By Samantha Young, Kaiser Health News
The cost of prescription drugs for California’s massive Medicaid program was draining the state budget. In 2019, Governor Gavin Newsom therefore asked the private sector for help.
The new Medicaid drug program debuted in January, with a private company in charge. But it was miserably not preparedand thousands of low-income Californians were left without essential medication for weeks, with some waiting for hours when they called for help.
What happened in the two years between contract award and the start of the program is a case study in what can go wrong when government outsources critical functions to the private sector.
California awarded the Medi-Cal Rx program to a unit of Magellan Health, a company specializing in pharmaceutical benefits and mental health. But Magellan was then gobbled up by industry giant Centene, worth about $50 billionwhich was looking to expand its mental health portfolio.
Centene was already a big player in state Medicaid drug programs — but with a questionable track record. The company was accused by six states of overcharging their Medicaid programs for prescription drugs and pharmacy services and settled to the tune of $264.4 million. Three other states made similar allegations and settled with the company, but the amounts were not disclosed. Centene, by resolving civil actions, denied any wrongdoing.
KHN has learned that California health authorities are also investigating Centene.
Georgia is expected to announce a settlement with Centene in a pharmacy overbilling case. State officials declined to comment on the issue with Georgia Health News. The company could not be reached for comment on the matter.
Lawrence Deas, an attorney in Jackson, Mississippi, told GHN last year that his firm Liston & Deas, along with Cohen Milstein Sellers & Toll, represents Georgia.
Centene is the parent company of Peach State Health Plan, one of three managed care companies that oversees benefits for hundreds of thousands of Georgians covered by Medicaid.
In his 2019 inauguration speech, Newsom vowed to use “market power and our moral power in California to demand fairer prices” from “pharmaceutical companies that are gouging Californians out of exorbitant prices.”
State drug expenditure for its Medical helpprison, public hospital and other programs had climbed 20% annually since 2012, so the Democratic first term issued a Executive Decree forcing California to manufacture its own generic drugs and to partner with counties and other states to buy drugs in bulk. He also ordered the state to buy prescription drugs for Californians enrolled in Medi-Cal, the state’s Medicaid program, which covers about 14 million people.
Newsom no longer wanted to allow the state’s two dozen Medi-Cal-run health care plans to provide prescription drug coverage to their enrollees, arguing that the state would get a better deal from drug companies by exploiting its purchasing power.
In December, California awarded a competitive $302 million contract to Magellan Medicaid Administration, a subsidiary of Magellan Health, to ensure Medi-Cal enrollees receive the drugs California would buy in bulk. Magellan provides pharmacy services to public health plans in 28 states and the District of Columbia.
Even though Magellan’s largest source of revenue is mental health insurance, it met a key requirement of the state tender: it did not provide health insurance to any enrollees in Medicaid in California.
Magellan was supposed to take over the drug program in April 2021. But on January 4 of that year, Centene – which was looking to play a bigger role in the lucrative behavioral health market – announced its intention to buy Magellan.
However, St. Louis-based Centene is one of the largest Medi-Cal insurers in the state, a factor that would normally have disqualified it from bidding on the original contract. Centene provides health coverage for approximately 1.7 million low-income Californians in 26 counties through its Health Net and California Health & Wellness subsidiaries. He made 11% of his revenue from California businesses in 2019, according to his annual report 2021 at the United States Securities and Exchange Commission.
But the state bent over backwards to make it work, delaying implementation of the program while Magellan installed firewalls, separated its business operations from Centene and paid for a third-party monitor.
State regulators reviewed the merger in 30 minutes public audience in October 2021. They did not mention Centene’s legal agreements with other states.
The state Department of Managed Health Care approved the merger Dec. 30. Two days later, the state launched its new prescription drug program with Magellan at the helm.
Georgia lawmakers recently discussed a similar change to Medicaid prescription drug benefits. A bill would have removed those benefits from Peach State and two other managed care companies and placed that function within a state agency. The legislation passed the Georgia House unanimously, but it never gained traction in the state Senate. The General Assembly session ended last Monday.
Centene’s Legal Troubles
Over the past 10 months, Centene has settled charges with nine states that it and its pharmacy company, Envolve, overcharged their Medicaid programs for prescription drugs and services: it has settled with Arkansas, Illinois , Kansas, Mississippi, New Hampshire and Ohio, according to press releases from those states’ attorneys general. The other three states were not identified by Centene or the states themselves.
The company has set aside $1.25 billion for those settlements and future lawsuits, according to its 2021 Report to the SEC.
Centene, who has denied wrongdoing in public statements, did not respond to KHN’s multiple interview requests or emailed questions. Magellan also did not respond to interview requests.
From the start, other California health insurers opposed state ownership of the Medi-Cal drug program, in part because it took away a line of business from them. They were even more furious when the state allowed one of their biggest competitors to take the reins, especially given its legal entanglements.
The state Department of Health Services, which administers Medi-Cal, acknowledged to KHN in March that it was investigating the company, but declined to provide details. The state is investigating Centene’s role in providing drug benefits before the state took over the job from managed care insurers.
“DHCS takes all allegations of fraud, waste and abuse seriously and investigates allegations when warranted,” department spokesman Anthony Cava said in a statement.
A sale in sight?
When Medi-Cal Rx debuted on January 1, thousands of Californians impossible to fill critical – sometimes life-saving – drugs for days or weeks. Doctors, pharmacists and patients calling for help often remained on hold for up to eight hours.
Magellan blamed the problems on staffing shortages during the covid-19 omicron surge and missing patient data from insurance plans. State health officials have gone to great lengths to solving the problems and appeared before legislative committees to provide assurances to legislators that the contractor would not be paid in full.
But Medi-Cal patients still face uncertainty.
Centene officials have not confirmed a sale. But that would align with recent moves the company has taken to restructure its pharmaceutical operations in the face of state investigations, such as seeking an outside company to start managing its drug spending.
“Once you tell a PBM it has to behave, that’s when there’s no more money in it. It’s time to go,” said Antonio Ciaccia, chairman of drug price watchdog 3 Axis Advisors, referring to companies known as pharmacy benefit managers.
Another ownership change in California’s drug program could further disrupt the state’s most vulnerable residents, some of whom are still struggling to get their drugs and specialty medical supplies after Magellan’s rocky takeover.
“I don’t know what kind of instability it creates internally when there’s a change of this magnitude,” said Linnea Koopmans, CEO of Local Health Plans of California, which represents the state’s public Medicaid insurers that compete with Centene. “It’s just an open question.”
Koopmans and other Centene critics acknowledge that California has long relied on private insurance plans to provide medical coverage and prescription drugs to Medi-Cal enrollees and the state should not be surprised. by changes in ownership that accompany the consolidation of the health care sector. For example, Centene has a history of taking over California contracts after an acquisition – it did so when it purchased Health Net in 2016.
But consumer advocates say the Centene fiasco makes it clear that the state needs to improve oversight of corporate mergers if it chooses to cede responsibility for public programs.
“In an ideal world, these are all behind-the-scenes machinations that people don’t notice – until they do, until there’s a problem,” said Anthony Wright, executive director of Health Access California, a consumer advocacy group. “It just increases the need to make sure that oversight is there, that accountability is there.”
Andy Miller contributed to this article.
Samantha Young is a California-based reporter for Kaiser Health News.