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INSIGHT: It’s a Legalpalooza for North Carolina Medicaid Managed Care Contracts

Aug. 13, 2019, 8:00 AM

North Carolina’s General Assembly has resolved to transition the state’s fee-for-service Medicaid program to a managed care model. Now, more than 15 law firms from five states and the District of Columbia are involved in the fight over who will win the highly sought after capitated contracts with North Carolina Medicaid.

The stakes are high, where the state’s Medicaid Managed Care program is expected to serve more than 1.6 million people to the tune of about $6 billion annually.

Largest Procurement in Department History

In “the largest procurement in [its] history,” the North Carolina DHHS issued an RFP in 2018, soliciting proposals to provide managed care services to most Medicaid and North Carolina Health Choice beneficiaries. The department’s RFP sought bidders with strong provider networks offering a full range of benefits, and with well-developed plans to account for quality and outcomes, to provide a positive beneficiary experience and to ensure timely payments to providers.

The RFP generated significant interest, garnering bids from many major players in the industry. In February, the department awarded contracts both to traditional commercial insurance plans and to so-called “provider-led” entities (PLEs) which purport to combine clinical expertise with payment experience.

In total, the department awarded contracts to five bidders—AmeriHealth Caritas North Carolina, Inc.; Blue Cross and Blue Shield of North Carolina; UnitedHealthcare of North Carolina, Inc.; Carolina Complete Health, Inc.; and WellCare of North Carolina, Inc.

Three bidders—My Health by Health Providers, Optima Family Care, and Aetna Better Health—were not selected for any contracts by the department.

Challenges Mounted

Bid protest meetings promptly followed the department’s announcement of its selections. Disappointed bidders have challenged both the process for selection and the choices themselves.

My Health claimed the department failed to realize that My Health sought both a statewide contract and regional contracts. My Health characterizes the department’s decision as forcing Medicaid beneficiaries into the hands of commercial insurers and disregarding the role PLEs were intended to play in the Medicaid Transformation.

Other bidders raised issues over the scoring and evaluation of the bidders’ responses. When those meetings left the department’s choices unchanged, litigation ensued.

All three of the disappointed bidders launched contested cases in North Carolina’s Office of Administrative Hearings. Carolina Complete also petitioned. The department and the successful bidders are standing together in defense of the bid evaluation process and the department’s choices.

The litigation has already spurred extensive activity. More than 15 law firms from five states and the District of Columbia—including Fox Rothschild; Holland & Knight; Mayer Brown; Alston & Bird; Hunton Andrews Kurth; and others— are now embroiled in what promises to be one of the Office of Administrative Hearings’ more contentious cases.

The Players

My Health, owned by North Carolina’s 12 largest health systems, claims its bid to provide Medicaid Managed Care services was denied by a biased and unlawful evaluation process that favored out-of-state commercial insurance companies despite their alleged “widespread mismanagement, patient abuse, and even fraud.” My Health claims it was the highest-scoring PLE and should have been considered for both statewide and regional contracts.

Optima, a PLE owned by Sentara Healthcare, likewise took the department’s decision-making process to task, claiming it denied Optima’s proposal on the sole basis that it fell short of an undisclosed “threshold” to meet overall expectations. According to Optima, the department not only failed to identify the minimally necessary score in advance but then miscalculated whether Optima hit that target.

Like Optima, Carolina Complete challenged the department’s regional contract decisions. Aetna, yet another rejected bidder, raised a host of arguments over the department’s evaluation and scoring of various RFP questions, including the sufficiency of certain of its responses to the RFP questions.

Fundamentally, Aetna contends the department erred in scoring the bids, which improperly inflated the scores of a winning bidder while lowering Aetna’s total score. Aetna’s case challenges the department’s decision not to award Aetna one of four statewide contracts.

Litigation Begins—But Do the Contracts?

The Medicaid Managed Care cases are assigned to Administrative Law Judge Tenisha S. Jacobs, a former special deputy attorney general for the North Carolina Department of Justice who has been on the bench since 2018.

In May, My Health, Aetna and Optima argued various motions before Jacobs seeking to stay implementation of the managed care program pending a decision on the contract awards.

On June 26, Jacobs ended the back-and-forth by denying all stay requests, characterizing the injunctions sought by the challengers as “extraordinary measures.”

The Tribunal’s lengthy analysis concluded that the disappointed bidders had failed to meet the standards necessary to stay the department’s decisions—namely, that the movants had failed to show a likelihood of success on the merits, in large part because of the discretionary nature of the department’s selection process.

The Judge’s orders allow the department to proceed with its Medicaid Transformation efforts notwithstanding the ongoing cases over the contract awards.

Legalpalooza

A July 26 Order from Chief Administrative Law Judge Julian Mann will consolidate the Medicaid Managed Care cases for Hearing in North Carolina’s Office of Administrative Hearings. Finding common questions of law and fact, ALJ Mann ruled that consolidation would reduce costs and avoid delay in the resolution of the challenges mounted by My Health, Aetna, Optima and Carolina Complete.

To be sure, the transformation of North Carolina’s Medicaid Managed Care Program is already feeling growing pains.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Joy Heath is a partner in Williams Mullen’s Health Care Section in Raleigh, N.C. She has over 30 years of experience representing clients in the health care industry in business and regulatory matters, primarily focusing on Certificate of Need, acquisitions, and compliance-related matters.

Anderson Shackelford is an associate in the Williams Mullen’s Health Care Section. He focuses on advising hospitals, surgery centers, home health and hospice providers, skilled nursing facilities, assisted living facilities, psychiatric/behavioral health providers, and physician groups in Certificate of Need matters.