(Bloomberg) -- The US Supreme Court rejected an appeal by UnitedHealth Group Inc., leaving in place a federal rule designed to recoup billions of dollars in overpayments from insurers that participate in the Medicare Advantage program.

UnitedHealth and its allies argued unsuccessfully that the 2014 Centers for Medicare & Medicaid Services rule will gut the popular program, forcing insurers to reduce coverage and benefits or raise premiums for many of the 26 million seniors who are enrolled.

In court papers, UnitedHealth said the disputed rule “seriously compromises” Medicare Advantage and its payment system. UnitedHealth is the largest Medicare Advantage insurer in the US, enrolling about 6.9 million Americans in its plans, according to a company filing. Last year it had more than a quarter of the market.

The rule implements a 2010 law that requires Medicare Advantage insurers to return overpayments they discover within 60 days. The rule defines overpayments to include those based on diagnoses that aren’t supported by the beneficiary’s medical record.

Medicare Advantage insurers are paid on a per-capita basis, weighted using “risk scores” to account for each patient’s diagnoses and demographic factors.

UnitedHealth contended the rule violates a separate congressional requirement that the government’s payments to Medicare Advantage plans reflect an “actuarial equivalence” with the fee-for-service payments under traditional Medicare.

A federal appeals court in Washington upheld the rule on a 3-0 vote, saying the actuarial-equivalence provision describes the overall aims of the payment model but “does not separately apply to the requirement that Medicare Advantage insurers avoid known error in their payment requests.” 

The Biden administration urged the Supreme Court to reject the appeal. It said audits conducted by the Health & Human Services Department found that more than 40% of the risk scores in each of two UnitedHealth plans were inaccurate due to unsupported diagnoses. The department estimated the impact on payments for those two contracts to be more than $500 million.

The Centers for Medicare & Medicaid Services estimated the government made more than $16 billion in improper payments under Medicare Advantage during fiscal 2016 alone, according to a 2017 Government Accountability Office report.

The private version of Medicare has become a growth engine for the US health insurance industry, with enrollment in Medicare Advantage roughly doubling in the last decade. Insurers have come under scrutiny for the way they record patient illnesses, with authorities saying the practices sometimes inflate payments. The industry has defended the practices, saying insurers are reimbursed appropriately for the risk they take on.

The US Chamber of Commerce and America’s Health Insurance Plans, which represents the industry, backed UnitedHealth in the Supreme Court case.

The case is UnitedHealthcare Insurance v. Becerra, 21-1140.

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