Citing multiple flaws in the state’s bidding process for $8 billion in state Medicaid business, a judge has tossed out the contracts awarded to six national health insurance companies and ordered the state to rebid the entire package.
This would make the third time Kentucky will have to seek bids for the lucrative contracts, which are for outside companies to manage health care for people covered by Medicaid.
In an order issued Wednesday, Franklin Circuit Judge Phillip Shepherd said multiple flaws “cast a cloud over the process’s legitimacy.”
Shepherd’s order comes as the latest twist in a protracted dispute over some of the largest contracts in state government.
The first round of contract awards came under former Gov Matt Bevin in late 2019. The second round came last year after Gov. Andy Beshear tossed out those contracts and ordered them rebid, citing questions about the awards, although the outcome was unchanged.
Shepherd cited errors by the state in the latest round in scoring the bids, its refusal to consider all aspects of bids, and a potential conflict of interest at one of the successful companies as reasons for ordering a new round of bids.
Officials also refused to allow companies to make “oral presentations” allowed by law and directed state employees who scored the bids to “dispose of their notes,” the judge said.
State law “provides that public procurements must be conducted in a manner that increases public confidence in procurement procedures, that insures fair and equitable treatment of bidders, and that maintains quality and integrity in the procurement process,” Shepherd wrote in the 35-page order and opinion.
The combination of problems resulted in an award that was “arbitrary and capricious,” requiring the contracts to be rebid, he said.
Meanwhile, he said all current contracts will remain in place so as not to disrupt health services for the around 1.5 million Kentuckians who get health coverage through the federal state Medicaid health plan.
The federal government provides around 70% of the costs of the $12-billion-a-year program, which is Kentucky’s largest health plan.
Anthem, which filed the original lawsuit challenging the most recent contract award after it was excluded, may remain as a sixth vendor among the five who originally won the Medicaid contracts, Shepherd ruled.
In October, Shepherd ordered the state to include Anthem as a sixth successful bidder while he reviewed the ongoing legal dispute.
Shepherd did not say when the state must rebid the current contracts.
A spokeswoman for the state Cabinet for Health and Family Services provided a brief statement: “The judge’s orders are being reviewed and next steps are being determined,” said the statement provided by Susan Dunlap.
After the second round of winners was announced in 2020, other companies joined in Anthem’s lawsuit with a flurry of claims and counterclaims which Shepherd resolved in Wednesday’s ruling with a series of findings.
The current contracts came after Beshear threw out those awarded to in the final days of the Bevin administration. Beshear said he thought the awards warranted further review, but another bid evaluation under his administration resulted in a virtually identical outcome of awards to the same five companies.
The companies that won the contracts in both prior rounds of bidding are Aetna Better Health of Kentucky, Humana Health Plan and Wellcare Health Insurance of Kentucky, all of which held existing contracts with the state, as well as two newcomers, the Minnesota-based United Healthcare and Molina Health Care of Long Beach, California.
Anthem and Passport Health Plan of Louisville were not selected, although they both previously held contracts to serve Medicaid customers.
Passport initially protested the loss of the contract along with Anthem but later announced plans to sell its assets to Molina and continue business under its name.
One dispute in the current litigation was whether Molina could keep Passport’s customers. Some of the other insurance companies had objected it gave the company an unfair advantage.
But Shepherd ruled that the state Cabinet for Health and Family Services and the Finance Cabinet were correct in allowing Molina to retain Passport’s members.
He also refused to disqualify Molina over an alleged conflict of interest for hiring as a consultant a health policy expert who previously had worked for Beshear’s transition team. While the court found the consultant had violated the state Executive Branch Ethics Code by accepting the outside job, the violations were not sufficient to disqualify Molina, Shepherd said.
As for ordering the contracts be rebid, Shepherd wrote that the law allows him either to find that the state followed procurement law in awarding the Medicaid contracts or to decide that it did not and order them rebid.
Shepherd said the order to rebid was “the correct course to take.” Otherwise, he said, the combination of flaws in the process would “severely undermine public confidence in the bidding process.”
This story may be updated.