WEBVTT 00:00:00.000 --> 00:00:02.660 Welcome back to the Deep Dive. Today, we are 00:00:02.660 --> 00:00:05.660 pulling the lens way back on one of the most 00:00:05.660 --> 00:00:08.320 consequential, yet I think often overlooked, 00:00:08.679 --> 00:00:12.140 entities in the American financial and healthcare 00:00:12.140 --> 00:00:13.939 landscape. I agree with that. We're talking about 00:00:13.939 --> 00:00:16.100 Centene Corporation, and we're not talking about 00:00:16.100 --> 00:00:18.440 a pharmaceutical company or a hospital chain. 00:00:18.780 --> 00:00:21.640 We are diving deep into the world of managed 00:00:21.640 --> 00:00:25.839 care. the massive business of being the intermediary 00:00:25.839 --> 00:00:28.000 for government health care. And when we say massive, 00:00:28.059 --> 00:00:31.039 we, we really mean colossal. Centene acts as 00:00:31.039 --> 00:00:33.259 this critical bridge, this coordination engine 00:00:33.259 --> 00:00:36.359 between billions of dollars in taxpayer funding 00:00:36.359 --> 00:00:39.579 and millions of patients and providers. For anyone 00:00:39.579 --> 00:00:42.159 seeking to understand where public money meets 00:00:42.159 --> 00:00:44.219 private profit in the U .S. health system, I 00:00:44.219 --> 00:00:45.939 mean, the Centene story is basically mandatory 00:00:45.939 --> 00:00:48.600 reading. Our listeners provided a pretty substantial 00:00:48.600 --> 00:00:51.200 stack of sources, primarily focusing on the company's 00:00:51.200 --> 00:00:54.079 corporate history. and its regulatory exposure. 00:00:54.439 --> 00:00:57.820 So our mission today is complex, but I think 00:00:57.820 --> 00:01:01.399 clear. We need to chart Centene's entire trajectory. 00:01:01.640 --> 00:01:03.920 We'll look at the incredible scale they've achieved. 00:01:04.099 --> 00:01:07.680 The numbers are, frankly, staggering. Examine 00:01:07.680 --> 00:01:09.900 the relentless acquisition strategy that built 00:01:09.900 --> 00:01:12.489 this behemoth. Understand the recent... almost 00:01:12.489 --> 00:01:15.609 tectonic shifts in leadership and strategy. And 00:01:15.609 --> 00:01:18.469 I think most importantly, dissect the massive 00:01:18.469 --> 00:01:20.349 financial settlements that have consistently 00:01:20.349 --> 00:01:22.829 tied the company's profitability to allegations 00:01:22.829 --> 00:01:25.469 of overbilling and network failure. Yeah, that 00:01:25.469 --> 00:01:27.750 last part is key. We really have to establish 00:01:27.750 --> 00:01:30.450 the sheer magnitude of this company immediately 00:01:30.450 --> 00:01:32.689 because it sets the context for absolutely everything 00:01:32.689 --> 00:01:35.269 else we're going to discuss. Centene is an American 00:01:35.269 --> 00:01:37.689 for -profit health care company headquartered 00:01:37.689 --> 00:01:40.049 in St. Louis, Missouri. And looking at the 2024 00:01:40.049 --> 00:01:42.209 figures, the scale just... It becomes breathtaking. 00:01:42.489 --> 00:01:44.569 It really does. Okay, so let's unpack this. We 00:01:44.569 --> 00:01:47.469 are talking about annual revenue of U .S. $163 00:01:47.469 --> 00:01:52.150 billion as of 2024. $163 billion. It's an enormous 00:01:52.150 --> 00:01:55.510 figure. It places them at number 23 on the 2025 00:01:55.510 --> 00:01:58.590 Fortune 500 list. That's not just a major player 00:01:58.590 --> 00:02:00.909 in healthcare. That is one of the top two dozen 00:02:00.909 --> 00:02:03.489 corporations in the entire United States. You're 00:02:03.489 --> 00:02:05.629 putting them up there with tech and energy giants. 00:02:05.909 --> 00:02:07.890 That's the league they're in. And to support 00:02:07.890 --> 00:02:11.090 that kind of scale, they employ 60 ,500 people. 00:02:11.530 --> 00:02:14.909 And their core operational model is what makes 00:02:14.909 --> 00:02:17.810 that size so relevant to the public discussion. 00:02:18.169 --> 00:02:20.990 They are predominantly an intermediary for, and 00:02:20.990 --> 00:02:23.490 this is the important part. government sponsored 00:02:23.490 --> 00:02:26.289 and privately insured health care programs. Right. 00:02:26.469 --> 00:02:29.530 This means the engine driving that hundred and 00:02:29.530 --> 00:02:32.189 sixty three billion dollar revenue stream is 00:02:32.189 --> 00:02:34.909 fundamentally reliant on public dollars. We're 00:02:34.909 --> 00:02:37.210 talking primarily about programs like Medicaid 00:02:37.210 --> 00:02:39.310 and Medicare. So their business is basically 00:02:39.310 --> 00:02:42.270 managing the risk associated with these colossal 00:02:42.270 --> 00:02:44.789 public programs. Exactly. Transforming what was 00:02:44.789 --> 00:02:47.509 intended as a public responsibility into a highly, 00:02:47.550 --> 00:02:50.030 highly lucrative private sector industry. And 00:02:50.030 --> 00:02:51.750 that intersection, you know, public funding. 00:02:51.919 --> 00:02:54.139 and private profit maximization, that is the 00:02:54.139 --> 00:02:56.360 central tension of this entire deep dives. It's 00:02:56.360 --> 00:02:58.580 a dynamic we'll see repeated in their history, 00:02:58.680 --> 00:03:00.979 their acquisitions, and ultimately their settlements. 00:03:01.180 --> 00:03:04.419 To truly understand Centene. We first need to 00:03:04.419 --> 00:03:07.539 look at how this Fortune 500 giant emerged from 00:03:07.539 --> 00:03:10.819 incredibly humble and I think surprisingly nonprofit 00:03:10.819 --> 00:03:14.680 roots. The Centene story is not one of a, you 00:03:14.680 --> 00:03:17.340 know, a Silicon Valley startup. It starts way 00:03:17.340 --> 00:03:20.539 back in 1984. 41 years ago. Right. 41 years ago 00:03:20.539 --> 00:03:23.539 in Milwaukee, Wisconsin. It was founded by Elizabeth 00:03:23.539 --> 00:03:26.099 Betty Brin and it wasn't even called Centene. 00:03:26.159 --> 00:03:28.419 It was originally known as Managed Health Services. 00:03:28.599 --> 00:03:30.979 And it was a nonprofit. A nonprofit entity focused 00:03:30.979 --> 00:03:33.039 locally on providing assistance. essential care 00:03:33.039 --> 00:03:35.780 and coordination. This foundational stage managed 00:03:35.780 --> 00:03:39.159 health services as a nonprofit is just essential 00:03:39.159 --> 00:03:41.479 context, isn't it? It means the company's initial 00:03:41.479 --> 00:03:44.060 mission was centered on community benefit and 00:03:44.060 --> 00:03:47.080 accessible care, a really stark contrast to its 00:03:47.080 --> 00:03:48.979 eventual identity. A completely different world. 00:03:49.099 --> 00:03:51.719 But the pivotal shift comes after Bryn's death. 