Centene Reserves $1.1 Billion for Pharmacy Disputes

Centene Corp. agreed to pay settlements to Ohio and Mississippi to resolve claims that it inflated pharmacy costs, and the health insurer reserved $1.1 billion to resolve similar claims in other states.

Centene, the country’s largest seller of Medicaid health plans, will pay $88 million to Ohio and $55 million to Mississippi, while denying any liability for the practices leading to the settlement, the company said Monday in a statement.

Ohio’s attorney general sued Centene in March, alleging the company used a web of affiliated contractors to overcharge the state for drugs provided to beneficiaries of Medicaid, the joint state-federal program for low-income patients. That litigation will be dismissed as part of the settlement, Centene said.

Centene shares fell as much as 2.4% as of 11:38 a.m. Monday in New York, their biggest intraday loss in more than a month.

The company said it restructured its pharmacy benefits management operations in 2019 “to create a more transparent relationship” between its health plans and PBM. Its Envolve subsidiary, which had been a focus of the Ohio lawsuit, will no longer operate as a PBM but rather as an “administrative service provider” on behalf of its local health plans, according to the statement.

The company declined to comment further.

Other pharmacy benefits managers should be on notice, Ohio Attorney General Dave Yost warned.

“It has taken a huge effort by my team to untangle this scheme — and now that we know how it works, the alarm bells should be ringing for anyone using similar tactics,” Yost said in a statement.

PBMs negotiate discounts with drug suppliers and administer pharmacy networks for health plans. In recent years, as prescription costs have continued to rise, the complexity of the arrangements has led to scrutiny from employers and states, and Ohio recently restructured the way it contracts for PBM services.

Authorities in several other states, including Arkansas and Kansas, are investigating PBM practices and working with some of the outside attorneys involved in the Ohio lawsuit, according to public records. Centene said it had reserved an additional $1.1 billion related to this issue and was in talks with plaintiffs led by the law firms Liston & Deas and Cohen Milstein Sellers & Toll to resolve similar concerns in other states.

Changes to Centene’s pharmacy benefit operations could affect margins over the longer term, Jefferies analyst David Windley said in a research note. The question of how the changes affect margins will likely come up at the company’s investor day on Wednesday, Windley said in the note.

“This likely collapses and simplifies what was previously a multi-layer contract structure that, we think, was more profitable,” he wrote.

Representatives from the Mississippi attorney general’s office didn’t immediately comment.