Health companies accused of abuses even as they get giant government contracts

By: - December 14, 2021 1:00 am

File photo by Justin Sullivan/Getty Images.

Even though two huge health care companies were accused of abusing Ohio taxpayers in the past, the Ohio Department of Medicaid this year awarded them historic contracts, anyway. Even as that’s happening, another form of abuse might be taking place, critics say.

At issue is whether pharmacy middlemen owned by the companies are pocketing huge amounts of profit by not reporting all data required by federal authorities.

Subsidiaries of CVS and UnitedHealth — the nation’s fourth and fifth-largest corporations — this year were among the big winners when the Medicaid department announced contracts worth $23 billion, the largest public procurement in state history. UnitedHealth’s UnitedHealthcare Community Plan of Ohio was one of six companies receiving part of $22 billion in managed-care business and CVS’s Aetna Better Health of Ohio got a $1 billion contract to run a new program for children with complex behavioral needs.

The procurement process was controversial, in part because Medicaid Director Maureen Corcoran and the consultant that was paid $9 million to facilitate the process have refused to answer questions about possible conflicts of interest. Also, an Ohio provider was passed over, in part for being too small, while accusations of wrongdoing by behemoths like CVS and UnitedHealth were ignored.

Ohio Attorney General Dave Yost is suing UnitedHealth’s pharmacy middleman, OptumRx, accusing them of ripping off the Ohio Bureau of Workers Compensation to the tune of $16 million. And a state analysis found that OptumRx and CVS’s middleman, CVS Caremark, in 2017 charged the Medicaid program $244 million more for drugs than it paid the pharmacies that dispensed them. That was three to six times the going rate, the firm that did the analysis said. 

The practice that led to the upcharges has been banned in Ohio and several other states, but another, similar practice continues. 

In it, the middlemen, or pharmacy benefit managers, initially reimburse pharmacies one amount, but sometimes they come back months later and claw back a portion of that money, saying their contract requires them to do so.

The transactions of pharmacy benefit managers, or PBMs, are often opaque. So it’s hard to say how widespread clawbacks are, or how big, or even if PBMs might be paying pharmacies more after the fact than they take away.

But there’s anecdotal evidence that huge amounts might be involved — and that on balance, pharmacies are getting the short end of the stick.

One Ohio pharmacist shared an internal analysis indicating that in 2020 Optum clawed back almost 43% of his profit from Medicaid transactions. The pharmacist and his peers have long complained that their margins from Medicaid drugs are so low that they’re barely hanging on, so they can ill afford any additional hits.

“It’s getting to the point where we’ll have to lock the doors,” said the pharmacist, who requested anonymity for fear that the big PBMs might retaliate against his business.

An Optum spokesman in October denied that the mechanism used to retroactively change reimbursements — “effective-rate” contracts — did not amount to clawbacks.

“OptumRx’s solutions enable health system partners to deliver consumers and our clients affordable, convenient access to needed prescription drugs,” the spokesman said in an email. “Effective rate contracts are not clawbacks and provide network pharmacies with overall reimbursement predictability.”

Andy Becker is vice president of Fruth Pharmacy, a small chain with stores in Southeast Ohio, West Virginia and Kentucky. Earlier this month he said the after-the-fact adjustments create the opposite of predictability.

“It really messes up your cash flow,” he said. “You don’t really know what you’re getting paid or when.”

Becker added that because of the way PBMs do the clawbacks, it’s hard for him to tell which involve reimbursements under Ohio Medicaid. But in 2019 and 2020, clawbacks that might have involved Ohio Medicaid totaled $156,000 and $36,000, respectively, Becker said — a big headwind for a struggling business in an underserved region, said Fruth Pharmacy President Lynne Fruth.

“We generally operate on less than 1% of margin,” she said. “And they’re clawing back in different areas a multiplier that’s much higher than that.”

Pharmacists complain that such clawbacks are taking place across the board, but within the confines of Medicaid, there are significant questions about whether the practice is violating federal rules.

A spokesman for the U.S. Centers for Medicare and Medicaid Services said that state officials are responsible for enforcing those rules.

“CMS is not engaged in this issue at this time and so questions should be directed to the state Medicaid agency,” he added in an email.

But the spokesman also provided guidance that his agency published in 2019. It dealt with rules for calculating the “medical loss ratio” — a way of ensuring that companies contracting for Medicaid business don’t collect more than 15% for administration, profit and other non-health care activities.

In an October hearing of the Ohio legislature’s Joint Medicaid Oversight Committee, Director Corcoran was asked whether amounts being clawed back by PBMs were making their way into calculations of the medical loss ratio. In other words, lawmakers were asking whether the companies were improperly pocketing that money as profit. 

Corcoran said she didn’t know.

“That is a really, really complicated question… Let me focus on a couple of… key pillars here,” Corcoran said. “The key pillars are whatever is spent in the drugs, pharmaceuticals, is considered part of the service claims, so these are all being counted within the medical loss ratio. The rates are set representative of the industry. Beyond that, I at this point can’t go deeper than that in terms of what effect, if any, this has on the medical loss ratio. I just don’t know.”

However, CMS’s rules seem pretty clear.

The agency’s 2019 guidance says that state departments of Medicaid are “responsible for ensuring that managed care plans are complying with these (medical loss ratio) requirements and should be routinely auditing reported data and  (medical loss ratio) calculations to ensure that revenues, expenditures, and other amounts are appropriately identified and classified within each managed care plan’s (medical loss ratio); that is, distinguishing which amounts were actually paid for benefits, or activities that improve health care quality, and which amounts were actually paid for administrative services, taxes, or other activities.”

The guidance also says that the managed-care companies must submit annual medical-loss ratio reports and they must require the PBMs they hire to “provide all underlying data associated with (medical loss ratio) reporting to the managed care plan to calculate and validate the accuracy of (medical loss ratio) reporting.”

The Medicaid department didn’t respond when asked if it required managed-care organizations to submit those annual reports, whether it routinely audited the data in them, and whether it worked to ensure that PBMs submitted all of their data.

The Ohio Attorney General’s office didn’t respond when asked if it might be investigating possible discrepancies.

A spokesman for UnitedHealth’s OptumRx earlier this month said his company was in compliance.

“We follow all Ohio Medicaid requirements, including contracting and reporting, to help ensure beneficiaries and the state Medicaid program have access to affordable prescription drugs,” he said in an email.

CVS didn’t respond to questions.

For its part, the National Community Pharmacists Association said suspicions that big PBMs aren’t following federal profit rules are predictable when the three biggest are so dominant.

“This is an unfortunate result of the monopsony power of the largest PBMs. We often say that, because the large PBMs account for 77 percent of covered lives, pharmacies can’t refuse to contract with them,” NCPA Vice President Anne Cassity said in an email. “The same holds true for plan sponsors, too. The lack of choice almost guarantees that states will have to contract with a PBM that plays manipulative games with taxpayer dollars.”



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Marty Schladen
Marty Schladen

Marty Schladen has been a reporter for decades, working in Indiana, Texas and other places before returning to his native Ohio to work at The Columbus Dispatch in 2017. He's won state and national journalism awards for investigations into utility regulation, public corruption, the environment, prescription drug spending and other matters.