00:03:51.860 --> 00:03:54.069 What happens then? The organization was subsequently 00:03:54.069 --> 00:03:56.490 sold to investors, and that marks the definitive 00:03:56.490 --> 00:03:59.449 transition from a nonprofit structure to a for 00:03:59.449 --> 00:04:02.050 profit enterprise. This sale is the inflection 00:04:02.050 --> 00:04:04.189 point where Centene, as we know it today, truly 00:04:04.189 --> 00:04:06.669 begins. But there's an interesting layer to this, 00:04:06.669 --> 00:04:09.530 right? The proceeds from that sale weren't just, 00:04:09.610 --> 00:04:12.030 you know, pocketed. No, and this is a fascinating 00:04:12.030 --> 00:04:15.090 detail. They were used to fund the Betty Brin 00:04:15.090 --> 00:04:18.370 Foundation, an organization that in turn became 00:04:18.370 --> 00:04:21.870 a major shareholder in the new for -profit Centene 00:04:21.870 --> 00:04:24.649 Corporation. That creates a really complex, almost 00:04:24.649 --> 00:04:27.269 circular relationship, doesn't it? It does. The 00:04:27.269 --> 00:04:29.269 foundation that's built on the nonprofit's original 00:04:29.269 --> 00:04:32.850 assets maintains a financial stake in the success 00:04:32.850 --> 00:04:36.250 of the for -profit successor. It sort of institutionalizes 00:04:36.250 --> 00:04:38.339 the... link between the company's charitable 00:04:38.339 --> 00:04:41.519 origins and its new financial objectives. It's 00:04:41.519 --> 00:04:43.939 a very unusual setup. And the person who truly 00:04:43.939 --> 00:04:45.860 guided the company through its critical growth 00:04:45.860 --> 00:04:48.399 phase was Michael Neidorf. Right. He joined as 00:04:48.399 --> 00:04:51.639 CEO in 1996. And just five years later, under 00:04:51.639 --> 00:04:53.660 his leadership, Centene went public. They had 00:04:53.660 --> 00:04:57.300 an ITO in December of 2001. That move going public, 00:04:57.420 --> 00:04:59.879 it really signaled an intention to aggressively 00:04:59.879 --> 00:05:02.779 expand and seek capital for large scale operations. 00:05:03.199 --> 00:05:05.819 And the early strategic acquisitions they made 00:05:05.819 --> 00:05:08.139 sort of set the template for the later controversies, 00:05:08.139 --> 00:05:10.060 didn't they? They weren't just acquiring other 00:05:10.060 --> 00:05:12.279 health plans. They were strategically integrating 00:05:12.279 --> 00:05:14.680 control over the supply chain. That's a great 00:05:14.680 --> 00:05:18.240 way to put it. In 2006, they acquired U .S. Script, 00:05:18.480 --> 00:05:22.019 which was a pharmacy benefits manager or a PBM. 00:05:22.360 --> 00:05:24.220 And this is a crucial detail for the listener 00:05:24.220 --> 00:05:27.589 to remember, right? PBMs. Absolutely. PBMs are 00:05:27.589 --> 00:05:29.910 the middlemen that manage prescription drug benefits 00:05:29.910 --> 00:05:32.230 for health plans. They're the ones negotiating 00:05:32.230 --> 00:05:35.069 with drug manufacturers, creating the formularies, 00:05:35.089 --> 00:05:37.670 processing the claims. So controlling the PBM 00:05:37.670 --> 00:05:40.670 segment, which they later merged into their involved 00:05:40.670 --> 00:05:44.290 divisions, gave Centene just massive leverage. 00:05:44.550 --> 00:05:46.610 Massive. It meant they could manage prescription 00:05:46.610 --> 00:05:49.850 costs, control the rebates, and dictate how drug 00:05:49.850 --> 00:05:52.430 reimbursement functioned within their own managed 00:05:52.430 --> 00:05:54.879 care plans. It's a classic example. vertical 00:05:54.879 --> 00:05:57.160 integration. Designed to maximize efficiency 00:05:57.160 --> 00:05:59.959 and critically profitability from the drug pipeline. 00:06:00.300 --> 00:06:02.180 So while they were securing that drug supply 00:06:02.180 --> 00:06:05.019 chain, they also moved into these highly specific 00:06:05.660 --> 00:06:08.459 guaranteed government markets. Right. In 2011, 00:06:08.639 --> 00:06:11.279 they formed Centurion. This was a joint venture 00:06:11.279 --> 00:06:14.319 with a company called MHM Services, and its whole 00:06:14.319 --> 00:06:16.639 purpose was to provide correctional health care 00:06:16.639 --> 00:06:18.759 services. Correctional health. So we're talking 00:06:18.759 --> 00:06:21.819 about health care in state and county jails and 00:06:21.819 --> 00:06:24.899 prisons. It's a captive market. Exactly. It's 00:06:24.899 --> 00:06:28.079 a specialized, often controversial sector, but 00:06:28.079 --> 00:06:30.899 it's a critical line item in state budgets, which 00:06:30.899 --> 00:06:33.680 guarantees a steady revenue stream for the contractor. 00:06:33.899 --> 00:06:36.199 And they solidified this. focus in 2018, didn't 00:06:36.199 --> 00:06:38.959 they? By acquiring MHM services outright. They 00:06:38.959 --> 00:06:40.660 did. They bought the rest of it, integrating 00:06:40.660 --> 00:06:43.160 correctional health fully into their portfolio. 00:06:43.600 --> 00:06:45.560 But the true springboard, the thing that really 00:06:45.560 --> 00:06:48.079 launched Centene to its current scale, was the 00:06:48.079 --> 00:06:51.100 Affordable Care Act, the ACA. No question. Starting 00:06:51.100 --> 00:06:54.139 in 2014, Centene moved so aggressively to offer 00:06:54.139 --> 00:06:56.399 state -run Medicaid programs through the new 00:06:56.399 --> 00:06:59.899 ACA exchanges. This was a very deliberate, strategic 00:06:59.899 --> 00:07:03.220 decision to plant their flag firmly in that expanded 00:07:03.220 --> 00:07:05.610 government -funded healthcare market. This shift 00:07:05.610 --> 00:07:08.209 wasn't just about diversification. It was about 00:07:08.209 --> 00:07:11.009 capitalizing on a fundamental change in the U 00:07:11.009 --> 00:07:13.350 .S. healthcare environment, the massive expansion 00:07:13.350 --> 00:07:15.730 of managed Medicaid, and the introduction of 00:07:15.730 --> 00:07:18.250 the ACA marketplaces. And all of that groundwork, 00:07:18.290 --> 00:07:21.189 the IPO, the PBM integration, the specialty markets, 00:07:21.290 --> 00:07:23.990 and the aggressive move into the ACA, it just... 00:07:24.300 --> 00:07:26.160 perfectly sets the stage for the next phase. 00:07:26.279 --> 00:07:28.759 Which was pure, unrelenting market dominance 00:07:28.759 --> 00:07:31.500 through acquisition. Just an incredible shopping 00:07:31.500 --> 00:07:33.980 spree. So if the first two decades were about, 00:07:34.040 --> 00:07:35.680 you know, positioning and these foundational 00:07:35.680 --> 00:07:38.959 moves, the mid 2010s were about exploding the 00:07:38.959 --> 00:07:41.670 scale. The acquisition spree Centene undertook 00:07:41.670 --> 00:07:44.069 wasn't just growth. It was a systematic consolidation 00:07:44.069 --> 00:07:47.209 of rivals and specialized markets. Indeed. I 00:07:47.209 --> 00:07:48.970 mean, it dramatically increased their market 00:07:48.970 --> 00:07:51.490 footprint. And as a result, their complexity 00:07:51.490 --> 00:07:53.870 and their regulatory exposure. The initial major 00:07:53.870 --> 00:07:57.329 leap happened between 2015 and 2016. Right. They 00:07:57.329 --> 00:07:59.610 announced plans to acquire HealthNet in 2015. 