California turned over its Medicaid drug program to a company. Then came a corporate takeover.

Centene’s legal problems

In the past 10 months, Centene has settled with nine states over allegations that he and his pharmaceutical business, Envolve, overbilled their Medicaid programs for prescription drugs and services: Settled with Arkansas, Illinois, Kansas, Mississippi, New Hampshire and Ohio, according to news releases from the attorneys general of those states. The other three states have not been 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 filing with the SEC.

Centene, who has denied wrongdoing in public statements, did not respond to multiple interview requests from KHN, nor did he respond to emailed questions. Magellan also did not respond to interview requests.

From the beginning, other California health insurers opposed the state’s takeover of the Medi-Cal drug program, in part because it eliminated a line of business. They were even more furious when the state allowed one of its biggest competitors to take over, especially because of its legal entanglements.

The state Department of Health Care Services, which administers Medi-Cal, acknowledged to KHN in March that it is investigating the company but declined to provide details. The state is investigating Centene’s role in providing pharmacy benefits before the state took over the work of managed care insurers.

“DHCS takes all reports of fraud, waste and abuse seriously and investigates reports when warranted,” department spokesman Anthony Cava said in a statement.

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A sale in sight?

When Medi-Cal Rx debuted on January 1, thousands of Californians were unable to refill critical, sometimes life-saving, medications for days or weeks. Doctors, pharmacists and patients asking for help often languished on hold for up to eight hours.

Magellan blamed staffing shortages during the COVID-19 omicron surge and a lack of patient data from insurance plans for the problems. State health officials went to great lengths to fix the problems and went before legislative committees to provide legislators with assurances that the contractor would not be paid in full.

But Medi-Cal patients still face uncertainty.

Not long after Magellan took over California’s Medi-Cal drug program, reports appeared in Axios and other publications that Centene might sell Magellan’s pharmaceutical business.

Centene officials have not confirmed a sale. But it would align with recent moves by the company 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 that it really has to behave, that’s when there’s no more money. Time to go,” said Antonio Ciaccia, president of drug price watchdog 3 Axis Advisors, referring to companies known as pharmaceutical benefit managers.

Another change in ownership of California’s drug program could create further disruption for the state’s most vulnerable residents, some of whom are still having trouble getting their drugs and specialty medical supplies after the difficult acquisition of Magellan.

“I don’t know what kind of instability is created internally when there’s a change of this magnitude,” said Linnea Koopmans, executive director of Local Health Plans of California, which represents state publicly managed Medicaid insurers that compete against Centene. “It’s just an open question.”

Koopmans and other critics of Centene acknowledge that California has long relied on private insurance plans to offer medical and prescription drug coverage to Medi-Cal enrollees and that the state should not be surprised by the changes in ownership that come with consolidation in the health care industry. For example, Centene has a history of taking over California contracts after an acquisition; it did when it bought Health Net in 2016.

But consumer advocates say the Centene fiasco makes it clear that the state must improve oversight of corporate mergers if it decides to hand over responsibility for public programs.

“In an ideal world, this is all backroom machinations that people don’t notice, until they do, until a problem arises,” said Anthony Wright, executive director of Health Access California, a consumer advocacy group. “It just increases the need to make sure that there is that oversight, that there is accountability.”

This story was produced by KHN, which is published by California Healthline, an editorially independent service of the California Health Care Foundation.

Kaiser Health News is a national health policy news service. It is an editorially independent program of the Henry J. Kaiser Family Foundation which is not affiliated with Kaiser Permanente.

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