SACRAMENTO, Calif. — Prescription drug prices for California’s huge Medicaid program have been draining the state funds, so in 2019 Gov. Gavin Newsom requested the personal sector for assist. 

The brand new Medicaid drug program debuted this January, with a non-public firm in cost. However it was woefully unprepared, and hundreds of low-income Californians have been left with out important drugs 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 flawed when authorities outsources core capabilities to the personal 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 business big Centene, price roughly $50 billion, which was seeking to broaden its psychological well being portfolio. 

Centene was already a giant participant in state Medicaid drug packages — however one with a questionable document. The corporate was accused by six states of overbilling their Medicaid packages for pharmaceuticals and pharmacy providers 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 discovered 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 corporations that gouge Californians with sky-high costs.”

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

Newsom now not needed to permit the state’s two dozen Medi-Cal managed-care well being plans to offer prescription drug protection to their enrollees, arguing the state would get a greater deal from drug corporations 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 verify Medi-Cal enrollees get the drugs that California would purchase in bulk. Magellan gives pharmacy providers to public well being plans in 28 states and the District of Columbia.

Though 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 alleged to take over the drug program in April 2021. However on Jan. 4 of that 12 months, Centene — which was looking for a larger position within the profitable behavioral well being market — introduced plans to purchase Magellan. 

St. Louis-based Centene, nevertheless, is likely one of the largest Medi-Cal insurers within the state, an element that will have disqualified it from bidding for the unique contract. Centene gives well being protection for about 1.7 million low-income Californians in 26 counties by its subsidiaries Well being Web 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 Change 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 listening to in October 2021. They didn’t point out Centene’s authorized settlements with different states.

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

Centene’s Authorized Troubles

Up to now 10 months, Centene has settled with 9 states over accusations that it and its pharmacy enterprise, Envolve, overbilled their Medicaid packages for pharmaceuticals and providers: 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 back 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 have been much more livid when the state allowed certainly one of their greatest rivals to grab the reins — particularly given its authorized entanglements.

The state Division of Well being Care Providers, which administers Medi-Cal, acknowledged to KHN in March that it’s investigating the corporate however declined to offer specifics. The state is investigating Centene’s position 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 mentioned in an announcement.

A Sale within the Offing?

When Medi-Cal Rx debuted Jan. 1, hundreds of Californians couldn’t refill important — typically lifesaving — drugs 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 employees shortages throughout the covid-19 omicron surge and lacking affected person knowledge from insurance policy. State well being officers went to nice lengths to repair the issues and appeared earlier than legislative committees to offer 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, studies surfaced in Axios and different publications that Centene may promote Magellan’s pharmacy enterprise.

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

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

One more possession change in California’s drug program may carry extra disruption to the state’s most susceptible residents, a few of whom are nonetheless having bother getting their medication 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,” mentioned 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 personal insurance policy to supply medical and prescription drug protection to Medi-Cal enrollees and that the state shouldn’t be stunned by possession adjustments that include consolidation within the well being care business. For instance, Centene has a historical past of taking on California contracts after an acquisition — it did so when it bought Well being Web in 2016.

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

“In a perfect world, that is all backroom machinations that folks don’t discover — till they do, till there’s a drawback,” mentioned Anthony Wright, govt director of Well being Entry California, a client advocacy group. “It simply will increase the necessity to be sure 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 Well being Care Basis.