Centene Corp: Taxpayers overcharged for patient meds

Then came the lawyers to come for the money

SHALINA CHATLANI, States Newsroom

In 2018, when Mike DeWine was Ohio's attorney general, he began investigating an obscure corner of the healthcare industry.

He believed that insurers were inflating prescription drug prices through management companies that operated as middlemen in the drug supply chain. There were concerns that these companies, known as pharmacy benefit managers, or P.B.M.s, were fleecing agencies like Medicaid, the government-run health insurance program for the poor.

Three years later, after. DeWine became governor of Ohio, the state announced an $88 million settlement with one of the nation's largest insurance companies, Clayton-based Centene Corp.

The case led to a nationwide reckoning for the company, as attorneys general in one state after another followed Ohio's lead, announcing multimillion-dollar settlements and claiming credit for forcing Centene to reform its billing practices.

On the surface, it appeared that these settlements, which now total nearly $1 billion, were driven by state governments cracking down on a company that had ripped off taxpayers.

But a New York Times investigation, drawing on thousands of pages of court documents, emails and other public records in multiple states, reveals that the case against Centene was conceived and executed by a group of powerful private lawyers who used their political connections to go after millions of dollars in contingency fees.

The lawyers were first hired in Ohio, without competitive bidding. Then, they gathered evidence against Centene of questionable billing practices across the country.

Using information they acquired from Centene and other sources, they negotiated with the company to set the basic framework of an agreement that could be applied in other states. With that in hand, they approached attorneys general in multiple states and made a compelling offer: hire them, at no direct cost to taxpayers, and recoup millions of dollars Centene had already set aside.

So far, the lawyers have been awarded at least $108 million in fees.

The Centene case is just one example in a thriving industry that allows private lawyers to partner with elected attorneys general and temporarily gain powers usually reserved for the government. Under the banner of their state partners, these lawyers sue corporations and help set public policy while collecting millions of dollars in fees, usually based on a percentage of whatever money they recoup. The practice has become standard fare in the oversight of major industries, shifting the work of accountability away from legislators and regulators to the opaque world of private litigation.

Private lawyers do not have to publicly defend the deals they make or prove how aggressively they went after a company accused of wrongdoing. Nearly all their work happens in secret, especially if companies settle before the stage of a lawsuit when evidence is filed with the court.

The lawyers do not even have to disclose who worked on a case or who was paid, so the public may be left unable to monitor potential conflicts of interest even as the lawyers pursue litigation on behalf of the people.

The Centene case was organized by the Mississippi-based law firm Liston & Deas along with at least three other firms, several with close ties to former Gov. Haley Barbour of Mississippi, who was once considered one of the most influential Republican power brokers in the nation.

The lawyers included Paul Hurst, who served as Barbour's chief of staff when he was governor and who married into Barbour's family, and David H. Nutt, one of the richest men in Mississippi, who amassed a fortune funding state lawsuits against tobacco companies. Cohen Milstein, a huge national law firm with deep experience in contingency work for state attorneys general, was also part of the venture.

Though he is not listed in any government contracts as a lawyer of record, Barbour himself was a member of the legal team when Liston & Deas vied for the contract in Ohio.

At the time, Barbour also worked for Centene as a federal lobbyist.

Even now, close to three years after Centene signed its first settlements, no one has fully explained Barbour's role in the case for the company. There is no way for the public to know whether he influenced the outcome or to measure whether Centene paid its full share, because the data used to calculate what Centene overcharged remains hidden from the public under provisions designed to protect attorney work product.

Barbour and other lawyers said that the former governor worked on the case for less than a year when the group was examining several insurance companies and that he cut ties when Centene emerged as the primary target. Barbour said he informed Centene and his colleagues about the development and was never involved in negotiations or legal matters. He continued representing Centene as a lobbyist, he said, but his role in the case on behalf of the company was as "more of an observer."

The lawyers said that Barbour was never paid for his work and that the settlement was not influenced by Barbour's connections to Centene or to the lawyers who remained. They said each state attorney general reviewed Centene's billing practices when deciding whether to enter a settlement agreement.

In recent years, P.B.M.s have been widely criticized, including by members of Congress, who have held multiple hearings and proposed legislation. The Centene settlements stand as the most successful attempt to hold a company operating in the industry accountable.

Liston & Deas and its partner law firms uncovered that Centene had arranged discounts with CVS Caremark on certain drugs and then pocketed the savings instead of passing them on to Medicaid. In some states, they revealed that Centene layered on unnecessary management fees that it had not disclosed. Although Centene settled without admitting guilt, the company agreed to be more transparent in how it sets reimbursement rates.

The lawyers noted that they spent several years investigating Centene and negotiating with the company at their own risk, saving states the cost of building a case.

Nutt, one of the lawyers who pursued the case, said states were happy with the terms of the settlements.

