels on those reviews," the company said. "We are not aware of the 'launch' of any 'new' activity as reported by the Journal."

The Justice Department didn't immediately respond to a request for comment from Barron's.

News of the alleged investigation comes months after the DOJ moved to block UnitedHealth's acquisition of home health provider Amedisys on antitrust grounds. Amedisys agreed to the $3.3 billion deal in 2023, but the Justice Department filed suit in November, arguing that the proposal would eliminate competition in the hospice industry.

In late December, Amedisys agreed to waive its right to terminate its merger agreement with UnitedHealth until the U.S. District Court for the District of Maryland rules on the lawsuit, or until the end of 2025, whichever comes first.

The Medicare Advantage system has been a target of scrutiny in the past. UnitedHealth was named in a report in October from the Office of Inspector General for the U.S. Department of Health and Human Services, which found that two sources of enrollee diagnoses, health risk assessments (HRAs) and chart reviews, were "vulnerable to misuse" by healthcare companies.

The OIG found that UnitedHealth "stood out from its peers," especially in its use of in-home HRAs and HRA-linked chart reviews to generate risk-adjusted payments.

"Taxpayers fund billions of dollars in overpayments to Medicare Advantage companies each year based on unsupported diagnoses for Medicare Advantage enrollees," the OIG wrote.

UnitedHealth has made headlines over the past few months following the murder of executive Brian Thompson. The killing triggered a public debate about the handling of claims in the healthcare insurance sector.

In his first public remarks after Thompson's death, UnitedHealth CEO Andrew Witty acknowledged that the healthcare system "does not work as well as it should."

UnitedHealth's peers in the healthcare sector were also trading lower on Friday. Humana was down 4.8%, Elevance Health was down 1.6%, and CVS Health declined 1.8%.

Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com

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February 21, 2025 10:56 ET (15:56 GMT)

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