Home>Articles>Gov. Newsom’s Highly Touted Medi-Cal Rx Botched by Politically Connected Centene/Magellan

California Governor Gavin Newsom (then Lieutenant Governor) riding in the Golden State Warriors Parade in Oakland, CA, Jun. 12, 2018. (Photo: Amir Aziz/Shutterstock)

Gov. Newsom’s Highly Touted Medi-Cal Rx Botched by Politically Connected Centene/Magellan

‘This RX deal will only hurt more people’

By Katy Grimes, March 8, 2022 10:15 am

California’s implementation of the new Medi-Cal Rx program is having a detrimental impact on the health and lives of the state’s Medi-Cal beneficiaries. This is according to Henry Tuttle, the President and Chief Executive Officer of Health Center Partners of Southern California, which serves more than 900,000 patients for 3.9 million patient visits annually.

Here’s why: The California Department of Health Care Services reports that it is “transitioning Medi-Cal pharmacy services from the Medi-Cal managed care delivery system to the Medi-Cal fee-for-service delivery system,” ostensibly “for the purpose of achieving cost-savings for drug purchases made by the state.” This is taking place because Governor Newsom signed Executive Order N-01-19 January 7, 2019, to also “standardize the pharmacy benefit statewide for all Medi-Cal beneficiaries, and to increase overall access by allowing beneficiaries to receive pharmacy services from the broader fee for-service pharmacy network.”

It may sound reasonable, but according to health care experts, more than 95,000 Californians are not currently getting their medicines, causing life and death situations. And that is just the tip of the iceberg.

How did this happen? Similar to the recent backroom sweetheart deal made privately between California Gov. Gavin Newsom and Kaiser Permanente, jeopardizing Medicaid reforms, as the Globe reported last month, the politically-connected Centene/Magellan Medi-Cal RX program was inked and the transition is a disaster, according to Tuttle and Globe sources. While the Centene/Magellan deal wasn’t as “backroom” as the Kaiser deal, it is a significant conflict the Newsom administration pushed aside.

But it’s deeper than that. The politics behind the deal are messy.

Centene acquired Magellan after Gov. Gavin Newsom awarded Magellan the pharmacy benefit manager contract for Medi-Cal Rx. Many cried foul, including all of the Medi-Cal managed care organizations because the deal gives Centene access to all of their competitor’s pharmacy data, according to health care sources. The decision delayed the launch of Medi-Cal Rx, the Governor’s big plan to cut drug costs until his team put a firewall in place that negated the value of Magellan to Centene.

Then in January they botched the roll out and everyone is blaming it on Magellan, despite those connected who say the Newsom Administration clearly isn’t managing it properly. Now, less than a month after the negative press about the botched roll out, Centene is dumping Magellan to salvage their Medi-Cal contracts and avoid more fines and another settlement.

The Medi-Cal contracts are worth billions to Centene.  They are the only commercial plan in Los Angeles and LA alone is worth billions. According to one source, Centene’s Medi-Cal business is worth $7 Billion a year now. If they win the governor’s Medi-Cal Rx RFP it could grow to $10 Billion.

According to CEO Tuttle, issues with this new Medi-Cal Rx are significant, including:

  • turnaround time, backlog, and errors on prior authorizations.
  • claims are leaving Medi-Cal patients with no access to necessary medications.
  • Patients are presenting in hospitals’ emergency departments because without access to their medications, they are becoming sick or worse.
  • Rady Children’s Hospital, San Diego reported that 700 of their 1800 critically ill home care patients, who have been on enteral feedings for years to live and survive, are being denied this service due to imposed price limits or are being incorrectly advised that the enteral product is not on formulary.
  • Pharmacists are handing out 72-hour emergency medication supplies, as they are allowed to by law, so that patients have access to life-saving medications without a prescription, but this is insufficient because Medi-Cal Rx turnaround times on authorizations are exceeding seven days.

But the problem goes deeper than just implementation nightmares, according to many news reports.

Centene, whose acquisition of Magellan Health, Inc., was only approved by the California Department of Managed Health Care a little over two months ago on December 30, 2021, and has been sanctioned by many states for issues with its pharmacy benefit management practices for the state’s Medicaid program, according to WIBW 13, inaccurate reporting of pharmacy benefit services costs, according to New Hampshire NPR, as well as Centene’s decision to set aside just over $1 billion to cover future anticipated settlements with state attorneys general related to fraudulent billing charges across multiple states, Bloomberg Law reported December 7, 2021.

