California investigating Centene over alleged Medicaid fraud

[MM Curator Summary]: CA begins its efforts to access the $1.2B set aside by Centene to deal with PBM spread pricing allegations.


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California regulators are investigating Centene Corp. over allegations that the company overcharged the state’s Medicaid department for drugs, according to a state Department of Health Care Services spokesperson.

DHCS did not specify which branch of Centene it was investigating. Centene subsidiaries offer Medicaid managed-care plans in California and administer the state’s Medicaid prescription drug program.

Centene receives the majority of its revenue from Medicaid managed-care contracts, and California represents its largest market with 2.14 million enrollees. In 2021, the state paid Centene $6.8 billion to manage its Medicaid program, the DHCS spokesperson said.

Centene did not respond to an interview request about the investigation.

Centene reached agreements with nine state attorneys general and has reserved $1.25 billion to settle allegations that it overcharged state Medicaid departments for medications, the insurer wrote in its annual filing with the U.S. Securities and Exchange Commission.

It has so far publicly disclosed paying $246.4 million to Illinois, Arkansas, Mississippi, Ohio and Kansas as part of these deals. Georgia, South Carolina and Indiana are also reportedly investigating the insurer over its now-defunct Envolve pharmacy benefit manager. The attorney general in South Carolina declined to comment, while attorneys general in Indiana and Georgia did not respond to interview requests.

California accepted new bids to run its Medicaid managed-care program until April 11, and it will announce winners in August. Centene executives are likely doing everything they can to ensure regulators are satisfied with their response, said Ari Gottlieb, a principal at A2 Strategy Group.

“It’s a highly material part of their business,” Gottlieb said. “My guess is that they’re throwing a bunch of extra resources, apologizing, really going all-in on fixing the problem.”

Existing problems in California

California’s investigation comes as state regulators withheld $3.8 million from subsidiary Magellan Health’s January contract after worker shortages left patients and providers waiting for prior authorization approvals, some of whom were on hold with the company’s call centers for eight hours at a time.

Both state regulators and Magellan Health blamed delays on contract changes, noting that a new vendor was taking over the administration of the state’s Medicaid prescription drug program for the first time. Magellan Health’s $302 million annual contract went live at the start of the year.

Rival insurers criticized the deal, saying the move would give Centene insight into their member demographics and give them a leg up when it came to bidding to run the largest Medicaid program in the nation. Centene’s pharmacy services reputation did not help: Patients and providers noted the irony of hiring a vendor that recently settled drug overcharging allegations from other state Medicaid departments.

“There’s a specter surrounding Centene and its legal troubles with regards to pharmacy benefits,” Antonio Ciaccia, president of drug pricing watchdog 3 Axis Advisors and head of 46brooklyn Research. “While their PBM has taken the disproportionate share of public lashings today, they’re not different from anybody else in this market.”

It’s hard to fault Centene when it recently acquired Magellan Health, and it hasn’t been fully integrated the businesses, Gottlieb said. California regulators approved the $2.2 billion merger two days before Magellan Health took over the state’s Medicaid prescription drug program. Moreover, delays in processing claims and prior authorization requests are common when public health programs change, and formulary updates made at the start of the year could have complicated the process, he said.

“Part of it is on the regulators, honestly, they should be doing their due diligence and readiness assessments to ensure their vendors can perform,” Gottlieb said.

DHCS said it measured the agency’s and Magellan Health’s internal capacities to administer the program prior to launch. Delays processing prior authorization requests, adjudicating provider claims and answering provider and patient calls “have stabilized and all backlogs have been cleared” since the start of the year, the spokesperson said.

Magellan Health has processed all prior authorization requests within 24 hours since February 11, and paid all pharmacy providers on time since the start of the year, a Magellan spokesperson wrote in an email. The company’s call centers levels are currently meeting their contractual requirements, the spokesperson wrote.

Long wait times disproportionately impacted–and continue to impact–the state’s safety net facilities, where up to 60% of their patients are insured through Medicaid, said Isabel Becerra, CEO of the Coalition of Orange County Community Health Centers, a not-for-profit consortium safety net clinics in southern California. While the backlog from the start of the year has been resolved, Becerra said providers are still spending more time than they had before the merger to secure care for their patients.

“It’s still not fixed,” Becerra said. “There’s still a lot of time that’s being taken with these patients.”

Delays cloud Sunshine Health Plan

California is not the only market where providers are complaining of long wait times with Centene. Lags in the company’s payment, claims adjudication and prior authorization systems have also plagued Florida, Centene’s second-largest Medicaid market with 1.78 million enrollees. The deadline to bid on continuing to run Florida’s Medicaid program is also approaching, Gottlieb noted.

In March, Florida regulators fined Centene $9.1 million and suspended enrollment in its Sunshine Health Plan after technology glitches related to its integration of insurer Wellcare led it to mistakenly deny medical claims for more than 121,100 lower-income adults and children.

In response, Sunshine Health agreed to provide a corrective action plan to the state. Since its October merger with Wellcare of Florida, 99.1% of its claims were paid within 30 days, a Sunshine Health spokesperson wrote in an email.

But hospitals and independent providers are still reporting delays, said Mary Mayhew, president and CEO of the Florida Hospital Association.

“A lot of the fallout will continue,” Mayhew said.

One provider still navigating the change in payers is Children’s Orthopaedic and Scoliosis Surgery Associates, which claims to be the state’s largest private children’s orthopedic provider. Sunshine Health Plan owes the independent practice $200,000 over improperly denied claims and prior authorizations, repricing and categorizing consults as new patient visits, administrator Carol Ittig said.

In late March, Ittig said she had a virtual meeting with Centene executives about the payment problems, telling them she would have to delay paying the practice’s physicians because of the insurer’s lag in accurately processing claims. Three days later, Ittig woke up to a $70,000 no-strings-attached loan from Sunshine Health.

“They told me to hold on to it as long as I think that there’s still issues,” she said. “I’m very grateful. But that shows that they know that there are issues, that they want to rectify it but they know that it’s gonna take them a minute to fix.”




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