- Centene, the largest seller of Medicaid health plans, has agreed to pay $143 million to Ohio and Mississippi to resolve allegations related to the provision of pharmacy services in the safety-net insurance program.
- Under the terms of the agreement with the states’ attorneys general, Centene, which assumes no fault for the alleged improper practices, will pay $88 million to Ohio and $55 million to Mississippi. And the settlement could be the first of many: The St. Louis-based payer is reserving a tranche of $1.1 billion to resolve similar claims in other states.
- As a result of the deal, Ohio Attorney General Dave Yost is dropping his lawsuit filed in March, alleging Centene used a web of subsidiaries and contractors, including its pharmacy benefit management business Envolve Pharmacy Solutions, to overcharge the state for medications.
Legislators and regulators are increasingly targeting pharmacy benefit managers, middlemen that negotiate discounts with drug suppliers and administer pharmacy networks for health plans, to drive down rising pharmaceutical costs. Many of the nation’s largest PBMs have been accused of hiding behind complex, opaque contracts with government agencies, health plans and other third parties to inflate drug prices and drive out competitors.
Those concerns have only heightened as the largest PBMs merge with payers, creating what many antitrust advocates see as a conflict of interest.
The three biggest PBMs in the nation — CVS Caremark, OptumRx and Express Scripts — control more than 70% of the multibillion-dollar marketplace, and are owned by CVS Health (which owns Aetna), UnitedHealth Group (which owns UnitedHealthcare) and Cigna, respectively.
For its part, Centene has been in a dispute with Ohio for some time over Envolve’s provision of pharmacy services to Medicaid recipients. In March, Yost filed the lawsuit against Centene and two of its wholly owned subsidiaries, Envolve and Buckeye Community Health Plan, alleging multiple kinds of double billing, including a controversial practice known as “spread pricing,” to scam millions of dollars out of Ohio’s Medicaid program.
Centene says that starting in 2019, it restructured its PBM operations and since then has aligned its Medicaid, Medicare and exchange products on more transparent pharmacy networks to eliminate spread pricing. Additionally, going forward, Envolve will operate as an administrative service provider, not a PBM, for Centene’s local health plans.
“We respect the deep and critically important relationships we have with our state partners,” Brent Layton, Centene’s health plan president, said in a Monday statement. “These agreements reflect the significance we place on addressing their concerns and our ongoing commitment to making the delivery of healthcare local, simple and transparent.”
The settlement with Ohio is the largest secured by a state attorney general against a pharmacy benefit manager, according to Yost, and represents a relative turnabout on Centene’s part. In March, the payer slammed the lawsuit as “unfounded.”
However, Ohio’s freeze on Centene’s participation in its $20-billion Medicaid contract likely placed pressure on the payer to comply, Jefferies analysts commented in a note. The status of the contract remains in limbo.
“Everybody’s accountable,” Yost said at a Monday news conference detailing the resolution to the suit. ”I hope that a message is going out to the entire industry across the country that the days of operating behind the curtain as the Great Oz are over, and you’re working for the people of these states that hired you.”
Ohio is receiving a 7.5% premium for being the first state to file a suit, Yost said, while other states will receive 5.5%. The federal government will get at least half of the settlement, given it covers a significant portion of Medicaid costs; four outside law firms will get 5% of the tranche; and the rest goes to Ohio.
Ohio and Mississippi “were the more aggressive states in pursuing these issues,” Jefferies analysts said. But authorities in several other states, including Mississippi, Kansas, Arkansas, Georgia, Oklahoma and New Mexico, are also reportedly considering litigation against Centene.
The payer says it’s in talks with a group of plaintiffs to try to resolve concerns in other affected states. The $1.1 billion reserve to handle any liability and potential payouts in other states will impact its previously disclosed earnings per share guidance for 2021, but will be a one-time hit.
“If not for the size, reaching an agreement and getting this behind them could serve as a positive clearing event,” Jefferies analysts said. Still they noted the change in PBM operations likely “collapses and simplifies what was previously a multi-layer contract structure” that was probably more profitable for Centene, leaving the outstanding question of how much of a headwind — if any — the changes will create on the payer’s margin.