MEDI-CAL PHARMACEUTICALS
California Handed Its Medicaid Drug Program to One Company. Then Came a Corporate Takeover. BY SAMANTHA YOUNG
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RESCRIPTION DRUG
costs for California’s massive Medicaid program were draining the state budget, so in 2019 Gov. Gavin Newsom asked the private sector for help. The new Medicaid drug program debuted this January, with a private company in charge. But it was woefully unprepared, and thousands of lowincome Californians were left without critical medications for weeks, some waiting on hold for hours when they called to get help. What happened in the two years between the contract award and the start of the program is a case study in what can go wrong when government outsources core functions to the private sector. California awarded the Medi-Cal Rx program to a unit of Magellan Health, a company with expertise in pharmacy benefits and mental health. But Magellan was then gobbled up by industry 6
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giant Centene, worth roughly $50 billion, which was looking to expand its mental health portfolio. Centene was already a big player in state Medicaid drug programs — but one with a questionable record. The company was accused by six states of overbilling their Medicaid programs for prescription drugs and pharmacy services and settled to the tune of $264.4 million. Three other states made similar allegations and have settled with the company, but the amounts have not been disclosed. Centene, in resolving the civil actions, denied any wrongdoing. Kaiser Health News (KHN) has learned California health officials also are investigating Centene.
Handing Over Control In his 2019 inauguration speech, Newsom vowed to use California’s “market power and our moral power to demand fairer prices” from the “drug companies that
gouge Californians with sky-high prices.” Drug spending by the state for its Medicaid, prison, state hospital, and other programs had been climbing 20% a year since 2012, so the first-term Democrat issued an executive order requiring California to make its own generic drugs and forge partnerships with counties and other states to buy drugs in bulk. He also directed the state to buy prescription drugs for Californians enrolled in MediCal, the state’s Medicaid program, which covers roughly 14 million people. Newsom no longer wanted to allow the state’s two dozen Medi-Cal managedcare health plans to provide prescription drug coverage to their enrollees, arguing the state would get a better deal from drug companies by harnessing its purchasing power. That December, California awarded a competitive $302 million contract to Magellan Medicaid Administration, a subsidiary of Magellan Health, to make