Recently, the healthcare company Centene agreed to pay a $44.4 million settlement with the state of Iowa. Shockingly, it’s not the most that the company must pay to a state. In the past several months, Centene has settled with 14 states in total, publicly disclosing $520 million in settlements.

So why exactly does Centene do, and why are they in such hot water?

Centene and Medicaid

Centene is a healthcare company that works largely as a intermediary for government-supported and privately-insured health programs. Many government programs like Medicare and Medicaid contract out coverage to companies like Centene. For example, rather than directly getting Medicare benefits through the federal government, Medicare Advantage (MA) plans administer Medicare benefits and some extra services via private health insurers like Centene. In this case, the federal government gives Centene some funds to cover these Medicare patients, and Centene likely charges a small premium on top of what’s paid to Medicare for said extra services.

The Medicaid program is a health plan to support those with low income levels. Unlike Medicare, which is operated directly by the federal government, each state operates its own Medicaid plan with significant federal funding. Many of these states contract the administration of the state Medicaid plan to private insurers with the idea being that these contractors have more experience handling the intricacies of operating a health insurance plan.

Centene has developed a significant line of business by running state Medicaid plans. The company’s website lists that it runs Medicaid operations in 29 states. In the 4th quarter of 2021, Centene raked in almost $21 billion in Medicaid-related revenue.

Administering health plans is not the only line of business that Centene is a part of. In another line of business, Centene operates pharmacy benefit managers (PBM’s). PBM’s are huge in the realm of how much is paid for prescription drugs. These organizations negotiate with drug manufacturers to set the prices that insurers will pay for certain medications. The idea is that PBM’s help drug manufacturers get to market by getting insurers to help pay for them while insurers are promised cost savings.

The PBM industry has been controversial for the lack of transparency and claims that it actually leads to rising drug prices. It’s also incredibly consolidated, with 3 firms controlling 80% of the market in 2021. This consolidation means that PBM firms have freedom to raise prices on insurers and drug manufacturers.

Centene’s Wrongdoing

In 2018, the Columbus Dispatch reported that the Buckeye Health Plan, Ohio’s Medicaid plan administered by Centene, contracted 2 other Centene subsidiaries for pharmacy benefit management services. Yet, CVS Caremark had already been paid for those services. The reporting alleged that Centene was effectively double-dipping and making taxpayers spend money on the same service twice.

The state of Ohio’s Attorney General Dave Yost opened an investigation and sued Centene in March 2021 for using its subsidiaries to overcharge Ohio taxpayers millions of dollars.

In specific, Yost’s suit detailed a number of breaches in the contract with Centene including:

• seeking payment for already paid-off services

• failing to accurately disclose pharmacy services and discounts to Medicaid

• artificially inflating drug prices

Centene agreed to pay Ohio $88 million in June 2021, but by then, 20 more states opened investigations and began to sue the company for overcharging. By November, Centene announced its exit from the PBM market as lawsuits mounted, finalizing the sale of its Magellan Rx business unit.

At the end of the day, Centene leveraged its market power in the Medicaid space to overspend taxpayer money in the millions by leveraging its own subsidiaries. Preventing debacles like this requires closely monitoring the multi-billion dollar arrangements between state and federal governments with private contractors, especially in healthcare. There may also be something to say about how the complexity of healthcare and lack of awareness of middlemen like PBM’s may have further enabled such practices, because how do you know to look if you don’t know they exist.