UnitedHealth Must Answer for AI-Based Claim Denials

A proposed class action lawsuit against UnitedHealth Group that claims the company’s insurance unit UnitedHealthCare used of artificial intelligence tools to deny Medicare Advantage claims for medically necessary care has the green light to proceed from a federal judge.

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In a ruling Thursday, a Minnesota federal judge dismissed some of the plaintiffs’ allegations against UHG – including unjust enrichment, bad faith insurance, and various state statutory claims – saying those claims are preempted by the federal Medicare Act.

But the judge allowed the plaintiffs’ claims of breach of contract and breach of the implied covenant of good faith and fair dealing to proceed because they are not preempted by federal law.

In the allegations that the judge allowed to move forward, plaintiffs argue that UHC in its insurance agreement “explicitly described claim decisions as being made by ‘clinical services staff’ and ‘physicians, without mention of any artificial intelligence,” the judge wrote.

The plaintiffs allege that instead, UHC’s denial of claims for post-acute care involved UHC’s use of AI tools, and not clinical professionals.

“These claims effectively arise out of UHC’s evidence of coverage documents because the question would be whether UHC complied with its statement that claim decisions would be made by ‘clinical services staff’ and ‘physicians’ when it allegedly used artificial intelligence,” the judge wrote.

The lawsuit filed in November 2023 and amended in April 2024 by the estate of Gene Lokken and other “similarly situated” UHC Medicare Advantage policyholders alleged, among other claims, that the insurance company is using an AI tool – nH Predict AI Model – to illegally deny medically necessary coverage for post-acute care, including skilled nursing and home healthcare, to elderly plan members (see: Lawsuit: Health Insurer’s AI Tool Illegally Denies Claims).

In seeking the dismissal of the case, UHG argued that all of plaintiffs’ claims are subject to the “exhaustion of administrative remedies” requirement, meaning that when an insurance claim for Medicare coverage is denied, the Medicare Act outlines a four-level appeals process through which patients can challenge their coverage denial before litigating the case in court.

The plaintiffs in the lawsuit against UHG appealed their denials to differing points in the appeals process, but none completed the entire four levels, court documents said.

But the plaintiffs alleged that UHC constantly throws out obstacles to prevent completing the appeals process.

“Plaintiffs claim that when a patient has a denial overturned, UHC immediately issues another denial letter such that the patient is perpetually stuck in a loop of denial, appeal, denial until eventually they give up,” the judge wrote. “Plaintiffs accuse UHC of approving any appeals that reach the late stages so that administrative remedies are never exhausted.”

As a result of the claims denial, the plaintiffs alleged they either paid out of pocket for continuing post-acute care that should have been covered, while others alleged patients went without care that was medically necessary, resulting in “worsening injury, illness or death.”

Plaintiffs allege that UHC used nH Predict AI Model in lieu of physicians and clinical professionals making coverage determinations.

“nH Predict compares the specific patient with similar patients and recommends an estimated amount of post-acute care needed,” court documents said. “Plaintiffs contend that UHC used this model to determine the amount of coverage an individual patient needed, regardless of the recommendation made by their treating physician,” the court documents said.

Plaintiffs allege that nH Predict applies “rigid criteria” that UHC required its employees to follow “under the threat of termination.”

Additionally, the judge in his ruling wrote that plaintiffs allege that “UHC knew of nH Predict’s inaccuracies because over 90% of claim denials are reversed on appeal and over 80% of preauthorization denials are reversed. UHC denies any use of nH Predict.”

“Plaintiffs bring a putative class action contesting UHC’s use of nH Predict, rather than actual people, to make coverage decisions, contradicting UHC’s insurance policy documents,” U.S. District Court Judge John Tunheim wrote.

Disclosing AI Use

Regulatory attorney Rachel Rose – who is not involved in the UHC case – said that breach of contract and the duty of good faith and fair dealing are core contract items that often arise in litigation. In the case against UHC, “it underscores that persons are ultimately responsible for the technology being deployed,” she said.

Disclosure about the use of AI should be included in coverage agreements issued by healthcare insurers – and in those situations, AI-fueled denials may also warrant a different appeal process, she said.

“Under HIPAA, individuals are entitled to their health records, so it would be interesting to see what goes into the algorithms and how decisions are made that is not individually based but is based on a large amount of data, which may or may not be relevant to a particular patient and the totality of their facts,” she said.

Besides the litigation, UHC’s claims denial policies have fallen under intense public scrutiny in the aftermath of the December murder of its CEO Brian Thompson as he walked in Manhattan to a company investors meeting.

Bullet casings found at the murder scene were scrawled by the alleged killer with the words “deny” “delay” and “depose.” Almost immediately after news broke about Thompson’s shooting, social media exploded with a tidal wave of hostile comments about the company’s coverage denial practices – and the healthcare insurance industry overall (see: CEO’s Murder Sparks Outcry Over UHC’s Coverage Denials).

UHG did not immediately respond to Information Security Media Group’s request for comment on the federal court’s ruling to allow the claims denial lawsuit by plaintiff Lokken’s estate to proceed.

But in response to a Wall Street Journal story on Thursday about healthcare insurance companies’ denial practices, UHG issued a statement saying that in total, it pays 98% of all eligible claims.

“For the remaining 2%, the majority are instances where the services did not meet the benefit criteria established by the plan sponsor, such as the employer, state or Centers for Medicare & Medicaid Services. Less than one-half-of-one percent of claims are not approved based on clinical evidence and patient safety,” UHG said.

The lawsuit against UHG highlights that these kind of Medicare and other insurance coverage disputes “ultimately boils down to the futility in using the administrative process rather than litigation and the type of discovery that only can take place in civil litigation when it comes to the topic of AI and bias,” said cybersecurity attorney Steven Teppler, a partner of the law firm Mandelbaum Barrett PC, which is not involved in the UHG case.

“We’re in the Wild, Wild West phase. Without transparency and accountability, we could see health provision turn into more of a cost-over-benefit concern than it already is,” he said.