"Almost every one of those states audited to determine if our damage model was fair," Nutt said.

"The formula was based on a triple damages model that we developed. And everybody was quite satisfied with it, because it was three times what anybody could have proven in court."

For most of their history, state attorneys general were largely focused on advising state officials on legal matters and representing local agencies in court.

That changed drastically almost 30 years ago when states came together to sue tobacco companies and won a $206 billion settlement to cover the cost of medical care related to smoking. The lawsuit helped redefine the role of the attorney general as one of the most powerful positions in state government and a natural place to start a political career.

Through high-profile lawsuits against corporations, an attorney general could directly affect policy and build a reputation as a champion of the people.

But complex litigation against large companies can require years of investigation and legal work, with no guarantee of success. Increasingly, states have turned to private lawyers willing to work on contingency as a way to stretch limited resources.

The rise of contingency fee cases kicked off a new wave of lobbying across the nation. Law firms looking for contracts have poured money into attorney general election campaigns and sponsored conferences at high-priced resorts, where private lawyers mingle with attorneys general and pitch their latest ideas for lawsuits.

Many states have capped how much lawyers can be paid in contingency fees and have increased oversight of private firms working for the government. But there remains concern about undue political influence and potential conflicts of interest.

"In theory, there's an incentive to have the settlement be as big as possible, and of course that's great for the state," said Paul Nolette, a professor at Marquette University who has studied how the role of attorneys general has changed over time.

But in reality, lawyers have an incentive to recover the largest amount of money in the shortest amount of time, which could pressure them to water down settlements and compromise on punitive measures, Dr. Nolette said.

"I think that does raise some questions about how forcefully A.G.s and private attorneys are prosecuting a particular case," he said.

Several experts said that contingency cases had recouped billions of dollars on behalf of the public and had become a critical way to regulate the behavior of powerful industries and large corporations.

But inviting private lawyers to help set public policy has inherent risks, they said.

Private lawyers may be more likely to have conflicts of interest because they generally represent many businesses and individuals, not just the citizens of a state.

And unlike most attorneys general, private lawyers are not elected officials. They are not generally governed by open records laws or subject to public pressure, as from legislators setting their budgets.

In the Centene case, Barbour's associations with both Centene and the private lawyers raise "important questions" about who controlled the case to make sure it was pursued in the best interests of states that settled, said Kathleen Clark, a professor of legal ethics at Washington University in St. Louis.

"Did state A.G.s proactively pursue these cases, or did they passively accept the 'free money' or 'easy money' of the proposed settlements that the law firms had already negotiated with Centene?" Ms. Clark asked.

Christina Saler, a partner at Cohen Milstein, said Mr. Barbour's early association with the legal team was not a conflict of interest because Mr. Barbour withdrew from the case before lawyers started investigating Centene.

"After Mr. Barbour's disassociation, we had no further contact with Mr. Barbour on this matter," she said.

A well-connected team

Hurst noted the involvement of Barbour when seeking the contract in Ohio, according to emails acquired from the Ohio attorney general's office through a public records request.

In a June 22, 2018, email exchange, just a few days before the state hired Liston & Deas, Hurst recalled meeting with the attorney general's staff in Ohio.

Hurst went on to note that members of his team had worked with Governor Barbour while he was in office and that they all "continue to work together now."

In an email a week later, an assistant attorney general shared Barbour's cell number with DeWine, saying that Barbour had shared it so he could "call him about this case anytime."

Barbour, who had served two terms as governor of Mississippi, was a former chairman of the Republican Governors Association and a former chairman of the Republican National Committee. Known as a prolific fund-raiser, he was credited with bringing in hundreds of millions of dollars to support Republican candidates across the nation.

In 1991, Barbour co-founded BGR Group, a lobbying firm that quickly became one of the most influential in Washington.

Barbour had known DeWine since he was first elected to the Senate in 1995.

Two decades later, when DeWine was in the midst of a hard-fought campaign for governor, Barbour's close associates solicited him for the legal work on the Centene case. In October 2018, less than three months after DeWine hired Liston & Deas, he traveled to Washington to visit Barbour's lobbying firm for several hours, according to calendar records.

At the time, Barbour and others at BGR were registered lobbyists for Centene.

Ms. Saler, of Cohen Milstein, said there was no need to inform state officials because Barbour had not been involved in the Centene portion of the case and had exited the venture several years before states hired the lawyers.

Barbour has never been named in state contracts as one of the private lawyers on the case in Ohio or anywhere else.

At least four law firms were involved in the case in two or more states, according to retainer agreements and financial records showing broadly how settlement funds were disbursed.

According to Max Littman, a former data analyst with HealthPlan Data Solutions, the analytics firm that helped identify Centene's overcharges in Ohio, one important role for many of the lawyers was to use their connections as they presented the overcharges to various states.

