UnitedHealthcare study may mean Congress takes up vertical integration reform
A recent study published by Health Affairs about what UnitedHealthcare pays its sister providers compared with other network providers could ignite renewed scrutiny of vertical integration. It could also lead to a fresh look at what some call the gaming of the minimum medical loss ratio (MLR) mandate that touches virtually all insurance product types out there except self-insured employer coverage.
The study finds that UnitedHealthcare pays its owned providers at sister company Optum 17% more than those it does not own. And if United controls 25% or more of a market, that percentage increases to 61%. Again, researchers said the results suggest the company may be sidestepping government rules regarding calculation of medical expenses against premiums. If those rules are not met, rebates need to be sent to the government, employers, or individuals depending on the type of coverage. In effect, higher payments to owned providers would boost the MLR and more likely hit or exceed the required spending (usually 80% or 85% of premium).
United has been battered of late for poor financial planning and oversight as well as a number of investigations, some including alleged fraud. Of course, United says the study is just plain wrong. Yes, the study has some limitations, and the researchers admit this. The study looked at just 14 CPT medical codes and about 385,000 transactions. But these were frequently performed and high-cost procedures in the commercial world. And to arrive at the over-reimbursement calculation, United payments were compared to what other large insurers, such as CVS’ Aetna, Cigna and Elevance Health, paid providers. As our parents might have told us when we were young, where there is smoke there usually is fire.
Notwithstanding United’s declarations to the contrary, the research would seem to be legitimate and reach a correct conclusion. It has long been suspected that vertically integrated health plans tend to sign lucrative deals with their own sister companies so as to inflate medical expenses on the books. This also keeps the revenue in the family and may free these organizations from a great deal of minimum MLR rebates. Even though rebates do not apply in the self-insured world, the scheme adds to what health plan administrators earn and employers usually are none the wiser.
I have written a series of blogs on vertical integration in the past. Two important ones are at the end of the blog and remain very relevant today. Go there to learn more. But here are a few key points on this phenomenon:
- We know these agreements between sister companies are big and they usually are tied to revenue from owned health plans or pharmacy benefits managers (PBMs). But they also impact contracted employer groups as well as other health plans (in the case of contracting with a PBM).
- We see a huge amount of revenue that is “eliminated” on the balance sheets of the biggest publicly traded integrated health companies. These “eliminations” show the revenue that is duplicated between companies from the original external source. The same revenue appears on the insurer balance sheet as well as the downstream sister companies. These eliminations show how much revenue is kept within the master organization and may be subject to suspicious, high-priced deals. In Q1 2024, those eliminations were almost $63 billion at the seven biggest publicly traded healthcare companies with health plans. That is a quarter of a trillion dollars annually and perhaps growing. The Wall Street Journal says between 10% and 20% (perhaps more now) can be shuttled to sister companies by these big healthcare players.
- The major ways in which insurers or directly contracted PBMs shuttle revenue to a sister entity often at non-market prices include:
- To owned providers utilizing higher-than-market payments or lucrative risk arrangements.To owned service entities to perform certain functions, often at higher-than-market prices or with lucrative risk arrangements.To owned PBMs, where higher prices are paid to the PBM.To owned retail and mail-order pharmacies, where reimbursement could be more lucrative than the market rates.
- To specialty pharmacies. These entities are often the only access points for consumers and earn lucrative revenue as well.
- Specific to drug arrangements, a Wall Street Journal analysis found Cigna, CVS Aetna, and UnitedHealth charged 27.4, 24.2, and 3.5 times more, respectively, than Mark Cuban’s Cost Plus pharmacy across a selection of nineteen drugs.
Conclusion
Congress and policymakers need to look at two things. First, the massive consolidation in the healthcare industry in general. This is leading to higher prices and costs due to the consolidation of health plans, hospitals, provider groups, and other entities. Second, the inside deals struck between various entities owned by the massive vertical entities. The deals lack transparency and are not legally arms-length. These drive costs in healthcare too.
The good news is that earlier transparency reforms are now bringing some light to all these backroom deals. That is a very good thing.
#verticalintegration #healthplans #minimummlr #unitedhealthcare #consolidation #mergers #manda
Previous blogs on the subject:
— Marc S. Ryan