00:07:59.889 --> 00:08:02.370 A colossal transaction. I think it was valued 00:08:02.370 --> 00:08:05.629 at around $6 .8 billion. A huge deal. And that 00:08:05.629 --> 00:08:08.649 finalized in March 2016. At the same time, there 00:08:08.649 --> 00:08:10.370 were also... Also acquiring Trillium Community 00:08:10.370 --> 00:08:12.970 Health Plan up in Oregon. And Health Net brought 00:08:12.970 --> 00:08:16.129 Centene vast new markets. But as we'll definitely 00:08:16.129 --> 00:08:18.589 get into later in the controversy section, it 00:08:18.589 --> 00:08:20.350 also brought along some significant baggage. 00:08:20.610 --> 00:08:23.949 Oh, absolutely. And just a year later in 2017, 00:08:24.189 --> 00:08:26.310 they continued this pattern of just absorbing 00:08:26.310 --> 00:08:29.129 these regional nonprofit giants when they acquired 00:08:29.129 --> 00:08:31.750 Fidelis Care. Fidelis was a nonprofit insurer 00:08:31.750 --> 00:08:35.110 in New York, right? For what? U .S. $3 .75 billion? 00:08:35.509 --> 00:08:38.590 That's right. It's fascinating. Centene consistently 00:08:38.590 --> 00:08:41.690 found value in converting these established nonprofit 00:08:41.690 --> 00:08:44.710 entities, which often had deep ties to specific 00:08:44.710 --> 00:08:47.570 populations, into parts of their for -profit 00:08:47.570 --> 00:08:50.009 machine. It's a mechanism for immediate large 00:08:50.009 --> 00:08:52.370 -scale patient enrollment. You just buy the customer 00:08:52.370 --> 00:08:54.889 list, basically. It is. But the acquisition that 00:08:54.889 --> 00:08:57.230 truly cemented their status near the top of the 00:08:57.230 --> 00:08:59.909 managed care hierarchy came in 2019. The planned 00:08:59.909 --> 00:09:02.690 acquisition of their rival, WellCare. The WellCare 00:09:02.690 --> 00:09:05.570 deal was an industry tremor. It was valued at 00:09:05.570 --> 00:09:11.389 a staggering $17 .3 billion. 17 .3 billion. This 00:09:11.389 --> 00:09:13.629 was just an aggressive move to eliminate a major 00:09:13.629 --> 00:09:16.110 competitor and consolidate their position, particularly 00:09:16.110 --> 00:09:18.509 strengthening their presence in Medicare Advantage 00:09:18.509 --> 00:09:21.090 and Medicaid programs. When you just add up those 00:09:21.090 --> 00:09:24.309 purchase prices. $6 .8 billion for Health Net, 00:09:24.470 --> 00:09:29.250 $3 .75 billion for Fidelis, $17 .3 billion for 00:09:29.250 --> 00:09:31.929 WellCare. It demonstrates a corporate strategy 00:09:31.929 --> 00:09:34.450 that is utterly dependent on massive capital 00:09:34.450 --> 00:09:36.769 deployment for market dominance. They were buying 00:09:36.769 --> 00:09:39.009 their way to the top. And their acquisition strategy 00:09:39.009 --> 00:09:41.970 didn't stop at general insurance. They recognized 00:09:41.970 --> 00:09:44.190 a growing strategic need for specialization, 00:09:44.409 --> 00:09:47.490 which led to the 2021 acquisition of Magellan 00:09:47.490 --> 00:09:50.190 Health. Yes. Magellan Health was a very targeted 00:09:50.190 --> 00:09:53.389 acquisition. It was for $2 .2 billion completed 00:09:53.389 --> 00:09:56.669 in January 2022. And this established a major 00:09:56.669 --> 00:09:58.990 behavioral health platform for Centene. So this 00:09:58.990 --> 00:10:00.429 wasn't just about getting bigger. It was about 00:10:00.429 --> 00:10:02.929 strategic depth. Exactly. Behavioral health. 00:10:03.009 --> 00:10:05.009 So mental health and substance abuse services. 00:10:05.169 --> 00:10:08.129 It's a specialized high growth area. By integrating 00:10:08.129 --> 00:10:10.830 Magellan, Centene gained expertise and infrastructure 00:10:10.830 --> 00:10:13.289 to handle that specialized care coordination. 00:10:13.690 --> 00:10:15.889 OK, so domestically, they were executing this 00:10:15.889 --> 00:10:17.830 unrelenting, hyper aggressive. of acquisition 00:10:17.830 --> 00:10:20.389 strategy. But they also tried to take this model 00:10:20.389 --> 00:10:22.590 global, which resulted in a really fascinating 00:10:22.590 --> 00:10:25.690 subplot. Their foray into the UK market and their 00:10:25.690 --> 00:10:27.909 subsequent retreat. Let's talk about that. So 00:10:27.909 --> 00:10:31.190 the UK expansion started around 2017. Centene 00:10:31.190 --> 00:10:33.669 aimed to export their managed care model into 00:10:33.669 --> 00:10:35.809 the UK health care system, which is, you know, 00:10:35.809 --> 00:10:37.629 dominated by the National Health Service, the 00:10:37.629 --> 00:10:40.490 NHS. A single payer public system. So it immediately 00:10:40.490 --> 00:10:43.509 placed Centene in a very politically sensitive 00:10:43.509 --> 00:10:46.360 environment. Incredibly sensitive. And through 00:10:46.360 --> 00:10:49.080 their subsidiaries, they targeted two key areas. 00:10:49.299 --> 00:10:52.580 First, private hospitals. In 2019, they acquired 00:10:52.580 --> 00:10:56.120 a 40 % stake in Circle Health through a subsidiary, 00:10:56.159 --> 00:10:59.179 eventually taking full control by July of 2021. 00:10:59.620 --> 00:11:01.580 And that gave them a network of, what, over 50 00:11:01.580 --> 00:11:03.720 private hospitals? That's right. But second, 00:11:03.860 --> 00:11:05.960 and perhaps even more controversial, was their 00:11:05.960 --> 00:11:09.240 deep involvement in NHS primary care. Their UK 00:11:09.240 --> 00:11:12.279 subsidiary, Opros Health, systematically acquired 00:11:12.279 --> 00:11:14.919 general practitioner or GP. practices. And in 00:11:14.919 --> 00:11:18.059 2021, OPROS took over AT Medics, which is a large 00:11:18.059 --> 00:11:20.320 group of London GP practices. And it grew quickly. 00:11:20.460 --> 00:11:23.879 By 2022, Centene, through OPROS, was the largest 00:11:23.879 --> 00:11:26.299 supplier of GP services to the NHS. The largest. 00:11:26.480 --> 00:11:29.399 The largest, covering almost 600 ,000 patients. 