Littman, who said he worked closely with the legal team, described the dynamic: Liston & Deas, with roots in a deeply red state, would approach Republican attorneys general, and Cohen Milstein, "who were our Democrats," would focus on Democratic states.

When The Times asked for records showing Liston & Deas's qualifications to be hired to represent the State of Ohio, the attorney general's office said no records existed. Cohen Milstein and other law firms had submitted such documentation in the past when seeking contracts in Ohio.

Settling with states

In June 2021, nearly three years after Ohio hired its outside counsel, two states announced the first settlements with Centene on the same day: Ohio would get $88 million, Mississippi $55 million.

After that, Centene settled in one state after another, often with just months between announcements.

In fact, Centene had already set aside $1.1 billion to handle all subsequent cases. The company estimated the amount after early discussions with the private lawyers that did not involve the state attorneys general who would later work with them.

With a settlement in hand and an estimate of how much each state could collect, the private lawyers had a powerful pitch. The team also had the option to file whistle-blower lawsuits, which can advance without a state attorney general's having to hire outside counsel.

The team pursued whistle-blower lawsuits in Texas, California and Washington.

In Texas, the whistle-blower lawsuit came with a benefit for Attorney General Ken Paxton: Under Texas law, his office is allowed to recoup "reasonable attorney's fees" for work associated with such cases. It collected nearly $25 million in legal fees on the Centene case while spending just 561 hours on it, financial records show. That comes out to more than $44,000 per hour of work. The Texas attorney general's office declined to comment.

Ms. Saler said all the state attorneys general decided their own strategies in reaching settlements with Centene based on the best interest of taxpayers in their states.

In states that hired the lawyers on contingency, the attorney general closely reviewed Centene's billing practices. But no state has revealed whether its own overcharge calculations matched those of the private lawyers.

State officials who hired Liston & Deas and the other firms knew that the lawyers had previously negotiated with Centene. But in a vast majority of states, officials did not explicitly address that fact when talking publicly about the settlements.

In addition, Liston & Deas and most of the states the firm worked for have not revealed exactly how much Centene overcharged for drugs or how settlement amounts were calculated. A few states have offered sparse descriptions, which vary widely.

The New Hampshire attorney general's office wrote in its settlement announcement that Centene's activities had a "$2.4 million negative financial impact." Centene agreed to pay the state nearly 10 times that amount.

The attorney general's office in Washington, one of the few states where officials agreed to discuss basic details about the settlement with The Times, said the $33 million it recovered amounted to treble damages.

A news release from the California attorney general's office said the state recovered double its damages for a total settlement of more than $215 million.

As of last month, Centene had settled in at least 19 states. The Liston & Deas website says Centene will ultimately pay about $1.25 billion to 22 states.

A sweetheart deal?

Some observers believe Centene would have faced stricter penalties if the federal government had taken up the case instead of private lawyers hopscotching from one state to the next.

Several experts in health care fraud litigation and whistle-blower cases said the best way to recoup money for taxpayers would have been to file a federal whistle-blower case, similar to what the lawyers did in state court in Texas and California.

A federal case could have triggered the involvement of the Justice Department, which might have investigated Centene more thoroughly. And a federal case probably would have gotten more attention and media coverage, required more transparency and taken longer to complete, the experts said.

Hurst and other lawyers in the case said they had not filed any type of federal action against Centene.

A spokesperson for the Justice Department confirmed that it had inquired about the P.B.M. and Centene cases in Ohio, but no further federal action was taken. The department declined further comment.

Mary Inman, a lawyer at Whistleblower Partners L.L.P. with decades of experience, said one of the reasons Liston & Deas wound up in state court might have been that its case relied on whistle-blowers the federal government was unlikely to approve.

The whistle-blower in Texas was Hurst. In California, the whistle-blower was Matthew McDonald, a lawyer at David Nutt & Associates and the son of Bryan McDonald, who worked in Barbour's administration when he was governor.

Ms. Inman said whistle-blowers are typically insiders with firsthand knowledge of wrongdoing who share information at some risk to themselves, not lawyers who gain information while on the job.

"It's very unusual," Ms. Inman said. "And it's something that I, as a longtime lawyer in this space, I would not want to do because atmospherically and reputationally, it doesn't look great."

Barbour said he believes everyone walked away from the settlements happy — including executives at Centene. As evidence, he cited the company's stock performance.

"I can't speak for them, but if I had agreed to pay a big settlement and my stock went up after the first day, I would think it was a pretty good settlement," Barbour said.

To read more stories like this one, go to www.missouriindependent.com

Shalina Chatlani is the national health care reporter for the States Newsroom. She is focused on in-depth accountability journalism that looks at the changing landscape of health care infrastructure in the nation, and whether local legislatures are prioritizing underserved communities.