The state’s handling of its lucrative contracts to provide health care to 650,000 teachers, state employees and retirees has touched off lawsuits, job demotions among state employees and claims that one of the government’s biggest agencies engaged in “state-sponsored bid rigging.”
The new contractors, Blue Cross and Blue Shield of Georgia and Express Scripts Inc., will formally take over the business Jan. 1. But the legal battle of the health care titans is just beginning and will rage well into 2014. One reason: the business is worth a ton of money.
"This is what $3 billion does to people," Robert Highsmith, a lawyer representing Express Scripts, said at an appeals hearing earlier this fall.
The plaintiff in the first lawsuit, UnitedHealthcare, has tried to stop Blue Cross from taking over the business, but the state Department of Community Health and the courts have swatted down those efforts. UnitedHealthcare also has a suit pending against DCH, claiming the agency rigged the bid to make sure Blue Cross won the job of managing the health care program. United currently holds a large part of the contract, but its deal runs out Dec. 31.
Now drug giant CVS Caremark has sued DCH, claiming it illegally awarded the State Health Benefits Plan pharmacy business to a lower-scoring bidder, Express Scripts.
Teachers, state employees and retirees and their dependents have already signed up for the health coverage with Blue Cross for 2014. But the losing bidders hope to get the courts to throw out the contracts and force the Department of Community Health to rebid the business as soon as possible.
“It’s a big contract, it’s a big system,” said Randy Evans, a lawyer representing UnitedHealthcare. “The easy thing for the courts to do is just punt. But there is too much smoke to not take a look to see if there is a fire.”
‘It’s going to be a hell of a mess’
DCH officials have argued that the agency did nothing improper.
But company officials said that some of those involved in the decisions, including the director of the State Health Benefits Plan and the director of procurement, were demoted this fall.
“DCH took steps to conceal its pattern of conduct from public scrutiny,” UnitedHealthcare lawyers said in court filings. “Most notably, the DCH removed virtually every person associated with the bid.”
Lisa Marie Shekell, communications director for DCH, said the job transfers were normal because Clyde Reese, who was picked to run the agency in May, wanted to put in his own leadership team.
“I don’t necessarily think the changes are reflective of anything relative to the procurement,” Shekell said.
Bill Tomlinson, a retired state budget director and former president of the Georgia State Retirees Association, said the group has received numerous calls from retirees worried about the transition to a new health care manager. They are also worried about what is going to happen next.
“People are nervous,” Tomlinson said. “It’s going to be a hell of a mess.”
The big-money tug-0f-war over who will provide health care to teachers, state employees, retirees and their dependents became public over the summer, when UnitedHealthCare, the most dominant of the current providers, accused the DCH of rigging bids so it could steer the business to Blue Cross.
Insurers are big spenders on politics
The two insurance giants are among the state’s most generous campaign donors. UnitedHealthcare donated $50,000 to a political action committee tied to Gov. Nathan Deal, and Blue Cross contributed $25,000. UnitedHealthcare’s legal team includes Deal’s campaign lawyer, Evans, and former Attorney General Thurbert Baker. Combined, the companies, employees and law firms involved in the fight have contributed more than $700,000 to state candidates, party organizations and other state political groups since the start of 2012, according to an Atlanta Journal-Constitution review of campaign reports.
The contributors hope all that campaign cash and political muscle will give them an edge in winning huge government health care contracts. DCH, which provides health care to more than 1.8 million Georgians, will spend about $12 billion on public medical programs this year.
The state hires contractors to run the $3 billion State Health Benefit Plan. Last year it paid UnitedHealthcare and Cigna more than $150 million to manage the plan, state officials said. In addition, companies running the plan become the sole provider for state retirees buying Medicare supplemental coverage, which can be a highly lucrative business.
After the agency announced that Blue Cross and Express Scripts had won the business this summer, United and other failed bidders went on the attack, urging the courts and Commissioner Reese to overturn the decision.
They not only battled with lawyers, they formed Taxpayers for Healthcare Choice to sway the opinion of the public and put pressure on state politicians, including Deal. The group used the same tactics candidates typically employ to win elections, running social media and TV campaign. Lawmakers were not amused, saying that the ads made it sound as if they were agents of Obamacare and that they were restricting health care choices for teachers.
UnitedHealthcare argued that because there are now two big companies managing the medical plan, and there will be only one Jan. 1, employees and retirees have lost the ability to choose a provider and the business has become a monopoly. Blue Cross has said those in the plan will still have options.
Doctors concerned about lower payments
United also got some teacher and doctor lobbies to side with them, with both groups arguing that DCH’s decision limited competition.
Doctors are also concerned because a memo on Blue Cross’ plans calls for big savings, in part, by cutting payments to doctors, hospitals and other providers.
But top state officials liked what Blue Cross was selling: $200 million or more a year in savings.
Deal and budget writers have fought for years to reduce the exploding cost of public health care programs, which currently eat up about a third of state spending.
The appeal process dragged on into the fall and Blue Cross began enrolling teachers, employees and retirees.
“We feel like the transition has been smooth,” said Bert Kelly of Blue Cross.
In November, Reese upheld the agency’s decision to go with Blue Cross and Express Scripts, leaving the courts the only avenue for the defeated bidders.
CVS wades into the legal fight
CVS Caremark filed suit Dec. 2 in Fulton County Superior Court in hopes of keeping DCH from implementing the pharmacy contract with Express Scripts.
In the filing, Caremark lawyers said the company provided the lowest-cost and highest-scoring bid, but the agency departed from its own rules in giving the contract to Express Scripts.
“It is clear that DCH acted without lawful authority and beyond the scope of its official powers,” the suit says. “Each day that passes harms CVS Caremark and the state, because every passing day makes it more difficult, and more expensive, to remedy the wrong that DCH has committed.”
Caremark’s lawsuit somewhat follows arguments made by UnitedHealthCare in its lawsuit: that DCH officials fixed the bid process in favor of the winner.
Caremark released a statement saying, “We believe that the bid we submitted provided the lowest cost, best value for the state’s benefits contract.”
Express Scripts lawyer argued in appeals hearings that Caremark wasn’t the low bidder.
In his decision to reject the appeal, Reese said state law allows his agency the flexibility “to pursue the approach that provides the best value for the plan.” The best deal, DCH decided, was with Express Scripts.
Highsmith, the prominent Republican lawyer and lobbyist representing Express Scripts, said Caremark’s lawsuit is baseless and will go the way of other challenges to DCH’s decision.
“It is unfortunate that the competition is forcing the state of Georgia to expend significant taxpayer resources in unwarranted litigation,” Highsmith said.
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