00:11:29.840 --> 00:11:32.720 To be the largest private entity managing primary 00:11:32.720 --> 00:11:36.070 care within the public NHS structure. It's not 00:11:36.070 --> 00:11:37.870 just a matter of scale. It's a political lightning 00:11:37.870 --> 00:11:40.830 rod. I mean, did they really anticipate the intense 00:11:40.830 --> 00:11:43.230 public scrutiny this profit -driven approach 00:11:43.230 --> 00:11:45.269 would generate within a system that's built on 00:11:45.269 --> 00:11:47.889 a public service ethos? Well, clearly the intense 00:11:47.889 --> 00:11:50.429 political and operational pressure was not worth 00:11:50.429 --> 00:11:52.529 the trouble in the end because the global expansion 00:11:52.529 --> 00:11:55.830 proved to be very short -lived. Just two years 00:11:55.830 --> 00:11:59.149 after gaining full control, Centene sold Circle 00:11:59.149 --> 00:12:01.889 Health to a company called Pure Health for $1 00:12:01.889 --> 00:12:06.710 .2 billion in August 2023. It signaled a decisive 00:12:06.710 --> 00:12:09.029 exit from the U .K. market. It seems like the 00:12:09.029 --> 00:12:11.330 friction inherent in trying to apply a highly 00:12:11.330 --> 00:12:14.870 competitive, profit -maximizing model to a deeply 00:12:14.870 --> 00:12:17.649 entrenched public health service, it just proved 00:12:17.649 --> 00:12:20.350 unsustainable. It did. That quick entry and rapid 00:12:20.350 --> 00:12:22.710 exit consolidating, facing intense scrutiny, 00:12:22.850 --> 00:12:25.950 and then just divesting is highly illustrative 00:12:25.950 --> 00:12:27.750 of Centene's corporate style, isn't it? I think 00:12:27.750 --> 00:12:30.730 so, yes. So, having covered the growth, let's 00:12:30.730 --> 00:12:32.549 summarize their current business profile for 00:12:32.549 --> 00:12:35.710 a listener. What is the portfolio that generates 00:12:35.710 --> 00:12:40.190 that $163 billion today? The current portfolio 00:12:40.190 --> 00:12:43.210 clearly shows where Centene's reliance lies. 00:12:43.450 --> 00:12:46.169 It's government contracts. Okay, so first and 00:12:46.169 --> 00:12:48.570 foremost is Medicaid, which serves low -income 00:12:48.570 --> 00:12:51.289 individuals and is often administered by states 00:12:51.289 --> 00:12:53.850 through private managed care organizations like 00:12:53.850 --> 00:12:56.330 Centene. This is their bread and butter. Absolutely, 00:12:56.490 --> 00:12:59.509 their core business. Second, the ACA health insurance 00:12:59.509 --> 00:13:02.059 marketplace. where they offer plans under well 00:13:02.059 --> 00:13:05.340 -known brands like Ambetter. Third is Medicare, 00:13:05.580 --> 00:13:07.539 mainly through their Medicare Advantage plans, 00:13:07.860 --> 00:13:09.639 which are the privately administered versions 00:13:09.639 --> 00:13:12.519 of the federal program. Fourth, TRICARE, providing 00:13:12.519 --> 00:13:14.580 services for military families and veterans, 00:13:14.820 --> 00:13:17.159 often through subsidiaries like Health Net Federal 00:13:17.159 --> 00:13:20.259 Services. And fifth, the correctional health 00:13:20.259 --> 00:13:22.620 care segment we discussed earlier, servicing 00:13:22.620 --> 00:13:25.590 those state and county contracts. When you look 00:13:25.590 --> 00:13:28.210 at that list, you realize that Centene is not 00:13:28.210 --> 00:13:30.230 just participating in government health care. 00:13:30.590 --> 00:13:33.629 It is structurally intertwined with it. Any significant 00:13:33.629 --> 00:13:36.409 shifts in public health policy, whether it's 00:13:36.409 --> 00:13:38.950 Medicaid expansion, Medicare reform, military 00:13:38.950 --> 00:13:41.470 health care budgets, it directly impacts this 00:13:41.470 --> 00:13:43.909 company's bottom line. Which is why their scale 00:13:43.909 --> 00:13:46.230 makes their leadership and their strategic financial 00:13:46.230 --> 00:13:49.129 maneuvers so incredibly important to scrutinize. 00:13:49.269 --> 00:13:51.850 The whole narrative of this hyper -aggressive 00:13:51.850 --> 00:13:54.570 growth and consolidation is completely inseparable 00:13:54.570 --> 00:13:57.230 from the tenure of Michael Neidorf, the longtime 00:13:57.230 --> 00:14:00.809 CEO. Right. He built the empire. He did. But 00:14:00.809 --> 00:14:03.019 the financial realities... of that empire, and 00:14:03.019 --> 00:14:05.860 particularly his own compensation, became a major 00:14:05.860 --> 00:14:08.460 flashpoint, especially as the company was simultaneously 00:14:08.460 --> 00:14:11.419 dealing with government lawsuits. The figures 00:14:11.419 --> 00:14:13.440 really put a harsh spotlight on the inherent 00:14:13.440 --> 00:14:16.460 contradiction of managing care for the nation's 00:14:16.460 --> 00:14:19.220 poorest and most vulnerable while running a massive 00:14:19.220 --> 00:14:23.029 for -profit enterprise. In 2021, the Ohio Capital 00:14:23.029 --> 00:14:25.289 Journal reported that Michael Neidorf was, in 00:14:25.289 --> 00:14:27.809 2020, the highest paid health care executive 00:14:27.809 --> 00:14:30.370 in the United States. He was earning nearly $25 00:14:30.370 --> 00:14:34.129 million that year. $25 million. In annual compensation. 00:14:34.929 --> 00:14:38.070 Earned overwhelmingly by managing taxpayer -funded 00:14:38.070 --> 00:14:41.090 programs like Medicaid. That salary provides 00:14:41.090 --> 00:14:43.210 the sharpest illustration of the core tension 00:14:43.210 --> 00:14:45.389 we've been talking about. The efficiency and 00:14:45.389 --> 00:14:47.509 cost control demanded by government contracts 00:14:47.509 --> 00:14:50.570 translates into just staggering wealth for the 00:14:50.570 --> 00:14:52.610 executives running the managing entity. And that 00:14:52.610 --> 00:14:55.129 high profile and all the accompanying controversies, 00:14:55.129 --> 00:14:57.610 it inevitably attracted attention from outside 00:14:57.610 --> 00:14:59.929 market forces looking to maximize shareholder 00:14:59.929 --> 00:15:04.289 value. Which brings us to December 2021. The 00:15:04.289 --> 00:15:06.269 activist investor, Politan Capital Management, 00:15:06.610 --> 00:15:09.490 took a substantial stake in Centene. valued at 00:15:09.490 --> 00:15:12.330 $900 million. And this is a classic narrative 00:15:12.330 --> 00:15:15.429 of activist investor intervention, right? Politan 00:15:15.429 --> 00:15:17.429 wasn't just interested in a passive investment. 00:15:17.649 --> 00:15:20.230 They typically seek to push for significant operational 00:15:20.230 --> 00:15:23.590 changes. So they saw Centene, despite its massive 00:15:23.590 --> 00:15:26.350 revenue, as potentially inefficient and carrying 00:15:26.350 --> 00:15:28.809 unnecessary baggage. That's right. Specifically, 00:15:29.090 --> 00:15:31.730 operational complexity and mounting legal liability. 00:15:32.070 --> 00:15:34.149 The consequences were almost immediate. Following 00:15:34.149 --> 00:15:36.490 Politan's engagement, CEO Michael Nadorf announced 00:15:36.490 --> 00:15:39.409 plans to retire by the end of 2022. This wasn't 00:15:39.409 --> 00:15:41.909 a quiet handover. This was a management shakeup 00:15:41.909 --> 00:15:44.350 driven by external pressure demanding a strategic 00:15:44.350 --> 00:15:47.230 cleanup. And the change formalized swiftly. In 00:15:47.230 --> 00:15:50.429 March 2022, Sarah London, a seasoned technology 00:15:50.429 --> 00:15:52.830 and health care strategist, was named the new 00:15:52.830 --> 00:15:55.309 chief executive officer. And this leadership 00:15:55.309 --> 00:15:58.350 change was inextricably linked to a shift in 00:15:58.350 --> 00:16:01.149 corporate priorities. They were moving from pure 00:16:01.149 --> 00:16:03.850 acquisition and growth dominance to efficiency 00:16:03.850 --> 00:16:06.990 and critically risk mitigation. That transition 00:16:06.990 --> 00:16:10.009 coincided with what I view as the single most 00:16:10.009 --> 00:16:12.549 critical strategic shift of the last few years. 