Lawsuit alleges securities fraud, profit-boosting scheme at UnitedHealth Group

A massive pension plan in California alleges UnitedHealth Group has engaged in a wrongful profit-making scheme through its Medicare Advantage business that wasn’t disclosed, allowing top executives to reap millions in stock trades based on nonpublic information, according to an amended lawsuit filed in Minnesota this month.

The Eden Prairie-based health care giant blasted the complaint, saying in a legal filing that it substitutes page volume for substance, ignores government support for the company’s Medicare Advantage practices and misreads records showing executives actually increased their stock holdings, “which is the opposite of selling to profit from alleged fraud.”

The 158-page complaint in the U.S. District Court of Minnesota, filed last year and amended late last week, incorporates allegations of questionable Medicare Advantage billing practices at UnitedHealth Group that were detailed in separate investigative reporting projects last year by the Wall Street Journal and the online publication STAT.

CalPERS, the pension fund that manages $500 billion in assets for public sector retirees in California, is lead plaintiff in the putative class-action complaint, which was brought on behalf of purchasers of UnitedHealth Group common stock between Sept. 22, 2021 and Feb. 20, 2025.

“As the nation’s largest public pension fund, CalPERS purchased more than 1.8 million shares of UnitedHealth stock during [a two-year portion of] the period covered by the lawsuit,” the California Public Employees’ Retirement System said in a statement to the Minnesota Star Tribune. “Our court filings ... state that the pension fund posted losses of more than $76.3 million in the investment [between March 14, 2022, and Feb. 27, 2024] due to the alleged actions of UnitedHealth — larger losses than any other plaintiff.”

UnitedHealth Group is parent company for UnitedHealthcare, the nation’s largest health insurer, and Optum, a fast-growing health services business that provides IT consulting, pharmacy benefits and a national network of outpatient medical clinics.

The clinics, and their interaction with the company’s Medicare Advantage health plans, have been a focus of the recent investigative journalism reports as well as the CalPERS lawsuit.

UnitedHealth Group insists the complaint fails to show any false or misleading statements, doesn’t specify what laws the company allegedly violated and ignores the fact that the federal agency running Medicare “has consistently found that programs like the one the plaintiff complains about are legal, provide significant benefits for the health care system and are heavily scrutinized to deter abuse.”

CalPERS sued UnitedHealth Group nearly 20 years ago when the company was rocked by allegations that Dr. William McGuire, the CEO at the time, wrongly realized enormous personal wealth via “backdated” stock options.

The new lawsuit names the company as a defendant along with Brian Thompson, the UnitedHealth Group executive who was killed on a New York City sidewalk in December while walking to a company investor conference. Chief executive Andrew Witty also is a defendant in the CalPERS litigation, along with Stephen Hemsley, the UnitedHealth Group board chair who served as chief executive for more than a decade after McGuire stepped down.

Executives made millions in stock trades while making or causing to be made false or misleading statements that pushed up the value of the company’s stock, according to the lawsuit. In particular, they sold more than $100 million in stock, the complaint alleges, after learning of a nonpublic investigation by the U.S. Department of Justice that was later reported by the Wall Street Journal.

The amended lawsuit alleges securities fraud and reads like an unauthorized biography of the giant health care corporation, describing the Minnesota origins of UnitedHealth Group in the 1970s and allegations the company has grown by gaming landmark federal laws passed in 1997 and 2010.

The earlier statute launched a program known as Medicare Part C, in which health insurers sell Medicare Advantage health plans offering a privatized version of government health insurance benefits for seniors. The lawsuit outlines a series of accusations related to UnitedHealthcare’s huge growth within Medicare Advantage and a scheme to allegedly game a system via “upcoding,” where insurers get paid more for covering patients suffering more health problems.

“UnitedHealth induced providers to find new diagnoses by paying bonuses to providers who upcoded,” the lawsuit states. “UnitedHealth trained providers to use ‘buddy codes,’ that is adding multiple new diagnoses based upon existing ones. UnitedHealth also purposefully leveraged its HouseCalls program, whereby the Company would dispatch nurse practitioners to members’ homes to perform physical assessments in search of new diagnoses, even if they were not medically supported.”

The lawsuit includes accounts from seven confidential witnesses, including a primary care physician dubbed “CW3,″ who described corporate pressure to change how physicians treated Medicare Advantage (MA) patients after Optum in late 2018 became majority shareholder in the doctor’s clinic.

“The clinic became hyper focused on converting non-MA members to being members of UnitedHealth’s MA program, which was communicated through weekly emails, meetings, and outreach from clinic’s managed care department,” the lawsuit alleged.

“Due to pressure from management, [the doctor and staff] began prioritizing CW3’s UnitedHealth MA members over CW3’s other patients. CW3 also described a widespread campaign at the clinic to maximize the [diagnosis] codes for each of the clinic’s UnitedHealth members in order to increase risk-adjustment scores.”

The lawsuit alleges UnitedHealth Group has gamed rules under the federal Affordable Care Act of 2010 that regulates the “medical loss ratio” (MLR) of health insurers.

These rules force health plans to spend between 80% and 85% of member premiums on health care for patients, rather than administrative costs and insurer profits. The lawsuit alleges UnitedHealth Group bypassed MLR restrictions by having its health insurance division pay for services provided at Optum clinics and cites a STAT report that said rates were higher than clinics received from another national insurer.

“UnitedHealthcare could collect premiums, send patients to Optum Health for treatment, and pay itself (through Optum) for the requisite level of healthcare needed to satisfy the MLR requirements,” the lawsuit states. “Designing its corporate structure in this way allowed UnitedHealth to circumvent the ACA’s MLR restrictions and retain greater profits on both the insurance side and the provider side of the ledger.”

CalPERS also alleges UnitedHealth misled investors about data firewalls within its Change Healthcare subsidiary, which Optum acquired for about $13 billion in 2022. UnitedHealth disclosed in February 2024 that Change Healthcare had been breached in the largest known health care computer-hacking incident in years, affecting 190 million people.

UnitedHealth has stressed that a court hearing in a Justice Department challenge to the acquisition found UnitedHealth Group had policies and incentives to protect information, including with respect to internal firewalls.

A motion from UnitedHealth in February to dismiss the original complaint did not address the allegations on medical loss ratios, but argued plaintiffs had failed to define the alleged upcoding in Medicare Advantage while noting Medicare allows companies to use health risk assessments, chart reviews and other measures to find additional diagnoses.

The federal government performs audits “that measure the accuracy of risk-adjusted diagnoses, including those identified through House Calls visits,” the company said.

And on executive stock trades, UnitedHealth Group argued that defendants increased their overall holdings, calling this “the last thing they would do” if the goal had been to dump stock to avoid losses. Plus, sales were submitted for preclearance by the company’s legal team, “hardly the action of fraudsters trying to profit from improper insider trades.”

UnitedHealth Group has until May 20 to file a motion to dismiss the amended complaint.