Ohio taxpayers may be paying twice for the same Medicaid drug services

October 7, 2018

The team that discovered that Ohio taxpayers were overcharged up to $186 million for Medicaid prescription drugs last year has uncovered an additional $20 million that might have been wasted to fund services for which taxpayers already were paying.

And state Medicaid officials initially did not want that information made public.

Now, however, they concede that the consultant hired by the state after a series of Dispatch stories is justified in questioning the $20 million outlay.

The possible misspending was found deep in the bureaucratic maze through which Ohio's poorest residents get needed drugs.

First, the team headed by Gary Rutherford, CEO of HealthPlan Data Solutions in Columbus, determined that pharmacy benefit managers — middlemen in the complicated process — were raking off $149 million to $186 million a year above the industry's standard profit margin.

Then his team came across what essentially was a second middleman, given $20 million annually to perform services seemingly already provided by the existing middleman. And in a possible conflict of interest, the second, possibly redundant middleman and the managed-care organization that hired it are owned by the same multibillion-dollar corporation

The possible duplicate payments were turned up as Rutherford's auditors probed why Buckeye Community Health Plan — one of five managed-care organizations hired by the state to deliver health-care services to the 3 million Ohioans on Medicaid — was charging the state more than twice the per-prescription costs of the other four.

Buckeye charged an average of $11.60 each to fill the 4.6 million prescriptions it handled. The average for the other four: about $5.60.

The main reason for the big difference? Buckeye rolled up additional costs because it hired a company called Envolve to act as a pharmacy benefits "administrator" — even though Buckeye had hired CVS Caremark as a pharmacy benefits "manager."

More questions were sparked when investigators realized that Envolve and Buckeye are both owned by Centene, a health-care company in the Fortune 100.

None of the four other managed-care organizations saw a need to hire another company in addition to their pharmacy benefits manager.

Buckeye gave The Dispatch a list of services performed by Envolve. Its functions include "utilization management, specialty management, data analytics, drug utilization review and formulary management."

When Buckeye's list was forwarded to Michael DeAngelis, spokesman for CVS Caremark, he said it duplicates what CVS already is doing for Buckeye. "We provide all of the services you listed to our Medicaid (managed-care organization) clients in Ohio," he said.

Rutherford said he was unable to determine whether the $20 million that Buckeye gave to its sister company is justified.

“I cannot say if it’s unwarranted or warranted, but I can say it’s there, and let’s have accountability of what is provided for the $20 million,” he said.

A spokeswoman for Buckeye said comparing its way of doing things to the operations of the four other companies is unfair.

“Buckeye’s data included spending on pharmacy-care coordination and other activities, or PBA services, in addition to the expenditures for our PBM,” Buckeye’s Kimberly Scher said in an email. “Buckeye Health Plan meets or exceeds the state’s requirements as laid out in our contract and is fully committed to working with the state in a transparent and collaborative manner.”

Scher said Envolve's role is to work to reduce opioid prescriptions and abuse and "help coordinate care and promote positive health outcomes."

Centene is headquartered in St. Louis. It reported revenue of $48.3 billion in 2017, according to its business filings.

Antonio Ciaccia, lobbyist for the Ohio Pharmacists Association, said Centene’s decision to use its own PBM highlights “self dealing” at the expense of taxpayers.

He said Centene is using Buckeye to make money off taxpayers on the front end, and using Envolve to make more money on the back end when prescriptions are processed.

“This is a textbook warped incentive,” he said. ”But Medicaid deserves credit for shedding light on this hidden revenue stream.”

Centene didn't respond to a requests for comment for this story.

Side Effects, a yearlong Dispatch investigation into pharmacy benefit managers, has uncovered the significant roles that PBMs play in setting prices for prescription drugs. These little-known PBMs earn $400 billion a year nationwide as middleman in the drug supply chain. They negotiate drug prices and rebates with drug manufacturers on one side of the supply chain, and they reimburse pharmacists to fill prescriptions on the other.

Coverage of PBM markups by The Dispatch this year helped prompt the Medicaid department to undertake the HealthPlan analysis, and the agency is now embarked on a major overhaul of the way $3.2 billion a year in prescription drugs are delivered.

At first, the Ohio Department of Medicaid didn't disclose the possible double charge by the Centene companies — in fact denying that they were double-dipping. Employing language almost identical to that of Buckeye, department spokesman Tom Betti raised a distinction between “pharmacy benefit manager” and “pharmacy benefit administrator.”

Envolve’s website, however, describes what it does as "pharmacy benefit management."

Betti also said that the Medicaid Department didn’t include in the initial summary of the report the extra markup that Centene was making because it didn’t want to confuse the issue.

“The focus of our recent report was on spread pricing of the two pharmacy benefit managers that are used by our five managed-care plans,” he said. “We decided that the focus of the executive summary should be PBM spread pricing, which was the main goal of our study."

But when pressed on the matter late last week, Betti acknowledged that there might be "inefficiencies" that will be fixed as the agency revamps the program by the end of the year and issues future contracts.

Medicaid is using the audit report by Rutherford's firm as a guide for developing a more transparent, cost-efficient system.

“As you know, Ohio Medicaid is implementing a transparent pass-through model Jan. 1, and as part of that process, we will be making managed-care efficiency adjustments to maximize taxpayer savings,” Betti said. “What I can tell you now, with respect to the HDS report, Ohio Medicaid spent around $50,000, and our projected return on investment will be significant.”

Betti added that the department will take Centene’s practices into consideration when it reissues managed-care contracts at the start of 2019.

“Anytime a state agency goes through a managed-care procurement, past performance in a number of different areas is taken into consideration,” he said. "Efficiency of operation would most certainly be an area we would evaluate.

"At the end of the day, the managed-care plans work for the state, and we have a duty to hold them accountable. The HDS report ... has helped us uncover issues, which we are taking action on.”