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Why Humana Is Suing Biogen

By Keith Speights and Brian Orelli, PhD – Oct 9, 2021 at 2:30PM

Key Points

  • Biogen previously settled with the U.S. government over allegations it paid co-pays for Medicare patients.
  • Humana is now seeking to recover millions of dollars in "overpayments" from the biotech.
  • This lawsuit isn't a major concern for Biogen.

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Biogen continues to deal with the aftermath of allegedly paying co-pays for some Medicare patients.

Biotechs such as Biogen (BIIB -0.65%) depend on health insurers like Humana (HUM -0.69%) to cover their drugs. But there can sometimes be a somewhat adversarial relationship between the two sides. And every now and then a matter can even end up in litigation. In this Motley Fool Live video recorded on Sept. 29, 2021, Motley Fool contributors Keith Speights and Brian Orelli discuss why Humana is suing Biogen.

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Keith Speights: Big insurer, Humana (HUM -0.69%), ticker there is HUM, has filed a lawsuit against Biogen (BIIB -0.65%).

Why is Humana suing Biogen? How serious of an issue is this for the company?

Brian Orelli: Yeah. They are reportedly Biogen was paying Medicare co-pays for multiple sclerosis patients. The government doesn't like that because it increases the likelihood that patients will be given drugs that they don't need or more expensive drugs.

For instance, if you don't have to pay the co-pay, there's no longer an incentive for you to seek out a generic that might work on because either way you're paying either nothing or very little money for generic. If you have to pay hundreds of dollars in a co-pay then you might be more interested in trying out a generic first.

If the government doesn't want companies to do this and it's outlined. Biogen paid 22 million to settle the claims. Now Humana is suing Biogen over this same issue to get back millions of dollars and overpayments. Humana has also sued Regeneron and Teva Pharmaceuticals for the same practice.

I think that it's likely the Biogen will just settle this and it'll cost the company some money, but it isn't going to be a major issue for Biogen. Investors probably should be more focused on where Biogen is going to get additional recurring revenue than worried about a one-time hit to the balance sheet.

Speights: There's one investor who won't be worried about all of these. Warren Buffett has -- his, Berkshire Hathaway had bought a position in Biogen a while back, which was a surprising move. But I saw that Berkshire exited its stake in Biogen last quarter. All of this bad news isn't impacting the multi-billionaire.

Keith Speights owns shares of Berkshire Hathaway (B shares). The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares). The Motley Fool recommends Biogen and recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.

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Stocks Mentioned

Biogen Stock Quote
$303.20 (-0.65%) $-1.97
Berkshire Hathaway Stock Quote
Berkshire Hathaway
$475,867.42 (-0.92%) $-4,412.58
Berkshire Hathaway Stock Quote
Berkshire Hathaway
$315.35 (-1.02%) $-3.25
Humana Stock Quote
$546.10 (-0.69%) $-3.81
Regeneron Pharmaceuticals Stock Quote
Regeneron Pharmaceuticals
$764.29 (1.68%) $12.59
Teva Pharmaceutical Industries Stock Quote
Teva Pharmaceutical Industries
$8.76 (-0.11%) $0.01

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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