Additionally,

  • Centene agreed to a settlement of $72 million with Illinois (who will receive $56.7 million) and Arkansas (who will receive $15.2 million) for allegedly overcharging state Medicaid programs for prescriptions.
  • Centene agreed to settle Medicaid claims with Ohio and Mississippi for $143 million ($88 million for OH and $55 million for MS, respectively) related to alleged reports of improper double billing through Centene’s pharmacy middlemen.
  • Several states are investigating pharmacy benefit managers to see if various companies in the space fully disclosed details about their business and to see if they potentially received overpayments under state contracts. Among the PBMs in question is Centene. At time of writing, mentioned states looking into PBMs included Ohio, Oklahoma, Georgia, New Mexico, Kansas, Arkansas, and Mississippi in addition to the District of Columbia. In the article, Brian Colon, the Democratic Auditor of New Mexico, said he was examining “drug pricing practices for the managed-care organizations and the pharmacy benefit managers”. Wall Street Journal, May 11, 2021
  • According to the Des Moines Register Centene subsidiaries paid about $24 million in fines since 2013, in part for not providing enough doctors and failing to promptly pay medical claims in various jurisdictions. The investigation found that at least 300 of the sanctions levied against the company and its affiliated subsidiaries have resulted in fines or reduced payments across at least a dozen states, with 28 of those fines costing the company more than $100,000.

A source reported Monday that Centene may now be trying to dump Magellan, the pharmacy benefit manager they just acquired December 30th, so they don’t have even more legal troubles with the settlement. “Given that Magellan and Centene botched the launch of the Governor’s highly touted Medi-Cal Rx and patients are still suffering from wrongful drug denials, the Governor and Attorney General Bonta would love to have that go away,” a source said. “But the Governor’s plan to lower drug costs with Medi-Cal Rx requires a Pharmacy Benefit Manager to manage the drug program. And the only way you lower drug costs is by bulk purchasing which the state already does, or by creating a restrictive drug formulary steering patients to cheaper and older drugs. That creates very unhappy patients and providers.”

Today’s Los Angeles Times story on the Governor’s failure on his promise to lower drug costs provides some historic background:

A few months after Gov. Newsom’s inauguration in 2019, “he vowed California would save ‘hundreds of millions of dollars right away — potentially billions’ — by using the state’s massive purchasing power to negotiate lower drug prices for California’s counties, its businesses, and other states. But so far only a few counties are participating in the program, and savings have fallen far short. Another program, which debuted Jan. 1, is intended to save the state hundreds of millions of dollars a year by consolidating drug purchasing for the 14 million low-income Californians enrolled in Medicaid, but how those savings will materialize isn’t clear.”

CEO Tuttle’s solution:

“We ask that the state intervene immediately and require Magellan to remedy these multiple pharmacy prescription access issues and related failures, even if it means granting access to all prescriptions and all over-the-counter medications for approval for an interim period of 90 to 180 days. Any ‘fix’ needs to include a definitive and immediate approach by Magellan to work and address the backlog of thousands of authorizations pending.”

“We ask that the state require Magellan to increase staffing immediately and sufficiently to bring the four-hour call center hold and call back turnaround times into compliance.”

The Globe emailed the Attorney General’s office Monday to ask about a potential settlement with Centene from the California AG’s office. We said we heard that AG Bonta agreed to hold on to the announcement until after the Medi-Cal Managed Care contracts are awarded.

We asked the AG’s office that with Centene settling with multiple states over charges of allegedly overcharging state Medicaid programs for prescriptions, and reports of improper double billing through Centene’s pharmacy middlemen, will California also settle?

The Globe did not hear back from the Attorney General’s office, but will report when we do.

A source said, “If the settlement was reached before the contracts are awarded it would be pretty poor optics to contract with Centene given the allegations and the poor performance of Magellan.”

So the natural question now is, “what are Centene and Newsom doing to pay back the state of California for erroneous billings and fraudulent claims as has been done in other states? Centene and its pharmacy benefit managers were each charging Medicaid a profit, which is considered fraud.”

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3 thoughts on “Gov. Newsom’s Highly Touted Medi-Cal Rx Botched by Politically Connected Centene/Magellan

  1. This is HUGE. And it’s so infuriating I’m tempted to wonder if Gov Newsom is trying to kill off another pesky group of people that he doesn’t want to deal with? After all, with vote-by-mail all one needs is the ballot, not the person, right? At the very least what results from his political shenanigans and rewarding of Friends of Gavin is ONCE AGAIN the exact opposite of what the man promised to do and said he was doing. This is outrageous but of course we are no longer surprised when it seems like every single day there is some monstrous calamity that comes from his reckless and truly corrupt governance. Thanks again to Katy Grimes for bringing this to our attention. Will be waiting to see the followup in Chapter 2 of this ugly story.

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