00:16:12.690 --> 00:16:14.950 The decision to exit the pharmacy benefit management 00:16:14.950 --> 00:16:17.549 business entirely. Exactly. This needs to be 00:16:17.549 --> 00:16:19.990 viewed not just as a business decision, but as 00:16:19.990 --> 00:16:22.769 a strategic amputation. Remember, we traced the 00:16:22.769 --> 00:16:25.409 PBM business all the way back to the 2006 acquisition 00:16:25.409 --> 00:16:27.730 of U .S. Script. It had been central to their 00:16:27.730 --> 00:16:30.009 ability to control costs and maximize profit 00:16:30.009 --> 00:16:32.669 margins internally. It was core to the model. 00:16:32.809 --> 00:16:36.370 Yet in May 2022, Centene announced they were 00:16:36.370 --> 00:16:38.850 shedding this entire segment. They executed a 00:16:38.850 --> 00:16:41.299 major divestiture. selling off Magellan Arcs 00:16:41.299 --> 00:16:44.460 and Pantox Rare for a total of $2 .8 billion. 00:16:44.940 --> 00:16:47.080 They essentially cashed out of the PBM game. 00:16:47.299 --> 00:16:49.919 And the timing here is everything. Everything. 00:16:50.059 --> 00:16:53.240 This divestiture occurred precisely as the company 00:16:53.240 --> 00:16:56.039 was facing and agreeing to hundreds of millions 00:16:56.039 --> 00:16:58.480 of dollars in settlements related specifically 00:16:58.480 --> 00:17:00.940 to allegations of overbilling and transparency 00:17:00.940 --> 00:17:04.140 issues tied to their PBM subsidiary involved. 00:17:04.440 --> 00:17:07.460 So they offloaded a segment that had become an 00:17:07.460 --> 00:17:10.250 untenable legal and financial. liability. And 00:17:10.250 --> 00:17:14.049 injected $2 .8 billion in fresh capital into 00:17:14.049 --> 00:17:15.970 the company just as they were dealing with the 00:17:15.970 --> 00:17:18.569 fallout. The narrative shifted from we control 00:17:18.569 --> 00:17:21.410 the drug supply chain to we have to shed the 00:17:21.410 --> 00:17:23.490 function that is attracting massive regulatory 00:17:23.490 --> 00:17:27.470 fines. So the new leadership inherited a $163 00:17:27.470 --> 00:17:30.410 billion machine that required immediate structural 00:17:30.410 --> 00:17:32.470 cleaning. You have an aggressive acquisition 00:17:32.470 --> 00:17:35.569 strategy, a $25 million salary for the outgoing 00:17:35.569 --> 00:17:38.690 CEO, and a strategic retreat from a core... business 00:17:38.690 --> 00:17:40.690 unit. Which brings us directly to the pressure 00:17:40.690 --> 00:17:43.130 points, the specific cases that put the profit 00:17:43.130 --> 00:17:45.690 motive up against patient care and legal accountability. 00:17:46.029 --> 00:17:48.950 The conflicts Centene faces often serve as these 00:17:48.950 --> 00:17:51.849 perfect case studies in the tension inherent 00:17:51.849 --> 00:17:54.490 in managing essential public services for private 00:17:54.490 --> 00:17:57.369 profit. The first major pressure point involves 00:17:57.369 --> 00:18:01.970 claims of restricted patient access and network 00:18:01.970 --> 00:18:05.380 adequacy. And the 2014 Texas infant surgery case 00:18:05.380 --> 00:18:08.500 received widespread media attention. It really 00:18:08.500 --> 00:18:10.980 highlighted the human cost of these bureaucratic 00:18:10.980 --> 00:18:13.779 battles. It focused on Superior Health Plan of 00:18:13.779 --> 00:18:16.539 Texas, which was a sentient joint venture serving 00:18:16.539 --> 00:18:18.940 Medicaid recipients. The core allegation was 00:18:18.940 --> 00:18:21.849 just. Devastating. Superior Health Plan denied 00:18:21.849 --> 00:18:24.210 coverage for an infant's necessary brain cancer 00:18:24.210 --> 00:18:26.829 surgery at Texas Children's Hospital. And what 00:18:26.829 --> 00:18:28.910 made the case particularly frustrating, according 00:18:28.910 --> 00:18:30.829 to the reports, was that the plan had previously 00:18:30.829 --> 00:18:33.470 paid other health care claims for the same infant 00:18:33.470 --> 00:18:36.430 at that specific facility. So the denial seemed 00:18:36.430 --> 00:18:38.930 completely capricious, or at least related to 00:18:38.930 --> 00:18:41.130 some shifting internal coverage rule. It highlights 00:18:41.130 --> 00:18:44.089 this terrifying reality, right? When profit optimization 00:18:44.089 --> 00:18:46.650 meets life saving care, it's the most vulnerable 00:18:46.650 --> 00:18:48.890 families who are forced into these. desperate 00:18:48.890 --> 00:18:51.470 administrative fights. And the power dynamic 00:18:51.470 --> 00:18:54.569 only shifts when external pressure mounts. Three 00:18:54.569 --> 00:18:57.390 days after the story broke on Fox News, Superior 00:18:57.390 --> 00:19:00.349 Health Plan reversed its decision. The surgery 00:19:00.349 --> 00:19:02.369 was covered. Which is great for that family, 00:19:02.450 --> 00:19:04.930 obviously. But it showed that sometimes the only 00:19:04.930 --> 00:19:07.029 way to puncture that corporate armor is through 00:19:07.029 --> 00:19:09.650 public outcry. And these access issues weren't 00:19:09.650 --> 00:19:12.089 just confined to Medicaid. They extended into 00:19:12.089 --> 00:19:16.109 Centene's ACA marketplace brand and better. Yes. 00:19:16.109 --> 00:19:18.990 In January 2018, a class action lawsuit accused 00:19:18.990 --> 00:19:21.450 Ambetter plans of misleading enrollees about 00:19:21.450 --> 00:19:23.829 the actual benefits they were purchasing. The 00:19:23.829 --> 00:19:26.309 core of this class action centered on network 00:19:26.309 --> 00:19:29.309 adequacy, right? Exactly. Enrollees in Ambetter 00:19:29.309 --> 00:19:31.730 plans had extreme difficulty finding medical 00:19:31.730 --> 00:19:34.089 providers, especially specialists, who would 00:19:34.089 --> 00:19:36.170 actually accept patients under those policies. 00:19:36.410 --> 00:19:38.769 Which strongly suggests that Centene may have 00:19:38.769 --> 00:19:40.789 created what are called narrow networks, where 00:19:40.789 --> 00:19:43.250 the patient enrollment looks good on paper, but 00:19:43.250 --> 00:19:45.950 the functional access to care is severely restricted 00:19:45.950 --> 00:19:48.769 to keep costs low. It raises a really fundamental 00:19:48.769 --> 00:19:51.589 question of value. If a health plan is affordable 00:19:51.589 --> 00:19:54.730 because its network is so restricted that patients 00:19:54.730 --> 00:19:57.670 can't actually access necessary specialists or 00:19:57.670 --> 00:20:00.089 hospitals when they need them, is the plan truly 00:20:00.089 --> 00:20:02.329 providing the comprehensive coverage it promised? 