Centene Corp. is in the market for a new pharmacy benefit manager.
The St. Louis-based insurer announced in June it was restructuring its Envolve PBM to serve solely as a third-party administrator, after the insurer agreed to pay Ohio and Mississippi a combined $143 million to settle allegations that it overcharged their Medicaid departments for drugs. Three months later, Centene agreed to pay another $71 million to Illinois and Arkansas to settle similar accusations.
At least four other states are also investigating their Medicaid programs' PBMs. Centene is involved in settlement discussions with a group of plaintiffs from affected states, the insurer wrote in filing with the U.S. Securities and Exchange Commission. The company has reserved $1.25 billion for future settlements related to its now-defunct PBM Envolve. Centene said it restructured Envolve in 2019 to operate as a third-party administrator for processing customer claims and, in June, announced it will now no longer operate as a PBM.
"There is no guarantee we will have the ability to settle such claims with other states within the reserve estimate we have recorded," the SEC filing said, adding that these proceedings are "costly and time consuming and require significant attention from our management, and could therefore harm our business and financial position."
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None of these deals represent an admission of guilt on the part of Centene, which is the nation's largest Medicaid managed-care provider with 14 million enrollees.
The insurer had relied on Envolve and RxAdvance to manage its drug spend. Here's what the insurer is looking for in a new PBM:
1. Centene will evaluate proposals from pharmacy benefits companies in 2022 to manage the insurer's more than $30 billion annual drug spending. The insurer plans to award the contract at the start of 2023, and is aiming to have the new PBM take over its operations by 2024. "That's going to be a huge opportunity for an external PBM," Chief Financial Officer Drew Asher told investors during the company's third-quarter earnings call on Tuesday.
2. During the third quarter, Centene paid $229 million to transition from using the RxAdvance platform, according to an SEC filing. RxAdvance is backed by former Apple and PepsiCo CEO John Sculley, who just helped launch a Medicare Advantage-as-a-service product for health plans.
3. The insurer is in the process of offloading other PBM platforms that it views as nonessential, vice chairman Sarah London told investors during the call. By streamlining its pharmacy operations, London said the company aims to save on administrative expenses. "On the pharmacy front, I would say we're very focused short-term on logical consolidation, as well as the rationalization of non-core platforms," London said.
4. The company is looking for a vendor that can automate specific processes to save on costs, London said. "We have got operating model opportunities there that will go through and then a lot of process automation opportunities within the PBM space," London told investors. "When you think about the value that the PBM work can drive to the value creation program, it's obviously inclusive of the RFP but it goes beyond that."
5. When looking for a new PBM, Centene will likely look to its competitors. UnitedHealth Group, CVS Health's Aetna and Cigna all own PBMs that are responsible for handling 75% of all prescription drug claims in the U.S. Earlier this year, Anthem and Humana also announced they were collaborating to build a new, more transparent, PBM platform. Centene previously relied on CVS Caremark to manage its drug spend. "Quality is always at the top of the list," Asher told investors about Centene's PBM needs. "Execution, the complexity of operating a complex customer such as Centene, that's pretty critical as well."
