After Ohio scandal, Medicaid managed-care giant to exit the pharmacy business

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Centene will outsource PBM services moving forward.


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Centene Michael Neidorff, Chairman and CEO. Despite recent scandals involving the company, Neidorff says profits are the top priority. (DoD Photo by U.S. Army Sgt. James K. McCann, Wikimedia commons).

Centene, the nation’s largest Medicaid managed-care company, is planning to stop its work as a pharmacy middleman, or pharmacy benefit manager. Executives last week said the company is issuing a $30 billion request for proposals from an outside contractor to take over the work.

The news comes after Ohio Attorney General Dave Yost sued the company in March, accusing it of working through its Ohio managed-care organization to layer pharmacy middlemen atop one another and then overbilling taxpayers by tens of millions of dollars. Centene didn’t admit wrongdoing, but it agreed to pay Ohio $88 million and it set aside $1 billion to settle with states that seemed likely to follow Yost’s lead and sue the company. 

Centene didn’t respond to a request for comment, but in a call with investors last week, the company’s top executives said that managing its pharmacy benefits wasn’t among its core functions.

“We are launching an RFP in 2022 that will be awarded in 2023,” said Sarah London, Centene’s president of health care enterprises. “The goal there is to make sure that we are staying sharp in terms of our external partners, getting the greatest economic benefit where we are leveraging an external partner.”

The news organization Axios last week reported that the move into pharmacy benefits by Centene, a Fortune 24 company, was a bust. But any strategic failures or Ohio’s lawsuit accusing the company of fraud weren’t mentioned by the Centene executives or investment analysts on last week’s call.

Pharmacy benefit managers, or PBMs, perform multiple functions in the supply chain. They never touch a pill, but they negotiate discounts from manufacturers in exchange for giving their products preferred treatment and they create networks of pharmacies. And PBMs determine how much to pay pharmacies for the drugs they dispense.

Centene subsidiary Buckeye Community Health Plan fits more closely with the corporation’s core business. As a managed-care contractor with the Ohio Department of Medicaid, it signs up patients, creates networks of providers such as doctors, and it reconciles claims so providers are paid.

The company’s conduct in 2017 raised questions about how squarely the Buckeye was treating Ohio taxpayers.

Amid a newspaper investigation of pharmacy benefit managers, the Medicaid department in 2018 commissioned an analysis of all drug transactions under the department’s managed-care program for the previous year. The analysis found that CVS Caremark and OptumRx — the PBMs serving all five of Ohio’s managed-care providers — had marked up prescription drugs by $224 million in a single year.

The analysis turned up something else. In addition to hiring CVS Caremark, Centene’s Buckeye also paid the Centene-owned PBM Envolve Health $20 million to handle pharmacy benefits.

When CVS was asked whether it provided the services that the Medicaid department said were provided by Envolve, CVS said it did, leaving the impression that taxpayers were being double-billed. But both companies later said they weren’t double-dipping — they were providing different services that fit under common categories.

Yost apparently didn’t buy it, suing Centene over conduct that stretched as far back as 2016 and claiming conduct such as pocketing dispensing fees intended for pharmacies.

It’s unclear how chastened Centene’s leadership was after announcing possible settlements with as many as 22 state Medicaid programs. Just after, CEO Michael Neidorff stressed to investors that the company hadn’t admitted wrongdoing and that his No.1 and No. 2 goals were making more profit in the future.

Perhaps there’s no reason to be sorry. Despite the conduct in Ohio by Buckeye, Envolve, CVS Caremark and OptumRx, the Medicaid department this year awarded all three of their parent corporations huge contracts for part of more than $22 billion in business — the largest public procurement in state history. 

In Centene’s investor call last week, Chief Financial Officer Drew Asher said that bidding out its pharmacy management business is another money-making opportunity.

“We’ve got well over $30 billion in pharmacy spread across our products and obviously this has grown as the business grows,” he said. “It’s certainly one of our value-creation opportunities.”


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