UnitedHealth Group Inc uses an artificial intelligence algorithm that systematically denies elderly patients' claims for extended care such as nursing facility stays, according to a proposed class action lawsuit filed on Tuesday.

Family members of two now-deceased UnitedHealth beneficiaries sued the insurer in federal court in Minnesota, saying they were forced to pay out of pocket for care that doctors said was medically necessary.

They are seeking to represent a nationwide class of people on Medicare Advantage insurance plans, which are funded by the U.S. Medicare program for seniors and some people with disabilities and administered by private health insurers like UnitedHealth.

Ryan Clarkson, founder of the law firm representing the plaintiffs, said in an interview the class could include tens of thousands of people, and that claims for damages could reach billions of dollars.

UnitedHealth did not immediately respond to a request for comment. The Minnetonka, Minnesota-based company is the largest U.S. health insurance provider through its UnitedHealthcare Inc subsidiary.

The lawsuit centers on an AI algorithm known as nH Predict developed by NaviHealth Inc, a company acquired by UnitedHealth in 2020. It claims that UnitedHealth relies on nH Predict to evaluate claims for so-called post-acute care, which includes stays in skilled nursing facilities and in-home care.

UnitedHealth uses the algorithm to "prematurely and in bad faith discontinue payment for healthcare services," the complaint said.

"This is an example of how AI is being utilized not to help people but to line the pockets of corporations and their shareholders," Clarkson said.

When these coverage denials are appealed to federal administrative law judges, about 90% are reversed, the complaint said, demonstrating the "blatant inaccuracy" of the algorithm. Only a tiny fraction of patients appeal the denials at all, Clarkson said.

The lawsuit said UnitedHealth's use of nH Predict violates contracts with patients and the insurance laws of numerous states by deciding claims without properly evaluating them. It seeks a court order stopping the practice and awarding money damages.