Kansas could be among new states eyeing litigation against health care giant

By: - April 26, 2021 4:00 pm

The Centene Corporation headquarters. (Photo from Google Maps)

Add Kansas and Arkansas to the list of states that might be considering litigation against the largest Medicaid managed-care contractor in the country.

Ohio already is suing St. Louis-based Centene, claiming that the company used layers of middlemen to overbill the state by tens of million of dollars for prescription drugs — allegations Centene adamantly denies. 

Ohio has engaged Ridgeland, Miss.-based Liston & Deas to work on the case.

Mississippi has engaged the same outside law firm to look into similar issues in the Magnolia State, the Daily Journal reported. The paper said that state officials there suspect conduct similar to that alleged in Ohio and are also considering litigation.

Now, publicly available contracts show that Liston & Deas has also been hired by state attorneys general in Kansas and Arkansas. 

Lawsuits by additional states could be a big problem for the company, which does business with 31 Medicaid departments, and depends heavily on other government programs such as Medicare, prison care and military care for revenue as the 42nd largest corporation in the United States.

The Ohio Department Medicaid, for example, already is in the process of suspending its care contract with Centene because of the litigation.

“Due to their business model, if they’re prohibited from playing in the Medicaid space, this is an existential crisis for them,” said Scott Knoer, CEO of the American Pharmacists Association, a professional organization that claims unfair profiteering by pharmacy middlemen has been driving community pharmacies out of business.

The contracts in Kansas and Arkansas don’t mention Centene by name and they prohibit Liston & Deas from publicly discussing its work. 

For its part, Centene said there’s nothing for Liston & Deas to find.

“A Mississippi-based personal injury law firm is welcome to pursue frivolous lawsuits and chase commission fees by investigating our pharmacy benefits programs,” a spokeswoman said in an email. “Centene stands by the value we provide to our state partners.”

The contracts with Kansas and Arkansas suggest suspicions of conduct similar to that alleged against Centene by Ohio Attorney General Dave Yost.

The Kansas contract says, “The conduct of (pharmacy benefit managers) that is the subject of potential litigation may include, but is not limited to: charging client administration fees for drugs that were not dispensed; making false claims regarding ‘pass-through’ pricing; creating hidden ‘profit spreads’ on drug related expenditures” and other practices.”

That’s a mouthful of jargon, but it’s instructing Liston & Deas to see if pharmacy middlemen have been gaming the system and ripping off taxpayers.

In Ohio, Yost is accusing Centene of just that.

Managed-care organizations such as Centene’s Buckeye Health Plan are paid a per-patient “capitated” rate each year by state Medicaid departments. They sign up clients and health providers, bill the state and manage payments and provide other services. 

The idea is that they’ll work to achieve savings in order to keep costs under the capitated rate. But Yost is accusing Centene of bilking that system when it comes to prescription-drug benefits — benefits on which his suit says Ohio is spending almost $4 billion a year.

Pharmacy benefit managers and administrators are drug middlemen. They perform such tasks as contracting with and reimbursing pharmacies, creating preferred drug lists and negotiating rebates with drugmakers. The idea behind those arrangements is for them to use their size and sophistication to extract discounts from drugmakers and pharmacies and pass them along to those who are paying for the benefit.

However, there have been persistent doubts about who’s enjoying those savings as the companies, known as PBMs, have operated behind a veil of secrecy. An analysis of Ohio Medicaid data from 2017 found that the PBMs billed taxpayers almost a quarter-billion dollars more for generic drugs than they paid the pharmacists who had purchased and dispensed them.

Within that eye-popping number, Centene stood out.

Buckeye, its managed-care company, hired another Centene subsidiary, Envolve, to act as its pharmacy benefit manager or, as the Ohio Department of Medicaid called it in 2018, its “pharmacy benefit administrator.”

Envolve then hired yet another Centene subsidiary, Health Net Pharmacy Solutions, which hired CVS Caremark, the largest PBM in the United States.

There were widespread suspicions that PBMs working for all five of Ohio’s managed-care organizations were inflating their bills for generics, but the bills under the Centene organization were by far the biggest. 

Its average per-prescription administrative cost, or “spread,” was more than double the others. Also, Centene’s Envolve was paid $20 million for services that CVS Caremark said it had provided. 

Centene strongly denied that it had double-billed for pharmacy services. But Ohio’s suit against the company accuses it of several bad acts: wrongfully inflating costs and pocketing millions in fees for drugs it didn’t dispense, not passing along discounts from CVS Caremark, and of billing for costs that were paid by other insurers.

“Corporate greed has led Centene and its wholly owned subsidiaries to fleece taxpayers out of millions,” Yost said in announcing the suit.

A spokeswoman for the Kansas Department of Health and Environment confirmed that Centene’s Sunflower Health Plan had hired Centene’s Envolve to handle Medicaid pharmacy benefits in her state. But she said that her agency hadn’t analyzed pharmacy costs among the managed care companies working for Medicaid in Kansas.

Kansas Attorney General Derek Schmidt didn’t respond to requests for comment, but the Centene spokeswoman said that her company’s conduct was on the level.

“Centene provides pharmacy benefit programs for Medicaid and Medicare according to the regulations, laws and contractual guidelines issued by state agencies,” she said. “While states often require different models for administering pharmacy benefits, each state reviews our programs to ensure we meet state objectives, deliver the highest quality healthcare outcome to patients, and  effectively utilize state funding.”

In Arkansas, Attorney General Leslie Rutledge has been in a protracted battle against the PBM industry. She contends that non-transparent reimbursement practices are driving rural and small-town pharmacies out of business. 

Knoer, of the American Pharmacists Association, said it’s a national problem — and not just in rural communities.

“We’ve had thousands of pharmacies close in the last 10 years,” he said. “And guess what, we’ve got a pandemic and where are those pharmacies closing? Are they closing in my lilly-white neighborhood? No. They’re closing in communities of color where we have underserved patients.”

In a case that Ohio and Kansas signed onto, Rutledge last year took the PBM industry to the U.S. Supreme Court — and won. The high court ruled that federal law governing insurance plans can’t stop states from regulating PBMs.

The Arkansas contract instructs Liston & Deas to investigate whether any state agency “may have incurred losses stemming from breach of contract, common-law fraud and/or other state statutory of other common-law violations by pharmacy benefit managers, pharmacy benefit administrators and/or managed care organizations.”

The attorney general’s office didn’t comment specifically on Centene, but it said it intends to hold drug middlemen to account.

“Attorney General Rutledge has publicly announced an investigation into pharmacy benefit managers (PBMs) to address complaints of plummeting medication reimbursement rates paid to local pharmacies,” Amanda Priest, Rutledge’s communications director, said in an email. “The office is actively looking for any violations of the law committed by PBMs in Arkansas and will continue to enforce our laws to protect Arkansas consumers.”

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Marty Schladen
Marty Schladen

Marty Schladen has been a reporter for decades, working in Indiana, Texas and other places before returning to his native Ohio to work at The Columbus Dispatch in 2017 and coming to the Ohio Capital Journal in 2020. He's won state and national journalism awards for investigations into utility regulation, public corruption, the environment, prescription drug spending and other matters.

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