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One of America's richest companies pays Kansas $27.6 million over Medicaid 'misconduct'

A photo shows a pharmacy sign.
Julie Denesha
KCUR 89.3

Kansas Attorney General Derek Schmidt says Centene kept Kansas in the dark about drug discounts and used other strategies to squeeze more profit out of the state's Medicaid program.

Kansas Attorney General Derek Schmidt has reached a settlement with one of the nation’s wealthiest companies for about $27.6 million over alleged misconduct involving the state Medicaid program and prescription drugs.

Centene Corp. helps run the state’s privatized Medicaid program. Schmidt says secretive practices at the company cost Kansas and its taxpayers many millions of dollars.

Schmidt says the $27.6 million settlement is more than twice the amount of damages that his office was able to prove.

“We think that’s a just outcome,” he said in an interview. “It penalizes the company for its misconduct.”

Centene faces similar accusations in other states regarding its role as a pharmacy middleman hired to help states get good drug prices. It has denied wrongdoing.

However, the corporation — No. 24 on the Fortune 500 — is cutting massive checks to states over the allegations and has earmarked $1 billion for more settlements.

Earlier this year, Centene announced settlements with Ohio for $88 million, Mississippi for $55 million, Illinois for $56 million and Arkansas for $15 million.

Centene and its subsidiary Envolve help run Medicaid programs in 30 states. It sent the Kansas News Service a brief statement describing the settlement as a “no-fault agreement.”

“We respect the deep and critically important relationships we have with our state partners,” the statement said. “This no-fault agreement reflects the significance we place on addressing their concerns.”

Schmidt said Centene agreed to change its practices.

“Regardless of whether there’s an explicit admission (by Centene of wrongdoing),” the attorney general said, “ they're paying millions of dollars for their past behavior and agreeing that their future behavior will change.”

Centene continues to help run the Kansas Medicaid program, but it will have to compete to retain that role when the Kansas Department for Health and Environment opens an upcoming round of bidding.

Negotiated settlement

Schmidt said Centene engaged in a slew of strategies that meant Kansas taxpayers overpaid for prescription drugs.

For example, it would charge Kansas one price for a medication, while getting a lower price from the manufacturer, he said. Centene could then pocket the savings by keeping Kansas in the dark about the true price.

“The misconduct was in the nature of finding ways to lower the cost of acquiring drugs, but not passing the savings on to the state,” Schmidt said. “Now the company will provide detailed pricing for every step of a transaction. And that in turn will allow the state to maintain a much more effective type of oversight.”

Schmidt wouldn’t disclose the exact amount of money that Centene’s strategies, including the secret manufacturer discounts, cost the state of Kansas. He said his office and Centene remain at odds over the sum.

The settlement covers 2016 through last month. Schmidt said Centene’s misconduct may have started earlier than 2016. If it did, that would fall outside the statute of limitations.

His office was prepared to sue Centene, but the corporation settled to keep the matter out of court.

Part of the settlement money — 15% — will go to Liston & Deas, a law firm that is helping states investigate and pursue settlements from or potential lawsuits against Centene.

Other investigations

Centene is one of three main companies that help run the Kansas Medicaid program.

The other two are CVS/Aetna and OptumRx/UnitedHealth.

Among other things, they serve as the pharmacy middlemen, processing drug claims for Kansas.

Those three also helped handle prescription drugs for the Ohio Medicaid program when that state’s auditor concluded in 2018 that its middlemen charged $225 million more than they paid to pharmacies for drugs and took that money as profit.

The markup on generic drugs alone added nearly a third to the price that state paid for those supposedly cost-effective drugs. Ohio effectively fired the companies involved and restructured its program to increase oversight.

The revelations in Ohio triggered other state auditors and attorneys general — including Schmidt — to start scrutinizing their states’ Medicaid programs.

Asked whether his office is investigating any other companies regarding the Kansas Medicaid program, Schmidt said he can’t discuss the status of investigations or their targets. But he added:

“We’ve been able to obtain recovery with respect to this first defendant. And … we have other investigations ongoing.”

Kansas privatized Medicaid in 2013 under Gov. Sam Brownback.

But the Brownback administration and subsequent Jeff Colyer and Laura Kelly administrations have never audited the prescription drug program.

Investigations in other states and at the federal level have found that privatized state Medicaid programs are especially vulnerable to overpaying for medications, because oversight becomes even more difficult.

Middleman practices

Concerns about pharmacy middlemen — formally called pharmacy benefit managers — extend beyond Medicaid programs.

Employers also hire middlemen to process drug claims.

Experts say the Kansas State Employee Health Program, which covers about 80,000 public employees, retirees and family members, could be overpaying by millions.

Private employers face similar challenges. Secrecy in the nation’s drug supply chain makes it hard for them to figure out why medications cost so much, and whether drug middlemen hired to keep costs down actually inflate the prices.

Americans pay more than twice as much as people in other developed countries for prescription drugs.

Schmidt wouldn’t say whether he is probing prices paid by the Kansas state employee plan. As for challenges faced by private employers:

“That’s conduct that we’re not going to be able to reach directly through our enforcement on behalf of the state,” Schmidt said. “There are policy discussions that the Legislature may want to undertake.”

Over the past few years, states have passed dozens of laws demanding more transparency of pharmacy middlemen or regulating them in other ways.

Pharmacy middlemen sued one of those states, Arkansas, to block regulation. Arkansas fought the matter all the way to the U.S. Supreme Court, which ruled in its favor. That’s likely to embolden more states to consider legislation.

Schmidt signed an amicus brief supporting Arkansas’ right to regulate pharmacy benefit managers.

“It would make sense for Kansas to have a regulatory statute, similar to what's done in Arkansas,” he said. “This is a largely unregulated area where there's strong reason to believe … that regulation is advisable.”

Celia Llopis-Jepsen reports on consumer health for the Kansas News Service. You can follow her on Twitter @celia_LJ or email her at celia (at) kcur (dot) org.

The Kansas News Service is a collaboration of KCUR, Kansas Public Radio, KMUW and High Plains Public Radio focused on health, the social determinants of health and their connection to public policy. Kansas News Service stories and photos may be republished by news media at no cost with proper attribution and a link to ksnewsservice.org.

I write about how the world is transforming around us, from topsoil loss and invasive species to climate change. My goal is to explain why these stories matter to Kansas, and to report on the farmers, ranchers, scientists and other engaged people working to make Kansas more resilient. Email me at celia@kcur.org.
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