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Lavishly paid and unapologetic. Company at center of Medicaid scandal focuses on profits.

June 28, 2021
Ohio Capital Journal
By Marty Schladen

Coordinating government health care for poor people has been very, very good to Michael F. Neidorff. By one measure, he’s the country’s top-paid health care executive, making $25 million a year.

That means the Centene chief makes as much in a year as 1,409 of the best paid of the 25 million Americans for whom his company manages Medicaid benefits. It also means — assuming Neidorff works 60 hours a week — he’s making $8,000 an hour. So by mid-afternoon each day, he makes what the typical American does all year.

And Neidorff earlier this month bluntly told investors that his “absolute priority” was to grow net profits, and executive pay, as fast as he “sustainably” can. So rapidly, in fact, that he says Centene’s profits will increase by about a third by 2024 — even as the company pays out more than $1 billion to settle 22 states’ claims of wrongdoing.

Further claims also are emerging of dishonest conduct in the way the company obtains contracts for prison care, a growing line of business Centene does with the government. But Neidorff didn’t mention that or apologize for the conduct his company was sued over as he emphasized his focus on growth and profit.

“Centene has been in a 2.6% to 2.7% adjusted net income margin bracket for far too long,” Neidorff told investment analysts, using the business expression for profit. “Looking ahead, we have a longer-term goal of achieving at least 3.3% adjusted net income margin by 2024. Our entire organization — including the board of directors — is aligned towards this goal and achieving our margin objectives will be incorporated as an important piece of long-term management incentive programs.”

“Long-term management incentive programs,” of course, is business-speak for the bonuses and stock options corporations give highly paid executives like Neidorff.

They might be about to get a lot bigger.

Since Neidorff plans to grow Centene revenue from $111 billion last year to $120 billion this year — and grow profits by at least 0.6 percentage points, his goals would easily net the company an additional $1 billion in annual profit by 2024.

Raising eyebrows

Centene’s laser-focus on boosting profit has some watchdogs concerned — especially since allegations of wrongdoing have forced the company to pay out huge sums of money. If its biggest focus by far is profit, what else might the company be willing to do to grow it by so rapidly in just a few years? And what of its mission to provide quality healthcare to one in 15 Americans?

“The notion that, ‘We’re going to make a whole bunch of profits,’ that’s super unattractive,” said Catherine Tercer of Common Cause Ohio. “It’s tacky. It’s important to be thoughtful and transparent. Show how you’re trying to find the problems and try to change direction.”

But that doesn’t appear to be what the company is doing — and it’s unclear whether states will reconsider whether it’s a good idea to keep trusting Centene with vast sums of taxpayer money.

For its part, Centene declined to say much about why it deserved taxpayers’ trust. It won’t describe the conduct it’s paying more than $1 billion to settle and wouldn’t address whether Neidorff’s salary is appropriate, given that the company derives the lion’s share of its revenue from tax dollars intended to help the poorest Americans.

The company did deny that it would resort to improper means to supercharge profits.

“Centene operates according to all relevant local, state and federal regulations and the terms of our contracts in individual states, and any suggestion otherwise is wholly inaccurate,” a company spokesperson said in an email.

Recent history

Suggesting that the company has acted improperly in the recent past, however, doesn’t seem to be wholly inaccurate.

Earlier this month, Centene announced that it would spend $1.25 billion to settle claims of dishonest dealings with 22 state Medicaid systems. In doing so, Centene emphasized that it didn’t admit wrongdoing.

But the money includes $55 million to settle claims that, despite the company’s statement to the contrary, it didn’t provide contractually guaranteed discounts on Medicaid drugs in Mississippi.

It also includes an $88.3 million settlement with Ohio.

As a Medicaid managed-care company, Centene signs up clients, creates provider networks, and handles reimbursements. Ohio Attorney General Dave Yost accused the Centene subsidiary Buckeye Health of creating a chain of its own and outside pharmacy middlemen to double-bill the state to the tune of tens of millions of dollars.

