Blue Cross & Blue Shield of Rhode Island is taking its fight over the state health care contract to Superior Court, saying that despite Governor Donald L. Carcieri’s belief to the contrary, its bid for the state contract for 2005-07 was actually lower than UnitedHealthcare of New England’s.
Blue Cross now has an exclusive contract to run state employees’ health benefits, but it ends Dec. 31, and this month, 7, Carcieri announced that United would be taking over in the new year, having outbid Blue Cross by about $8 million for a deal worth an estimated $674 million, including $23.5 million in administrative fees.
Blue Cross disputes that assessment, and after the contract was awarded, it wrote to Carcieri urging him to reconsider, then filed a formal bid protest with Director of Administration Beverly Najarian. The governor has stood by his original assessment, however, and on Tuesday, Blue Cross got a nine-page letter from Najarian saying that although the insurer had raised some valid points, the United deal was still better.
Carcieri spokesman Jeff Neal has said the governor “is confident that we went through a very thorough, very fair process in judging the two bids, and the results were clear.”
Neal said Blue Cross’s bid was $6 million higher on administrative fees, and another $2 million on pharmaceutical benefits. The actual services and coverage to be provided by United are the same as Blue Cross now offers, Neal said.
But in an Oct. 15 letter to Carcieri, James E. Purcell, acting president and CEO of Blue Cross, argued vehemently that in fact, United isn’t offering the same package, and in any case its bid, when compared in detail with Blue Cross’s, was inferior.
Last week, after Carcieri dismissed the company’s arguments, Blue Cross followed up with a formal bid protest, a 10-page legal document alleging that the bid award was, among other things, “clearly erroneous, arbitrary and capricious.”
If the state had truly compared both companies’ bids on equal terms, the protest argues, Blue Cross would have come up over $2 million lower than United – not counting an expected $3.5 million in savings from Blue Cross’s offer not to pass on the cost of higher physician reimbursement rates until after July 31.
The only reason United came out ahead, Blue Cross’s lawyers argued, was that the state allowed it to offer a package that didn’t fully match what the bid requested, excluding at least two items that Blue Cross thought were required.
The biggest point of contention is drug rebates. United proposed to return $4.50 per contract per month to the state, and took it out of its administrative fee, gaining a major competitive advantage. Blue Cross, on the other hand, offered to credit the full value of drug rebates to the state, which it now estimates at $8.94 per contract per month.
But Blue Cross “assumed the value of the drug rebates would be credited against the cost of claims (as it always has),” Purcell wrote the governor. “We had no way of knowing we could credit drug rebates against our administrative fee.”
Blue Cross spokesman Scott A. Fraser said that item alone was worth $6 million.
In addition, Blue Cross alleges that its own fees for the first year were overstated by at least $750,000 because the state recalculated costs to match United’s offer, which didn’t directly match what the state had sought.
The protest also says United shaved over $950,000 off its administrative fees by not including crossover claims processing with Medicare for retirees getting Medigap coverage. While Blue Cross’s basic fee included that service, United sought a surcharge of $4.18 to $4.48 per month for people who wanted the service, plus a $1.10 solicitation fee per enrollee. And United’s bid for the Medicare HMO program, Blue Cross says, was $513,000 higher for the first year alone.
In his letter to Carcieri, Purcell had asked the governor to “pause the process and afford us with the opportunity to complete our analysis.” The formal protest takes it further, asking that the state reverse its decision and award the contract to Blue Cross.
The state has not yet signed a contract with United; the details are currently being negotiated. Fraser said Blue Cross figured it was best to act now than wait until the contract was finalized. If Blue Cross doesn’t get to at least share in the state contract, Fraser said (and Purcell wrote to Carcieri), some layoffs are “likely,” and Blue Cross might have to cut back on its involvement in health care improvement projects in the state and in health-related charities.
After receiving Najarian’s letter, Fraser said Blue Cross wasn’t ready to give up. The company will file a complaint in Superior Court “within the next few days,” he said, and it will seek a temporary restraining order to prevent the state from moving forward with its contract with United.
“We didn’t see anything new in the response, and we still feel that overall the state’s analysis is incorrect,” he said. “We just hope that we do get our chance to cont serving the state employees.”
United, for its part, has expressed confidence that it would prevail.
“They have to do what they have to do,” said spokeswoman Debora M. Spano. “They’re losing a significant portion of their business, and it’s only fair for them to fight as hard as they can to keep it. But we feel that we really are the best value for the state.”