00:20:02.529 --> 00:20:04.690 And the lawsuit argued that by concealing the 00:20:04.690 --> 00:20:07.170 functional inadequacy of the network, Centene 00:20:07.170 --> 00:20:09.869 was engaging in deceptive practices. Right. And 00:20:09.869 --> 00:20:11.690 the controversies also reached the executive 00:20:11.690 --> 00:20:14.150 suites and the shareholder level following one 00:20:14.150 --> 00:20:16.940 of those massive acquisitions we discussed. in 00:20:16.940 --> 00:20:20.460 December 2018. Two pension funds filed a lawsuit 00:20:20.460 --> 00:20:23.180 against Centene related to the $6 .8 billion 00:20:23.180 --> 00:20:26.720 Health Net acquisition from 2016. And this shareholder 00:20:26.720 --> 00:20:29.059 suit alleged that Centene concealed substantial 00:20:29.059 --> 00:20:31.440 liabilities from its investors during the merger 00:20:31.440 --> 00:20:33.960 process. Specifically, they claim that Health 00:20:33.960 --> 00:20:37.279 Net owed approximately $1 billion in past tax 00:20:37.279 --> 00:20:40.039 liabilities to the state of California. A billion 00:20:40.039 --> 00:20:43.000 dollars in back taxes. And was concurrently under 00:20:43.000 --> 00:20:45.380 investigation for Medicare fraud at the time 00:20:45.380 --> 00:20:48.509 Centene acquired them. Wow. So if those allegations 00:20:48.509 --> 00:20:51.549 hold, it means Centene acquired a company that 00:20:51.549 --> 00:20:54.069 was significantly more leveraged and legally 00:20:54.069 --> 00:20:56.390 volatile than they represented to the public 00:20:56.390 --> 00:20:58.529 and to their own shareholders. It exposed the 00:20:58.529 --> 00:21:01.569 combined entity to massive financial and legal 00:21:01.569 --> 00:21:04.009 liability immediately after the deal closed. 00:21:04.230 --> 00:21:06.950 It just demonstrates the complex high stakes 00:21:06.950 --> 00:21:09.170 risk inherent in these aggressive consolidation 00:21:09.170 --> 00:21:12.349 strategies. And finally, we have to revisit the 00:21:12.349 --> 00:21:14.750 international market and the intense scrutiny 00:21:14.750 --> 00:21:18.339 Centene's UK subsidiary. Opros Health, faced 00:21:18.339 --> 00:21:20.759 over its management of NHS primary care services. 00:21:21.259 --> 00:21:23.819 Scrutiny that I think likely contributed to their 00:21:23.819 --> 00:21:27.019 eventual retreat. No doubt. By 2022, Opros Health 00:21:27.019 --> 00:21:30.579 was serving nearly 600 ,000 NHS patients, making 00:21:30.579 --> 00:21:33.000 it the largest private supplier of GP services 00:21:33.000 --> 00:21:35.359 in the country. And they were quickly accused 00:21:35.359 --> 00:21:37.859 of prioritizing profit at the expense of patient 00:21:37.859 --> 00:21:40.519 care quality. The structural accusation was centered 00:21:40.519 --> 00:21:43.019 on their staffing models. OPROS was reportedly 00:21:43.019 --> 00:21:45.400 hiring cheaper physician associates instead of 00:21:45.400 --> 00:21:48.279 more expensive, fully qualified GPs or general 00:21:48.279 --> 00:21:51.539 practitioners. And the specific data cited by 00:21:51.539 --> 00:21:54.430 sources was alarming. The average number of full 00:21:54.430 --> 00:21:57.410 -time equivalent GPs per patient at Opera's practices 00:21:57.410 --> 00:22:00.190 was about half the average found in other English 00:22:00.190 --> 00:22:02.809 practices. Half? That is not a minor deviation. 00:22:02.869 --> 00:22:05.509 That is a fundamental operational shift designed 00:22:05.509 --> 00:22:08.349 to minimize labor costs. Half the average staffing 00:22:08.349 --> 00:22:11.230 level for the most critical primary care position? 00:22:11.529 --> 00:22:13.869 I mean, that suggests a system that is just stretched. 00:22:14.480 --> 00:22:16.920 dangerously thin. And concerns were formalized 00:22:16.920 --> 00:22:19.859 by prominent NHS figures like Sir Sam Everington. 00:22:20.140 --> 00:22:22.319 He highlighted worries about physician associates 00:22:22.319 --> 00:22:25.259 not receiving the necessary supervision. Furthermore, 00:22:25.559 --> 00:22:28.839 reports surfaced of massive backlogs. Backlogs. 00:22:28.839 --> 00:22:30.940 Thousands of medical test results and hospital 00:22:30.940 --> 00:22:33.099 letters reportedly just piling up on computer 00:22:33.099 --> 00:22:36.119 systems due to understaffing. That backlog is 00:22:36.119 --> 00:22:38.619 the tangible manifestation of under -resourcing, 00:22:38.720 --> 00:22:41.000 isn't it? Yeah. Delayed test results and correspondence 00:22:41.000 --> 00:22:43.359 directly translate into risks for continuity 00:22:43.359 --> 00:22:45.640 of care and patient safety. It does. However, 00:22:45.819 --> 00:22:48.660 Centene's defense via Operos was that their practices 00:22:48.660 --> 00:22:51.160 maintained high standards. They cited that 97 00:22:51.160 --> 00:22:54.099 % of their practices were rated good or outstanding 00:22:54.099 --> 00:22:57.180 by the Care Quality Commission or CQC. Wait, 00:22:57.240 --> 00:22:59.680 hold on. If they were accused of running on half 00:22:59.680 --> 00:23:02.400 the average number of GPs and allowing massive 00:23:02.400 --> 00:23:04.980 administrative backlogs, how could they simultaneously 00:23:04.980 --> 00:23:09.559 maintain a 97 % good or outstanding rating? That's 00:23:09.559 --> 00:23:11.319 the million -dollar question. Doesn't that suggest 00:23:11.319 --> 00:23:14.450 a profound disconnect? Perhaps a flaw in the 00:23:14.450 --> 00:23:17.490 CQC rating system itself if the quality ratings 00:23:17.490 --> 00:23:20.230 don't immediately capture critical staffing inadequacies. 00:23:20.410 --> 00:23:23.529 It raises a vital regulatory question. Quality 00:23:23.529 --> 00:23:26.569 ratings often look at formal processes and, you 00:23:26.569 --> 00:23:28.690 know, patient satisfaction metrics, which can 00:23:28.690 --> 00:23:31.450 lag behind or fail to capture systemic under 00:23:31.450 --> 00:23:34.650 -resourcing like physician staffing ratios. So 00:23:34.650 --> 00:23:36.089 the ratings might be focusing on the surface 00:23:36.089 --> 00:23:38.150 level. The clinic looks good. The processes are 00:23:38.150 --> 00:23:40.609 defined while missing the operational reality 00:23:40.609 --> 00:23:44.119 that core staff is severely for profit, creating 00:23:44.119 --> 00:23:46.240 a latent risk. I think that's a very fair assessment. 