Iowa's decision to boot WellCare from its new Medicaid managed-care program has roiled tensions in the state. It also shows how fiercely insurers will fight to secure a big-ticket source of revenue.
Late last week, Iowa's Department of Administrative Services terminated its Medicaid contract with WellCare, a publicly traded insurer based in Tampa, Fla.
WellCare, which is planning to fight the decision, says the losing bidders derailed its contract by combing through the voluminous bid materials to find a lapse that led state officials to rescind the award.
This past August, Iowa awarded contracts to WellCare and three other private insurers—AmeriHealth Caritas, Anthem and UnitedHealthcare—to manage the state's $4.2 billion Medicaid program. The contracts were supposed to start Jan. 1, 2016, but the CMS pushed back the start date to March 1, 2016, because it thought the state was moving too hastily.
More states are shifting to Medicaid managed care, in which private insurers are paid monthly amounts for each member. Free-market advocates say the strategy allows for better care coordination and more budget predictability in a time when Medicaid is becoming a more expensive line item. But there's no conclusive evidence that outsourced Medicaid programs immediately lead to cost savings or higher-quality healthcare for the low-income enrollees.
The main sticking point in Iowa involves WellCare's past civil settlement and corporate integrity agreement and whether they were properly disclosed during the request for proposals (RFP) process.
HHS and WellCare entered into a five-year corporate integrity agreement in April 2011. That agreement, along with a $137.5 million settlement, was in response to civil and criminal investigations that alleged WellCare executives inflated the costs of medical care, skimped on treatments and committed other acts of healthcare fraud.
After evaluating the original awards, which were protested by several losing bidders, Iowa state officials determined that “WellCare failed to disclose highly relevant information both in its initial response to the RFP and in its 'clarifying' answer,” according to the judgment. “In doing so, WellCare not only violated the terms of the RFP, but also deprived the agency decisionmakers … of the opportunity to fully exercise their discretion in determining which bid proposals would provide 'the greatest benefit to the agency.'”
WellCare disagreed with the state's assessment and said the company was transparent throughout the entire process. But this is where the dispute gets highly technical and relies on the ambiguity of words and contracts.
Blair Todt, WellCare's chief legal and administrative officer, said the insurer received a follow-up question from state reviewers that was tied to a specific portion of the RFP that said all bidding companies must “list any damages, penalties, disincentives assessed, or payments withheld, or anything of value traded or given up by the bidder” from past contracts.
WellCare responded that the civil settlement and corporate integrity agreement did not qualify within those parameters and therefore didn't need to be brought up in that section of their bid. “We did not believe the corporate integrity agreement at the time was responsive to the question,” Todt said.
The administrative law judge found WellCare's response to that “clarifying question” to be acceptable, but Todt said the judge then “went a step further.” The judge went to a different portion of the RFP that required disclosure of “debarment, suspension, ineligibility and/or voluntary exclusion.” Based on that section, the judge ruled WellCare was disqualified because the corporate integrity agreement was not fully disclosed and was not read by the reviewers.
Todt argued WellCare was open and transparent and had originally disclosed the corporate integrity agreement to the state within its 10-K document—a thick annual report filed with the Securities and Exchange Commission that outlines every nook and cranny of a company. “It was within the hands of the evaluators,” Todt said. But, he said, the company believes the judge's decision “goes well beyond appropriateness” because the ruling was based on a section of the RFP that was not originally referenced in the clarifying question.
However, Todt conceded it was a “fair point” that if WellCare had explicitly written a terse explanation about the corporate integrity agreement and past problems from the outset, and why it came about, “then we wouldn't be in (this) position.”
Cindy Ehnes, a former California insurance regulator who now works as a consultant for COPE Health Solutions, said events such as a major settlement and corporate integrity agreement should always be disclosed by companies applying for a taxpayer-funded contract. It's the duty of Medicaid companies to show public officials they are not putting “profits ahead of patients,” she said.
“(WellCare's) settlement was extremely relevant to the heart of the bid. They were accused of shorting care,” Ehnes said. “That was relevant, period. I have no sympathy.”
WellCare is asking for a stay of the decision and an injunction to overturn the state's latest decision. Those documents will be filed this week, Todt said.
WellCare's bottom line will actually improve in the near term if the publicly traded insurer fails to win back the contract. WellCare expected to lose millions of dollars in the first 18 months of the three-year contract. But WellCare and other managed-care insurers view Medicaid as a booming business after the initial investments because states often award contracts to incumbents.
“If (WellCare) lost the contract, the long-term effect should supersede any short-term profitability improvements,” said Ana Gupte, a managing director at Leerink Partners. She added that these types of disputes are not completely unusual, and there are likely to be more as health insurers fight for the few open Medicaid contracts that remain.
“This is not the first occurrence of this, and it probably won't be the last,” Gupte said. “Government contracts can be very sensitive.”