What You Need To Know About DoJ's Whistleblower Lawsuit Against UnitedHealth

UnitedHealth Group Inc UNH shares were down over 4 percent on Friday. This follows the stock's recent run up along with the broader market. The catalyst of the downward move was the unsealing of a whistleblower lawsuit filed against the company and the Justice Department joining on some claims.

Making sense of the development, Wells Fargo said those claims in which the DoJ has joined may be of more merit in the department's view and that it would take over the litigation, with its more substantial resources.

Recapping the lawsuit, analyst Peter Costa noted that the whistle blower lawsuit focuses on Medicare Advantage and the way members are coded for risk. The lawsuit filed by company executive Benjamin Poehling in 2011 alleged that it acted improperly to inflate the risk scores, Wells Fargo said citing the New York Times.

Risk codes are a multiplier to the per member per month rates that Medicare pays. These codes are assigned by the government based on diagnoses made by physicians.

The firm is of the view that issues rising to the level of warranting a DoJ entry could result in larger fines and damages, as false claims act lawsuit carries potential treble damage penalties. Meanwhile, Wells Fargo noted the company's assertion that it has complied with the program rules and would contest the claim vigorously.

Wells Fargo has an Outperform rating on the shares of UnitedHealth.