JACKSON • Mississippi’s investigation of Medicaid contractor Centene began at least two years ago, when State Auditor Shad White hired a specialist law firm to scrutinize whether the mega corporation was overcharging taxpayers for pharmacy benefits.
The Daily Journal previously reported on a contract from September showing the attorney general’s office had retained Ridgeland firm Liston & Deas to probe financial losses suffered by the state Division of Medicaid.
But a newly-obtained letter reveals the investigation was already well underway by then. White hired the same firm in April 2019 to analyze pharmacy benefit data involving Centene. The letter mentions the possibility of an eventual lawsuit in order for the state to recoup pharmacy benefit overcharges.
State officials say their investigation — expected to conclude later this year — is similar to one in Ohio where a lawsuit alleges Centene bilked taxpayers out of tens of millions of dollars to pad its profits. That lawsuit, recently unsealed, reveals a rough outline of what Mississippi authorities suspect the Fortune 50 company may be doing here.
Centene has strongly denied the allegations.
“The state’s investigation has been broadly mischaracterized by individuals with a longstanding agenda against Medicaid managed care — a model that is estimated to have saved the state as much as $947 million since 2011, according to independent analysts,” a spokesperson for Centene’s Mississippi subsidiary, Magnolia Health, said in a statement to the Daily Journal. “Magnolia Health has consistently met or exceeded our contractual requirements, and we adhere to all regulations relating to pharmacy benefits.”
The $947 million figure comes from a report commissioned by the Mississippi Association of Health Plans. Magnolia Health CEO Aaron Sisk is the board president of that organization.
Mississippi’s Medicaid managed care system, MississippiCAN, provides health insurance benefits for about 480,000 poor adults and children, disabled people, pregnant women, and others. The Division of Medicaid pays Magnolia Health and two other contractors a set rate per patient to administer those benefits.
The investigation by the Mississippi AG and auditor is focused on one slice of this managed care system: pharmacy benefit managers. These subcontractors, known as PBMs, serve as middlemen between insurance companies, drugmakers and pharmacies. They manage drug benefits, negotiate drug prices and reimburse pharmacists on behalf of companies like Magnolia Health.
It’s big business: From 2016 to 2020, Magnolia paid its PBMs more than $1.1 billion, sometimes as much as $25 million a month, according to figures provided by the Division of Medicaid. Taxpayers ultimately picked up the tab.
More details on unsealed Ohio case against Centene
Ohio Attorney General Dave Yost announced his lawsuit against Centene in March, and a federal judge unsealed the case earlier this month. Like Mississippi, Yost hired outside attorneys, including Liston & Deas, to handle the case because of its complexity.
Court papers allege Centene’s Ohio subsidiary, Buckeye Health Plan, “knowingly provided inflated pharmacy cost information to (Ohio’s Medicaid agency) as part of a deceptive scheme designed to maximize the profitability of its parent company, Centene, at the expense of the Ohio Medicaid Program and the citizens of the State of Ohio.”
Buckeye hired three subcontractors to manage its pharmacy benefits — two of them Centene subsidiaries. Using multiple companies provided an “opaque and multi-layered billing process” that allowed Centene to “hide” how much Buckeye was actually paying for prescription drugs for its members, the court documents say.
Yost alleges Centene’s subsidiaries changed invoice amounts and billed for costs that had already been covered by third parties. The Ohio AG also claims the subsidiaries failed to disclose discounts they received from another subcontractor, CVS Caremark, and inflated the amount of money that was actually being paid to pharmacists for dispensing drugs.
In just one week in 2018, the Ohio suit alleges, one of Centene’s pharmacy benefit subsidiaries marked up a bill for prescription drugs by nearly $400,000.
The company created “in essence, a conduit through which the Conspirators could secretly siphon funds from the Ohio Medicaid Program, characterize them as costs rather than profits, and funnel them to Centene,” the suit says.
Centene wants the lawsuit dismissed: “There are no secrets here; there is nothing that needs to be hidden or, in fact, that even justifies the filing of this lawsuit,” the company’s attorneys wrote in their response. The company says the lawsuit shows a “misunderstanding of the admittedly complex world of Medicaid accounting and billing,” and that the claims are “easily explained away.”
A Magnolia Health spokesperson said the company’s Mississippi pharmacy program is “vastly different” than in Ohio. Unlike in Ohio, the company noted it doesn’t use a controversial “spread pricing” strategy here. Spread pricing is when the PBM keeps some of the money paid to them by the insurer instead of passing it on to the pharmacy.
“Magnolia works with pharmacy subcontractors to keep costs low while adhering to all state regulations,” the spokesperson said. “Magnolia’s pharmacy program provides significant savings to taxpayers and improved health outcomes for members, and any suggestion to the contrary is simply inaccurate.”
In Mississippi, Magnolia uses two subcontractors to handle Medicaid pharmacy benefits since 2019 — Envolve and RxAdvance. The state’s other two Medicaid benefit contractors, UnitedHealthcare and Molina, use just one pharmacy benefit manager.
Envolve is the same Centene subsidiary that is facing scrutiny in Ohio. Centene also has a close relationship with RxAdvance — it has invested in the company and a top Centene executive sits on the RxAdvance board of directors.
‘Constant complaints’ about PBMs in Mississippi
State lawmakers appear to be increasingly aware of concerns surrounding PBMs, including at the Division of Medicaid.
“As long as I’ve been aware of something called a pharmacy benefit manager, I have been aware of constant complaints that they are basically taking advantage of everybody,” said Sen. Hob Bryan, D-Amory, a member of the Senate Medicaid Committee.
Bryan said he’s unsure if all the claims are true, but he added he is more likely to believe pharmacists than the PBMs. He said pharmacists tell him the PBM system is “a scam,” and that the companies often undercompensate pharmacies for dispensing drugs in order to increase their own profit margins.
Recently-passed legislation that reauthorizes Mississippi’s Medicaid program includes new mandates for independent audits or reviews of the managed care companies, including Magnolia Health.
The Medicaid bill, which automatically became law Tuesday after Gov. Tate Reeves declined to sign it, also requires the Division of Medicaid to study whether it could hire a single pharmacy manager that all three of the Medicaid managed care contractors would use.
Under this plan, “the managed care plans would continue to pay pharmacy claims through a single pharmacy benefits contractor, but the division would have direct oversight over that contractor,” Medicaid spokesman Matt Westerfield said in an email.
Rep. Becky Currie, R-Brookhaven, said the audit language and single-PBM idea are the right steps to create more transparency around the state’s managed care system, which she argues needs an overhaul. She said she wants to know if Centene is using the same “business model” in Mississippi as it allegedly has in Ohio.
The state is preparing to bid out new five-year managed care contracts that would start in 2022, assuming the current contractors including Centene are allowed a yearlong extension until then. Westerfield said those extensions have not yet been granted.
Before a final vote on the Medicaid bill last month, Currie expressed concerns about Centene potentially winning another Medicaid managed care contract — a contract that would be worth several billion dollars over five years.
“What are we going to do?” Currie asked Medicaid Chairman Joey Hood, R-Ackerman. “They’re under investigation. When we find out if they have done anything wrong, what in this bill is going to prevent us from signing another contract with them?”
"I guess what we'll do is we'll let the investigation take its course,” Hood responded. “And as a Legislature we'll be back next January. And we can always take a look at it."