A class-action lawsuit filed Tuesday claims Minnetonka-based UnitedHealth Group is using a faulty artificial intelligence algorithm to wrongly deny coverage for Medicare patients who need rehabilitation care following hospitalizations.

The complaint was filed in the U.S. District Court of Minnesota after the news website STAT published an investigation into the company's use of the technology.

The lead plaintiffs are 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.

UnitedHealth Group said it would mount a vigorous defense against the lawsuit, saying the complaint "has no merit."

The litigation comes amid signs of growing consumer and government suspicion that health insurers are frequently denying payment for medically necessary services.

"This putative class action arises from defendants' illegal deployment of artificial intelligence (AI) in place of real medical professionals to wrongfully deny elderly patients care owed to them under Medicare Advantage plans by overriding their treating physicians' determinations as to medically necessary care based on an AI model that defendants know has a 90% error rate," the lawsuit says.

Minnetonka-based UnitedHealth Group runs UnitedHealthcare, one of the nation's largest health insurers. The company said the technology described in the lawsuit is not used to make coverage determinations.

"The tool is used as a guide to help us inform providers, families and other caregivers about what sort of assistance and care the patient may need both in the facility and after returning home. Coverage decisions are based on [federal] coverage criteria and the terms of the member's plan," UnitedHealth said in a statement.

The company is the nation's largest seller of Medicare Advantage coverage, health plans that allow seniors to receive their government-funded benefits through a private insurer.

The lawsuit alleges that UnitedHealth'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 lawsuit. Citing the news article, the complaint says employees who don't follow the model are disciplined and terminated, without regard to whether patients needed more care.

"The fraudulent scheme affords defendants a clear financial windfall in the form of policy premiums without having to pay for promised care, while the elderly are prematurely kicked out of care facilities nationwide or forced to deplete family savings to continue receiving necessary medical care, all because an AI model 'disagrees' with their real live doctors' determinations," the lawsuit contends.

UnitedHealth Group continues using the flawed AI model, the lawsuit says, because so few patients typically appeal health insurance denials.

The plaintiffs named in the lawsuit tried to appeal the company's decisions, but wound up paying out of pocket. In other cases, patients "forgo the remainder of their prescribed post-acute care," the complaint says.

UnitedHealth Group uses a model known as "nH Predict" to project how long it should take for patients to recover in facilities like nursing homes and other post-acute settings, according to the lawsuit.

The complaint includes a sample report produced by NaviHealth, a Tennessee-based company that UnitedHealth Group acquired in May 2020. It assessed a patient's mobility, activity level and cognition scores to generate an anticipated length of stay in a skilled nursing facility.

"This report was provided to your patient's health plan for consideration in authorizing care and treatment," the report concludes.

Plaintiffs in the lawsuit allege that UnitedHealth "bank[s] on the patients' impaired conditions, lack of knowledge and lack of resources to appeal the erroneous AI-powered decisions."

In July, the U.S. Department of Labor sued a UnitedHealth Group subsidiary that runs employer health plans over allegations that the company wrongly denied thousands of claims by health care providers for emergency room services and drug screenings. The company defended its practices while saying the complaint deals with administrative processes that are no longer in place.

This month, Nebraska regulators imposed a $1 million penalty against Bloomington-based Bright Health over alleged errors with claims processing, including more than 100 cases of denied coverage by the health insurer for newborn medical care.

Last year, the Office of the Inspector General at the U.S. Department of Health and Human Services reviewed a random sample of prior authorization requests handled by Medicare Advantage plans and found that about 13% of denials actually met coverage rules — meaning they likely would have been paid for under original Medicare.