Private Medicare plans must return overpayments, appeals court rules

The corporate logo of the UnitedHealth Group in Santa Ana, California, U.S. REUTERS/Mike Blake

Aug 13 (Reuters) - A U.S. appeals court on Friday revived a rule requiring private insurers that administer federally funded Medicare plans to return potentially billions of dollars in overpayments they receive based on incorrect diagnoses.

The unanimous ruling by a panel of the D.C. Circuit Court of Appeals in Washington was a setback for UnitedHealth Group Inc (UNH.N), which had successfully challenged the rule in a lower court.

UnitedHealth did not immediately respond to a request for comment. Nor did the U.S. Department of Health and Human Services, which oversees Medicare, the federal health insurance program for seniors and certain people with disabilities.

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The 2014 rule applies to so-called Medicare Advantage insurance plans, which are funded through HHS but administered by private insurers like UnitedHealth.

HHS pays Medicare Advantage plans a base amount per beneficiary, adjusted according to diagnostic codes reflecting each beneficiary's individual risk factors.

Under the rule, if a Medicare Advantage insurer learns that it received a payment based on an unsupported diagnosis, it must return that payment within 60 days.

According to a 2016 federal audit, the government paid out about $16.2 billion that year based on unsupported diagnoses, nearly 10% of the total paid to Medicare Advantage insurers.

In its 2016 lawsuit, UnitedHealth argued that the overpayment rule treated Medicare Advantage differently from traditional Medicare, which pays providers on a fee-for-service basis and does not comprehensively audit claims for overpayments. The insurer said the difference ran afoul of the Medicare law's requirement of "actuarial equivalence" between Medicare Advantage and traditional Medicare.

In 2018, U.S. District Judge Rosemary Collyer in Washington agreed, overturning the rule.

Circuit Judge Cornelia Pillard, however, wrote for the appeals court panel Friday that there was "no basis" to conclude that Congress intended the actuarial equivalence requirement to "thwart" insurers' obligation to return overpayments.

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Reporting by Brendan Pierson in New York; Editing by Steve Orlofsky

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Brendan Pierson reports on product liability litigation and on all areas of health care law. He can be reached at