Lawsuit alleging UnitedHealthcare used faulty AI to deny coverage advances in federal court

A federal judge in Minneapolis has ruled portions of a patient lawsuit can move forward in which plaintiffs allege UnitedHealthcare has used a faulty artificial intelligence program to deny coverage for post-acute care needed by Medicare patients.

Judge John Tunheim of the U.S. District Court of Minnesota ruled last week that federal law preempts most arguments put forward by plaintiffs in the case.

But two claims — one for breach of contract and another for “breach of the implied covenant of good faith and fair dealing” — can survive the Minnetonka-based health insurer’s motion to dismiss the case, Tunheim wrote in a Feb. 13 order.

Ten patients or their families allege UnitedHealthcare used an artificial intelligence tool called naviHealth to cut off coverage of rehabilitation care after hospitalization. Plaintiffs contend they still needed the care, so the denials forced difficult decisions on whether to pay out of pocket or forgo the remainder of their prescribed post-acute care.

The patients’ two claims “survive pre-emption because those claims do not aim to regulate the same subject matter as federal standards,” the judge wrote. “In other words, the court need only review insurance documents to resolve these claims.”

UnitedHealthcare, which is the health insurance business of Eden Prairie-based UnitedHealth Group, said it believes the lawsuit is based on unfounded allegations and mischaracterizes the “work of our experienced and compassionate clinicians.”

The company insists its coverage decisions are only made by medical directors — not by artificial intelligence (AI) — in accordance with Medicare coverage criteria.

“Our number one priority is to ensure patients are receiving the care they need,” UnitedHealthcare said in a statement. “That’s the purpose of the naviHealth tool — it is used by our clinical care support team to suggest the care and services they should be receiving during their time in the facility or after returning home and to help patients, as well as their families, caregivers and providers, plan for their next step in care."

Eden Prairie-based UnitedHealth Group is one of the nation’s largest companies and parent company to UnitedHealthcare, the nation’s largest health insurer.

Plaintiffs filed their lawsuit in November 2023 as the news website Stat published an investigation into the company’s use of artificial intelligence technology developed by naviHealth. UnitedHealth Group acquired this business in 2020 for $2.5 billion, according to the lawsuit.

Similar complaints have been filed alleging other health insurers use artificial intelligence programs to deny coverage, as well.

The lawsuit is a putative class action that lists six patients, three estates and one family trust.

The health insurance industry has faced public outrage over wrongful denials following the Dec. 4 murder of UnitedHealth Group executive Brian Thompson.

The company this month agreed to pay $20.25 million to settle a lawsuit alleging improper denial of certain medical claims; a January report found the company and two Blue Cross and Blue Shield insurers had the highest denial rates for Affordable Care Act health plans. UnitedHealth Group said the lawsuit dealt with processes no longer in use, and blasted any suggestion that the study on ACA plans reflected a broad problem with denials by the company, because those health plans represent just 2% of total claims volume.

When the ongoing case in the U.S. District Court of Minnesota was first filed, the lead plaintiffs were the families of two patients who lived in north-central Wisconsin, about three hours east of the Twin Cities, and paid hefty out-of-pocket bills after receiving coverage denials for care in post-acute facilities.

UnitedHealthcare is the nation’s largest seller of Medicare Advantage health plans, where seniors receive their government-funded benefits through a private insurer.

The lawsuit alleges the insurer’s Medicare plans denied payment for claims from the patients' medical caregivers, forcing up to $70,000 in out-of-pocket costs for plaintiffs to receive continuing care.

UnitedHealth Group limits the ability of its workers to deviate from the AI projections, according to the original lawsuit. Citing the news article from Stat, the complaint said employees who didn’t follow the model were disciplined and terminated, without regard to whether patients needed more care.

In his ruling, Tunheim wrote that plaintiffs in the two surviving claims allege that UnitedHealthcare “explicitly described claim decisions as being made by ‘clinical services staff’ and ‘physicians,’ without mention of any artificial intelligence.” These are matters of “basic contract principles,” the judge wrote, that are not regulated by the Medicare Act, and therefore are not preempted by federal law.

All of the plaintiffs' claims in the case originate after the denial of benefits, Tunheim wrote, which means the Medicare Act requires plaintiffs to exhaust all administrative remedies before the court can exercise subject matter jurisdiction. No plaintiff has met this requirement, he wrote, “but because the court finds that plaintiffs suffered irreparable injury and the exhaustion would be futile, the court will waive this requirement.”

Tunheim wrote that two claims can survive preemption — a principle corporate defendants often use to argue they should be subject to federal law and rules rather than similar state statutes and regulations — “because the court will only need to evaluate compliance with the insurance agreements.”