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Large PBM Under Fire for Not Accurately Disclosing the True Cost of its PBM Services

The largest Medicaid contractor in the United States on Tuesday acknowledged to investors that Ohio has sued it, accusing it of improperly inflating its bills to the health system for the poor. The company, Centene, also said more such suits could be filed by other states. Because it relies heavily on government revenue, the prospect of state litigation could pose a big risk to the company.

Ohio Attorney General Dave Yost in March filed suit against Centene, which does business with 31 state Medicaid departments. The case accuses the company of using its managed-care organization and drug-middleman subsidiaries to improperly bill Ohio taxpayers for tens of millions of dollars. 

Tyrone’s Commentary:

Figure 1. Hierarchy of Decision-Making

For the record, I try to not to speak disparagingly about my competitors. I’m sure they are well run companies that treat their employees well and return decent profits to shareholders. It is their business models for which I have a problem. I just simply disagree with them and let it be known every opportunity I get. Any PBM who promoted one thing during the RFP, but behaved differently after the plan went live will be called to answer for it. This begs the question, “how do commercial plan sponsors and states like Ohio get into these opaque PBM contracts in the first place?” Figure 1 might provide an explanation. Leadership should be making decisions in the best interest of the organization. Those decisions should drive profit (top of pyramid) either higher long-term revenue and/or lower costs. However, decisions on pharmacy benefits management or healthcare in general are often made at the bottom of the pyramid. A CHRO might decide to maintain the status quo because he/she wants to avoid the pain of any disruption to their members, for example. With a mile long to-do-list it’s just easier to stand pat. It’s also safer. No one has ever been fired for hiring a Big Three PBM, right? The state of Ohio is making PBM decisions at the top of the pyramid. My gut tells me this is going to get real ugly and that this is only the beginning.

The suit comes after an analysis of 2017 Medicaid data showed that Centene and CVS Caremark charged far more to administer prescription drugs than the state’s other four Medicaid managed-care providers. Also, Centene’s drug middleman was paid $20 million for services that CVS said it had provided. In its quarterly earnings filing with the U.S. Securities and Exchange Commission, the company acknowledged Ohio’s complaint and said other states could follow suit. 

The SEC filing said that the Ohio lawsuit claims breach of contract and illegal conduct, “including among other things, by (i) seeking payment for services already reimbursed, (ii) not accurately disclosing to the Ohio Department of Medicaid the true cost of the PBM services and (iii) inflating dispensing fees for prescription drugs.”

Tyrone Squires, MBA, CPBS

I am the proud founder and managing director of TransparentRx, a fiduciary-model PBM based in Las Vegas, Nevada. We help health plan sponsors reduce pharmacy spend, by as much as 50%, without cutting benefits or shifting costs to employees.

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