Centene to Shake Up Drug-Benefit Business After Legal Battles

(Bloomberg) -- Centene Corp. said it will restructure its pharmacy-benefits management business following claims by several states that it had inflated drug costs at taxpayers’ expense.

The health insurer recorded a $1.1 billion accounting charge earlier this year in anticipation of resolving disputes with states that alleged that the company overcharged their Medicaid programs for prescription drugs. 

On Tuesday, Centene said it will seek new proposals from outside companies to help it manage what it expects to be more than $30 billion in annual drug spending in the years to come. The company’s existing contract for pharmacy services runs out at the end of 2023. 

“That’s going to be a huge opportunity for an external PBM,” Centene Chief Financial Officer Drew Asher said on a call with analysts.

Shares of the St. Louis-based company rose 3% at 10:48 a.m. in New York.

Centene has agreed to pay more than $200 million to resolve claims in four states -- Arkansas, Illinois, Ohio and Mississippi -- and expects to settle more such claims, the company has said. It denied any liability for practices that led to the settlements.

Increasing Scrutiny

The pharmacy-benefits management industry is facing increasing scrutiny as prescription-drug costs burden employers, individuals and government health programs. State officials are seeking more transparency into arrangements between PBMs and drug manufacturers, and upstart PBMs are sprouting up to compete with major players.

Centene took a $229 million pretax charge on its investment in a PBM called RxAdvance, a deal it touted in 2018 as a “transformative partnership” to build a “next generation pharmacy management solution.”

In its earnings release Tuesday, the company announced a “strategic decision to transition from using the RxAdvance platform and consolidate our business on an alternative external platform.”

The company said it was reviewing noncore assets. “We’re very focused short-term on logical consolidation,” Sarah London, the vice chairman of Centene’s board of directors, said on the call.

Centene reported adjusted earnings of $1.26 a share for the third quarter, in line with analysts’ estimates. The company lowered the top end of its forecast for 2021. Centene now expects adjusted earnings of $5.05 to $5.15 a share, from $5.05 to $5.35 previously. 

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