00:23:46.460 --> 00:23:49.099 And this scrutiny was undeniably a key factor 00:23:49.099 --> 00:23:51.259 in Centene's decision to exit the politically 00:23:51.259 --> 00:23:54.099 charged U .K. market shortly thereafter. Regardless 00:23:54.099 --> 00:23:56.480 of the ratings, these domestic and international 00:23:56.480 --> 00:23:59.140 pressure points ultimately resulted in the most 00:23:59.140 --> 00:24:02.720 concrete consequence, massive sustained financial 00:24:02.720 --> 00:24:05.380 penalties levied by various state and federal 00:24:05.380 --> 00:24:08.359 entities. And this final part is really the climax 00:24:08.359 --> 00:24:10.759 of Centene's history. It's where the aggressive 00:24:10.759 --> 00:24:13.299 acquisition of government contracts meets regulatory 00:24:13.299 --> 00:24:15.640 oversight, resulting in financial settlements 00:24:15.640 --> 00:24:18.720 totaling well over $300 million in just the last 00:24:18.720 --> 00:24:21.200 few years. Let's start at the federal level, 00:24:21.259 --> 00:24:24.359 focusing on the TRICARE sphere. In April 2021, 00:24:24.859 --> 00:24:27.799 Centene's subsidiary, Health Net Federal Services, 00:24:28.039 --> 00:24:31.000 which manages TRICARE claims, paid $97 million 00:24:31.000 --> 00:24:34.059 to settle allegations related to claims submitted 00:24:34.059 --> 00:24:36.410 to the Department of Veterans Affairs. And the 00:24:36.410 --> 00:24:38.910 specific allegation was that the subsidiary duplicated 00:24:38.910 --> 00:24:42.089 or inflated claims submitted to the VA. The Department 00:24:42.089 --> 00:24:44.809 of Veterans Affairs, or VA, is one of the nation's 00:24:44.809 --> 00:24:47.549 largest single -payer systems, and when a contractor 00:24:47.549 --> 00:24:49.869 systematically manipulates billing, whether through 00:24:49.869 --> 00:24:52.569 duplication or inflation, the penalties are designed 00:24:52.569 --> 00:24:55.250 to be punitive, hence the nearly $100 million 00:24:55.250 --> 00:24:58.549 settlement. Okay. Now, we dive into the core 00:24:58.549 --> 00:25:01.410 source of the systemic issues that PBM segment 00:25:01.410 --> 00:25:05.829 involve, which Centene strategically shed. Between 00:25:05.829 --> 00:25:10.230 June 2021 and January 2022, Centene faced an 00:25:10.230 --> 00:25:12.569 absolute wave of settlements from multiple states 00:25:12.569 --> 00:25:14.910 regarding Medicaid overpayments tied directly 00:25:14.910 --> 00:25:17.730 to its pharmacy benefit manager subsidiary. The 00:25:17.730 --> 00:25:19.690 collective total of these settlements quickly 00:25:19.690 --> 00:25:23.630 surpassed $191 million. Right. Encompassing agreements 00:25:23.630 --> 00:25:26.349 reached with states like Ohio, Mississippi, Illinois, 00:25:26.609 --> 00:25:29.230 Arkansas, and New Hampshire. The sheer volume 00:25:29.230 --> 00:25:31.549 and consistency of these claims across diverse 00:25:31.549 --> 00:25:35.380 state Medicaid systems suggest a widespread structural 00:25:35.380 --> 00:25:38.099 issue. The nature of the allegation is resolving 00:25:38.099 --> 00:25:41.000 claims of overpayments from state Medicaid programs 00:25:41.000 --> 00:25:43.759 to the PBM. For the listener, we really need 00:25:43.759 --> 00:25:45.839 a clear explanation of how this mechanism works. 00:25:46.019 --> 00:25:48.380 This is crucial for understanding the PBM controversy. 00:25:48.619 --> 00:25:50.559 It is. Okay, so let's try to simplify the mechanism 00:25:50.559 --> 00:25:53.160 of PBM overbilling. Imagine the state Medicaid 00:25:53.160 --> 00:25:57.029 program pays Centene, the PBM, $100 for a prescription 00:25:57.029 --> 00:26:00.390 drug. That $100 is taxpayer money. Centene, because 00:26:00.390 --> 00:26:03.069 of its huge negotiating power, then goes to the 00:26:03.069 --> 00:26:05.490 drug manufacturer and secures a rebate, let's 00:26:05.490 --> 00:26:08.470 say $30, which means the actual cost to Centene 00:26:08.470 --> 00:26:11.630 was only $70. And the core allegation in these 00:26:11.630 --> 00:26:14.869 lawsuits is that Centene's PBM subsidiary failed 00:26:14.869 --> 00:26:17.630 to fully disclose that $30 rebate to the state. 00:26:18.250 --> 00:26:20.150 They would report the cost as being, for example, 00:26:20.190 --> 00:26:23.210 $90, effectively concealing the full discount 00:26:23.210 --> 00:26:25.309 they received. And then Centene would just pocket 00:26:25.309 --> 00:26:27.049 the difference between what the state paid them 00:26:27.049 --> 00:26:29.869 and the true net cost after rebates. It's essentially 00:26:29.869 --> 00:26:32.529 double -dipping on taxpayer funds and generating 00:26:32.529 --> 00:26:35.089 excessive profit from public programs. Exactly. 00:26:35.150 --> 00:26:37.430 The settlements were reached because states alleged 00:26:37.430 --> 00:26:40.109 Centene had improperly maximized its earnings 00:26:40.109 --> 00:26:43.069 by failing to provide the full transparency required 00:26:43.069 --> 00:26:45.710 under their Medicaid contracts. That distinction 00:26:45.710 --> 00:26:48.650 between the gross price, the... net price and 00:26:48.650 --> 00:26:51.569 the transparency or lack thereof is the absolute 00:26:51.569 --> 00:26:53.849 key to understanding these settlements. It is. 00:26:53.910 --> 00:26:56.150 Let's look at two specific state examples that 00:26:56.150 --> 00:26:57.990 illustrate the strategies Centene was accused 00:26:57.990 --> 00:27:01.549 of using. In December 2021, Centene paid $27 00:27:01.549 --> 00:27:05.410 .6 million to the state of Kansas. And the Kansas 00:27:05.410 --> 00:27:08.069 settlement explicitly centered on allegations 00:27:08.069 --> 00:27:11.029 that Centene obtained greater profit from Kansas' 00:27:11.210 --> 00:27:13.869 Medicaid program by failing to fully disclose 00:27:13.869 --> 00:27:16.410 discounts it received and by employing other 00:27:16.410 --> 00:27:18.589 strategies to maximize its earnings from the 00:27:18.589 --> 00:27:21.029 publicly funded program. So it's the same pattern. 00:27:21.150 --> 00:27:23.690 It highlights the inherent opacity of the PBM 00:27:23.690 --> 00:27:25.849 business model, where a lack of transparency 00:27:25.849 --> 00:27:28.369 regarding rebates and discounts results in states 00:27:28.369 --> 00:27:30.690 feeling they're being overcharged for essential 00:27:30.690 --> 00:27:37.399 services. And similarly, in September 2020, Let 00:27:37.399 --> 00:27:48.799 me guess. The pattern is crystal clear. Across 00:27:48.799 --> 00:27:50.940 diverse geographic and political landscapes, 00:27:51.220 --> 00:27:54.339 the same PBM subsidiary was accused of improperly 00:27:54.339 --> 00:27:56.799 maximizing revenue at the expense of the state's 00:27:56.799 --> 00:27:59.150 Medicaid budget. And the cumulative effect of 00:27:59.150 --> 00:28:01.869 these cases, totaling hundreds of millions, it 00:28:01.869 --> 00:28:04.170 just underscores why the PBM segment became a 00:28:04.170 --> 00:28:06.470 strategic liability that the new leadership decided 00:28:06.470 --> 00:28:09.109 to exit. Finally, the Florida case. This one 00:28:09.109 --> 00:28:11.549 provides a unique twist in this financial reckoning. 00:28:12.269 --> 00:28:16.049 Centene overbilled Florida $67 million in 2021, 00:28:16.349 --> 00:28:19.349 but in a departure from the other cases, which 00:28:19.349 --> 00:28:22.410 required state intervention. Centene proactively 00:28:22.410 --> 00:28:25.180 notified the state of the overbilling. Right. 