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UnitedHealth Inflated Drug Costs, Louisiana Attorney General Alleges in Suit

Insurer used secret prices, byzantine supply chain, AG alleges

Scrutiny of drug benefit managers’ business practices growing

Bloomberg


UnitedHealth Group Inc. was accused by Louisiana’s attorney general of inflating prescription drug charges in the state’s Medicaid program by billions of dollars.


UnitedHealth’s pharmacy benefits manager, Optum Rx, used secret prices and the complexity of the supply chain to cause the safety-net health program “to needlessly pay billions of dollars more per year for prescription drug benefits,” according to a lawsuit from Attorney General Jeff Landry. The action was filed April 13 in state court.


UnitedHealth said in a statement that its services are performed in accordance with state regulations and the Medicaid program’s requirements outlined in its contract. “We believe this lawsuit is without merit and will defend ourselves against these unsupported allegations,” the statement said.


Pharmacy benefits managers have come under growing scrutiny from employers and governments over how they calculate drug costs. The case is the latest attempt by state authorities to curb what they call fraudulent pricing practices by pharmacy benefits managers hired to run Medicaid drug plans. UnitedHealth rival Centene Corp. took a $1.1 billion charge last year to resolve similar claims from several states.


UnitedHealth is one of several companies Louisiana hired to administer Medicaid, the state-based insurance plan for low-income residents. Contracts require the companies to spend a minimum share of their premiums on medical care, a threshold known as the medical-loss ratio, or MLR.


UnitedHealth also owns pharmacy benefit manager Optum Rx, which contracts with its health insurance plans. The AG alleged that Optum had an incentive to pump up its drug costs to help parent UnitedHealth meet its required spending on health care.


“Since only United is required to abide by the MLR requirement, inflating the drug costs paid to Optum actually helps United meet its MLR but does not create an actual loss to their parent company,” the AG’s filing said. “Inflated payments to Optum are additional profits for United, yet are counted as costs for the purposes of meeting the MLR.”


The petition alleges that Optum overcharges the state for generic drugs; engages in spread pricing by charging the state more than it pays pharmacies to fill prescriptions; and claws back money from pharmacies without passing it back the state.


“Unregulated middlemen, cloaked in secrecy, drive up their own profits at the expense of Louisiana citizens,” Landry said in an emailed statement. He alleged that PBMs take advantage of “an unclear web of contracts” with drugmakers, health plans and pharmacies, “taking a share of profits from each entity.”


The action cites a breach of contract, violations of the Louisiana Unfair Trade Practices Act and other violations. In addition to damages, restitution, and penalties, the AG asked the court to force United to turn over documents that the state requested during its probe but was unable to obtain.


The case is State of Louisiana vs. OptumRx and United Healthcare of Louisiana Inc., C-717848, East Baton Rouge Parish.