Louisiana’s attorney general sued UnitedHealth Group’s OptumRx and UnitedHealthcare businesses, alleging the pharmacy benefit manager and insurer overcharged the state’s Medicaid department by billions of dollars through inflated prescription drug prices.
Attorney General Jeff Landry alleged UnitedHealth Group was paid more money from the state because its Medicaid managed-care and PBM business arms gave it a “perverse incentive structure” to balance its medical loss ratio. State and federal government laws require that insurers spend a certain portion of every premium dollar on patient care through MLRs.
UnitedHealth Group has said that a strong firewall exists between its UnitedHealthcare insurer and Optum healthcare services subsidiaries, noting that each contracts with outside healthcare providers, insurers and other entities that compete with the other.
But the Louisiana attorney general is questioning the firewall between UnitedHealthcare’s insurer arm and Optum’s PBM services. By allegedly overcharging the state for prescription drugs, UnitedHealthcare distorts its MLR, the lawsuit said. The tactic also inflates the flat, capitation rate the state pays UnitedHealthcare to manage care for its Medicaid enrollees by heightening these members’ medical costs, according to the lawsuit.
“The more these ‘expenses’ are inflated, and the less transparent the billing is to Louisiana Medicaid, the greater the illicit profits are to Optum and United,” Landry said in the complaint.
The lawsuit alleged Optum’s arrangement violates its contract with the Louisiana Department of Health, unfair trade practices and false claims laws.
UnitedHealth Group provides affordable prescription medications, follows Louisiana state guidelines and meets the terms outlined in its contract with the Department of Health, a UnitedHealth Group spokesperson wrote in an email.
“We believe this lawsuit is without merit and will defend ourselves,” the spokesperson wrote.
Louisiana isn’t the first to question UnitedHealth Group’s firewalls between its business subsidiaries. A recent lawsuit by the Department of Justice seeking to block UnitedHealth Group’s $13 billion acquisition of Change Healthcare questioned the independence of each subsidiaries’ operations. If the deal goes through, UnitedHealthcare could use Optum’s heightened data insights to glean proprietary information on how rival insurers structure their networks, regulators allege.
UnitedHealth Group is challenging the lawsuits and disputes the claims.
More than 1.7 million lower-income adults and children are covered through the Louisiana Medicaid program, Healthy Louisiana.
The state health department began investigating its Medicaid managed-care insurers and pharmacy benefit managers in September 2021. State officials requested UnitedHealthcare and Optum provide all communications and contracts between the two companies about PBM services in the staet.
The requests initially met “resistance, delays and incomplete responses,” but UnitedHealth Group sent the documents to the attorney general in February 2022, the lawsuit said. However, 83% of the nearly 2,200 pages received were fully redacted, violating the terms of Optum’s contract with the state, the lawsuit said.
Regulators concluded from the information that Optum engaged in spread pricing, where it charged payers more than they reimburse the pharmacy for a specific drug and retain the difference.
Louisiana outlawed the practice in 2020 and mandated that PBMs operate a pass-through payment model, which means they derive revenue from a set administrative fee and return all rebates and discounts received from drugmakers back to their clients.
The suit alleged Optum charged the state Medicaid program for higher-cost branded drugs, while giving patients generics. The PBM also charged a higher fee for generic drugs than their average wholesale cost, according to the suit.
Landry claimed that Optum also charged UnitedHealthcare and other insurers for branded drugs, while reimbursing pharmacies for lower-cost equivalents, allowing it to retain the difference. The PBM also allegedly inflated the pharmacy dispensing fee to state, and clawed back rebates from pharmacies but failed to pass those refunds back to Louisiana Medicaid, the complaint said.
UnitedHealth Group “exploits the secrecy that surrounds the real prices paid for drugs through the supply chain, as well as the complex system of rebates, reimbursements and other payments” to overcharge other payers for prescription drugs, not just the Louisiana Medicaid department, the lawsuit said.