As the only state to sue Centene so far, Ohio has given a clearer picture of what the company might have done wrong than in 20 others that could soon be collecting from the company. In most of them, taxpayers may never know what the company is supposed to have done or how much the company derived from such activity.

In his presentation, Neidorff didn’t explain his company’s conduct, much less apologize for it. He only said the matter “is very much a thing of the past.”

The company presumably wants to leave it there and keep collecting from the governmental entities with which it does business.

It’s unclear whether Ohio, which suspended Centene’s business because of the lawsuit, will resume trusting the company with taxpayer money now that Centene has settled.

“The decision regarding Buckeye as a future managed-care plan for the state Medicaid program remains in deferred status,” Ohio Department of Medicaid spokeswoman Lisa Lawless said in an email. She didn’t address what might happen in the future, which could include additional, giant sums of taxpayer dollars for Centene. The department paid the company $2.8 billion in 2020, Lawless said.

To Tercer, of Common Cause, the answer should be simple.

“Clearly, the state of Ohio was being taken advantage of and we had to sue them to get to accountability,” she said “We should not ever enter into a contract with them again. There’s nothing terribly controversial about that.”

But Yost, who accused the company in court of multiple bad acts, wouldn’t go that far.

“The agreement reached with Centene was the product of a thorough investigation and included measures for ongoing transparency and accountability,” his spokeswoman, Bethany McCorkle, said in an email. “It would not be appropriate for us to speculate on what the future holds with Centene but we will continue to monitor and pursue any wrongdoing.”

Medicaid is funded by federal and state governments. The U.S. Centers for Medicare & Medicaid Services, the agency in charge of the program, also wouldn’t say much about Centene, the biggest Medicaid managed-care contractor in the country.

“As a matter of policy, CMS does not speculate on active/pending investigations, nor does the agency comment on litigation,” a spokesperson said in an email.

More allegations

It’s also unclear how officials in other states will treat the company. Attorneys general in Georgia, Florida, Kansas, New Mexico and Texas didn’t respond earlier this month to questions about Centene’s business with their Medicaid systems.

But in two others — Tennessee and Missouri — Centene is under fire over its conduct in a separate arena, prison care.

Tennessee in May announced that it would rebid a $123 million contract that Centene had gotten to provide behavioral care in the state’s prisons.

Corizon, a much smaller company, had been providing the service. It complained in federal court that the corrections department’s chief financial officer, Wesley Landers, improperly communicated with Centene subsidiary Centurion Health during the bidding process.

The corrections department then raised the requirement for a performance bond out of Corizon’s reach. The Centene subsidiary got the contract and then it hired Landers as a vice president, the complaint said.

In Missouri, Corizon had provided medical services to the prison system for 29 years. It filed a complaint after the state in May selected Centene’s subsidiary over Corizon for the year starting July 1 and agreed to pay it 17% more than it paid Corizon a year earlier, the Missouri Independent reported.

Among Corizon’s complaints was that Centene did not inform state officials that key personnel named in its Missouri bid had been fired over developments in Tennessee.

Centene didn’t respond to a question about the ethics of its dealings with prison systems in Missouri and Tennessee.

No apologies

Speaking to investment analysts, CEO Neidorff also was silent on how he planned to keep his company out of such fixes as he tries to put the company’s growth on hyper-drive. But he was clear that Centene would relentlessly seek to expand everywhere it could and extract whatever profits are available.

“I would like to reiterate what I hope you will take away from today,” Neidorff said as he concluded his remarks. “First, our absolute priority moving forward is margin expansion to 4% pre-tax and no less than 3.3% adjusted net income on a sustainable basis. Secondly, margin expansion.

“I jest but I do want to underline and highlight our organizational focus on unlocking the underlying value of this organization.”

Drew Asher, Centene’s chief financial officer, told investors that the drive for more growth and more profit literally echoes through the corridors of Centene’s St. Louis headquarters.

Referring to “two critical words: margin expansion,” Asher said, “If you walk the halls at Centene you would now hear the phrase as part of our every-day vernacular.”

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