00:28:25.259 --> 00:28:27.779 Proactive notification. That's a noteworthy detail, 00:28:27.960 --> 00:28:30.400 isn't it? It suggests a possible shift in compliance 00:28:30.400 --> 00:28:33.019 or maybe just a recognition that the liability 00:28:33.019 --> 00:28:36.059 was too large to conceal. Could be either. And 00:28:36.059 --> 00:28:38.319 following extensive discussions with the Agency 00:28:38.319 --> 00:28:41.660 for Healthcare Administration, or AHCA, Centene 00:28:41.660 --> 00:28:45.079 agreed in 2024 to return the entire $67 million. 00:28:45.539 --> 00:28:47.720 But here's the twist that requires some extra 00:28:47.720 --> 00:28:51.089 analysis. $10 million of that total refund was 00:28:51.089 --> 00:28:53.710 sent to the Hope Florida Foundation rather than 00:28:53.710 --> 00:28:55.470 being returned directly to the state treasury. 00:28:55.789 --> 00:28:58.470 Why is that significant? That is highly unusual 00:28:58.470 --> 00:29:00.509 in financial settlements involving public funds. 00:29:00.670 --> 00:29:02.690 Typically, when a corporation is found to have 00:29:02.690 --> 00:29:05.289 overbilled a public entity, the recovered funds 00:29:05.289 --> 00:29:07.390 revert to the state treasury. Right, to offset 00:29:07.390 --> 00:29:09.390 the previous loss to the general budget or the 00:29:09.390 --> 00:29:12.380 specific Medicaid account. Exactly. Diverting 00:29:12.380 --> 00:29:15.700 $10 million to a specific foundation, even one 00:29:15.700 --> 00:29:18.380 dedicated to public welfare, introduces this 00:29:18.380 --> 00:29:21.319 layer of political complexity regarding how public 00:29:21.319 --> 00:29:24.079 funds recovered from fraud or overbilling are 00:29:24.079 --> 00:29:26.519 managed. It transforms recovered funds from a 00:29:26.519 --> 00:29:28.960 budget correction into a discretionary funding 00:29:28.960 --> 00:29:32.259 allocation. It does. So if we step back and synthesize 00:29:32.259 --> 00:29:35.119 this whole financial picture, over $300 million 00:29:35.119 --> 00:29:38.000 in settlements for inflated claims, concealed 00:29:38.000 --> 00:29:40.519 discounts, and overbilling of government... programs. 00:29:40.640 --> 00:29:43.339 It firmly connects the aggressive pursuit of 00:29:43.339 --> 00:29:45.539 government contracts with the financial liabilities 00:29:45.539 --> 00:29:47.900 that ultimately forced a major strategic retreat 00:29:47.900 --> 00:29:51.150 under the new CEO. the price of maximizing profit 00:29:51.150 --> 00:29:53.869 in the public sector is clearly very, very high. 00:29:54.029 --> 00:29:56.049 So if we synthesize everything we've explored 00:29:56.049 --> 00:29:58.349 today, the defining characteristic of Centene 00:29:58.349 --> 00:30:00.789 Corporation is really its dual identity. It is 00:30:00.789 --> 00:30:04.150 simultaneously an indispensable, massive intermediary 00:30:04.150 --> 00:30:06.569 for essential government health programs, Medicaid, 00:30:06.930 --> 00:30:09.589 Medicare, TRICARE, enabling millions of vulnerable 00:30:09.589 --> 00:30:12.569 Americans to access managed care services. Yet 00:30:12.569 --> 00:30:15.710 that exact structure, this massive scale, so 00:30:15.710 --> 00:30:18.680 deeply reliant on public funding, has consistently 00:30:18.680 --> 00:30:21.480 exposed the company to severe regulatory scrutiny. 00:30:21.930 --> 00:30:24.910 The narrative is one of unrelenting growth financed 00:30:24.910 --> 00:30:27.250 by aggressive acquisitions. Followed by over 00:30:27.250 --> 00:30:30.269 $300 million in sustained settlements and penalties, 00:30:30.529 --> 00:30:33.650 almost always tied to allegations of manipulating 00:30:33.650 --> 00:30:36.509 the profitability mechanisms inherent in their 00:30:36.509 --> 00:30:38.849 government contracts, particularly through their 00:30:38.849 --> 00:30:41.950 now divested PBM operations. And the company's 00:30:41.950 --> 00:30:44.349 story, it just encapsulates the entire debate 00:30:44.349 --> 00:30:46.390 around the privatization of public health services, 00:30:46.529 --> 00:30:48.609 doesn't it? It really does. We trace the lineage 00:30:48.609 --> 00:30:50.750 from a small nonprofit foundation in Milwaukee. 00:30:51.240 --> 00:30:54.720 to a Fortune 500 powerhouse in St. Louis. And 00:30:54.720 --> 00:30:57.000 this progression is so sharply symbolized by 00:30:57.000 --> 00:30:59.319 the fact that the outgoing CEO was the highest 00:30:59.319 --> 00:31:01.799 paid health care executive in the nation. Earning 00:31:01.799 --> 00:31:04.900 $25 million in a single year. While the company 00:31:04.900 --> 00:31:07.119 simultaneously navigated a wave of settlements 00:31:07.119 --> 00:31:09.539 for overbilling the very public programs that 00:31:09.539 --> 00:31:12.180 generated that revenue. And the strategic decision 00:31:12.180 --> 00:31:15.700 to exit the PBM business, the core engine of 00:31:15.700 --> 00:31:18.329 some of the overbilling allegations. It just 00:31:18.329 --> 00:31:20.750 confirms that the liability associated with that 00:31:20.750 --> 00:31:23.890 structure was deemed too toxic to maintain, forcing 00:31:23.890 --> 00:31:27.329 a massive multi -billion dollar strategic amputation. 00:31:27.470 --> 00:31:30.490 So what does this all mean for you? Since Antin's 00:31:30.490 --> 00:31:33.309 business segments rely overwhelmingly on taxpayer 00:31:33.309 --> 00:31:36.210 -funded public programs, this sustained pattern 00:31:36.210 --> 00:31:38.490 of massive settlements for overbilling government 00:31:38.490 --> 00:31:41.009 entities raises a critical question about the 00:31:41.009 --> 00:31:43.730 necessary checks and balances. We encourage you 00:31:43.730 --> 00:31:46.799 to consider this provocative thought. When a 00:31:46.799 --> 00:31:49.140 single corporation is managing tens of billions 00:31:49.140 --> 00:31:51.799 in public health care funds, a corporation whose 00:31:51.799 --> 00:31:53.980 business model led to hundreds of millions in 00:31:53.980 --> 00:31:55.880 settlements because of inadequate transparency 00:31:55.880 --> 00:31:59.519 and alleged manipulation of discounts, what structural 00:31:59.519 --> 00:32:02.000 safeguards or regulatory intensity are truly 00:32:02.000 --> 00:32:04.740 necessary to ensure that the pursuit of private 00:32:04.740 --> 00:32:07.759 profit does not perpetually compromise the integrity 00:32:07.759 --> 00:32:10.779 and cost efficiency of vital public welfare programs? 00:32:10.960 --> 00:32:12.700 This is not just a story of corporate finance. 00:32:15.880 --> 00:32:17.740 of the company and the source of its staggering 00:32:17.740 --> 00:32:20.740 revenue. And that's a dynamic worth keeping a 00:32:20.740 --> 00:32:21.380 close eye on.