California Handed Its Medicaid Drug Program to One Company. Then Came a Corporate Takeover.


SACRAMENTO, Calif. — Prescription drug prices for California’s huge Medicaid program had been draining the state price range, so in 2019 Gov. Gavin Newsom requested the non-public sector for assist. 

The brand new Medicaid drug program debuted this January, with a non-public firm in cost. But it surely was woefully unprepared, and 1000’s of low-income Californians had been left with out vital medicines for weeks, some ready on maintain for hours after they referred to as to get assist.

What occurred within the two years between the contract award and the beginning of this system is a case research in what can go fallacious when authorities outsources core capabilities to the non-public sector.

California awarded the Medi-Cal Rx program to a unit of Magellan Well being, an organization with experience in pharmacy advantages and psychological well being. However Magellan was then wolfed up by trade large Centene, worth roughly $50 billion, which was trying to broaden its psychological well being portfolio. 

Centene was already a giant participant in state Medicaid drug applications — however one with a questionable file. The corporate was accused by six states of overbilling their Medicaid applications for prescribed drugs and pharmacy companies and settled to the tune of $264.4 million. Three different states made related allegations and have settled with the corporate, however the quantities haven’t been disclosed. Centene, in resolving the civil actions, denied any wrongdoing.

KHN has realized California well being officers are also investigating Centene.

Handing Over Management

In his 2019 inauguration speech, Newsom vowed to make use of California’s “market energy and our ethical energy to demand fairer costs” from the “drug firms that gouge Californians with sky-high costs.”

Drug spending by the state for its Medicaid, prison, state hospital, and other programs had been climbing 20% a 12 months since 2012, so the first-term Democrat issued an executive order requiring California to make its personal generic medicine and forge partnerships with counties and different states to purchase medicine in bulk. He additionally directed the state to purchase prescribed drugs for Californians enrolled in Medi-Cal, the state’s Medicaid program, which covers roughly 14 million folks.

Newsom now not wished to permit the state’s two dozen Medi-Cal managed-care well being plans to supply prescription drug protection to their enrollees, arguing the state would get a greater deal from drug firms by harnessing its buying energy.

That December, California awarded a aggressive $302 million contract to Magellan Medicaid Administration, a subsidiary of Magellan Well being, to ensure Medi-Cal enrollees get the medicines that California would purchase in bulk. Magellan supplies pharmacy companies to public well being plans in 28 states and the District of Columbia.

Regardless that Magellan’s greatest cash maker is psychological medical health insurance, it met a key requirement of the state’s name for bids: It didn’t present medical health insurance to any Medicaid enrollees in California.

Magellan was imagined to take over the drug program in April 2021. However on Jan. 4 of that 12 months, Centene — which was searching for a better function within the profitable behavioral well being market — introduced plans to purchase Magellan. 

St. Louis-based Centene, nonetheless, is among the largest Medi-Cal insurers within the state, an element that might have disqualified it from bidding for the unique contract. Centene supplies well being protection for about 1.7 million low-income Californians in 26 counties by means of its subsidiaries Well being Internet and California Well being & Wellness. It earned 11% of its income from California companies in 2019, in accordance with its 2021 annual report to the U.S. Securities and Alternate Fee.

However the state bent over backward to make it work, delaying implementation of this system whereas Magellan arrange firewalls, sectioned off its enterprise operations from Centene, and paid for a third-party monitor.

State regulators reviewed the merger in a 30-minute public hearing in October 2021. They didn’t point out Centene’s authorized settlements with different states.

The state Division of Managed Well being Care accepted the merger Dec. 30. Two days later, the state launched its new prescription drug program with Magellan on the controls.

Centene’s Authorized Troubles

Prior to now 10 months, Centene has settled with 9 states over accusations that it and its pharmacy enterprise, Envolve, overbilled their Medicaid applications for prescribed drugs and companies: It settled with Arkansas, Illinois, Kansas, Mississippi, New Hampshire, and Ohio, in accordance with information releases from attorneys normal in these states. The three different states haven’t been recognized by Centene or the states themselves.

The corporate has put aside $1.25 billion for these settlements and future lawsuits, in accordance with its 2021 report to the SEC.

Centene, which has denied wrongdoing in public statements, didn’t reply to a number of requests by KHN for interviews, nor did it reply to emailed questions. Magellan additionally didn’t reply to interview requests.

From the beginning, different California well being insurers opposed the state takeover of the Medi-Cal drug program, partly as a result of it took away a line of enterprise. They had been much more livid when the state allowed considered one of their greatest opponents to grab the reins — particularly given its authorized entanglements.

The state Division of Well being Care Companies, which administers Medi-Cal, acknowledged to KHN in March that it’s investigating the corporate however declined to supply specifics. The state is investigating Centene’s function in offering pharmacy advantages earlier than the state took the job from managed-care insurers.

“DHCS takes all allegations of fraud, waste, and abuse critically and investigates allegations when warranted,” division spokesperson Anthony Cava stated in a press release.

A Sale within the Offing?

When Medi-Cal Rx debuted Jan. 1, 1000’s of Californians couldn’t refill vital — generally lifesaving — medicines for days or perhaps weeks. Medical doctors, pharmacists, and sufferers calling for assist typically languished on maintain for as many as eight hours.

Magellan blamed the issues on workers shortages through the covid-19 omicron surge and lacking affected person information from insurance coverage. State well being officers went to nice lengths to fix the problems and appeared earlier than legislative committees to supply lawmakers with assurances that the contractor wouldn’t be paid in full.

However Medi-Cal sufferers nonetheless face uncertainty.

Not lengthy after Magellan took over California’s Medi-Cal drug program, stories surfaced in Axios and other publications that Centene may promote Magellan’s pharmacy enterprise.

Centene officers haven’t confirmed a sale. However it will align with the corporate’s current strikes to restructure its pharmacy operations within the face of state investigations — equivalent to searching for an outdoor firm to start managing its drug spending.

“When you inform a PBM they really must behave, that’s when there’s no more cash in it. It’s time to go,” stated Antonio Ciaccia, president of drug-pricing watchdog 3 Axis Advisors, referring to companies generally known as pharmacy benefit managers.

One more possession change in California’s drug program may deliver extra disruption to the state’s most susceptible residents, a few of whom are nonetheless having bother getting their medicine and specialty medical provides after Magellan’s rocky takeover.

“I don’t know what sort of instability that creates internally when there’s a change of this magnitude,” stated Linnea Koopmans, CEO of Native Well being Plans of California, which represents the state’s publicly run Medicaid insurers that compete in opposition to Centene. “It’s simply an open query.”

Koopmans and different Centene critics acknowledge that California has lengthy relied on non-public insurance coverage to supply medical and prescription drug protection to Medi-Cal enrollees and that the state shouldn’t be shocked by possession adjustments that include consolidation within the well being care trade. For instance, Centene has a historical past of taking up California contracts after an acquisition — it did so when it purchased Health Net in 2016.

However shopper advocates say the Centene fiasco makes it clear that the state should enhance oversight of company mergers if it chooses handy over duty for public applications.

“In a super world, that is all backroom machinations that folks don’t discover — till they do, till there’s a drawback,” stated Anthony Wright, govt director of Well being Entry California, a shopper advocacy group. “It simply will increase the necessity to ensure that that oversight is there, that accountability is there.”

This story was produced by KHN, which publishes California Healthline, an editorially unbiased service of the California Health Care Foundation.


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