PROVIDENCE – The state today asked the Supreme Court to reverse a judge’s ruling that would force it to rebid its employees’ health-insurance contract, even though a transition to a new three-year deal with UnitedHealthcare of New England was well underway.
Superior Court Judge Netti C. Vogel last week ordered a new bidding process after evidence presented at several hearings convinced her that Blue Cross & Blue Shield of Rhode Island, which had appealed after losing the contract, was correct in asserting that the state had made numerous errors, abused its discretion, and broken procurement laws.
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The judge stayed execution of her order so the state could appeal, and today, Director of Administration Beverly Najarian did so, claiming that Vogel “ignored, misconceived or misrepresented material record evidence,” made several legal errors, and “engaged in the prohibited practice of government by injunction, substituting her unfounded subjective business judgment for that of responsible state officials.”
United filed a memorandum supporting the appeal.
And on the public-opinion front, Governor Donald L. Carcieri’s office is also fighting back.
“Governor Carcieri and the Department of Administration strongly disagree with the conclusions reached by the Superior Court,” Carcieri’s press secretary, Jeff Neal, said in a statement sent to all the media.
“We are confident that the bid process was fully transparent, honest and legal,” Neal added. “Many dedicated state employees devoted hundreds of hours to this bid process with one objective in mind: getting a good deal for Rhode Island taxpayers. Governor Carcieri fully supports the Department of Administration, and their work to obtain a high quality, cost-effective health contract for state employees and Rhode Island taxpayers.”
It was Carcieri who personally announced the state’s decision to switch more than 52,000 workers, retirees and their dependents from Blue Cross, which has managed the state’s health coverage for the last three years, to United.
The state is self-insured, and the bulk of its $674-million contract with United would go to covering actual expenses. But while under the current Blue Cross contract, the insurer got a percentage of health expenditures to cover administrative costs, this time the state asked for flat-fee bids. Blue Cross’s bid, state officials said, was about $8 million higher than United’s.
After reviewing United’s bid, which was now a public document, Blue Cross contested that finding. In a letter to Carcieri, then a formal bid protest, the insurer claimed the state had changed the bid specifications to benefit United and misinterpreted part of Blue Cross’s offer. In reality, Blue Cross claimed, its bid was lower than United’s.
The state promptly dismissed the bid protest, and Blue Cross went to court, where it faced a very high burden of proof: It had to show that the bid process had been so tainted by error and abuses of discretion, and the decision so “arbitrary and capricious,” that Blue Cross had been denied fair consideration of its bid.
After several days of hearings and depositions, Vogel ruled for Blue Cross.
In a 42-page ruling, Vogel said there was “overwhelming evidence that the procurement process was characterized by both a palpable abuse and a clearly unwarranted exercise of discretion.” Citing six examples, she accused state officials of acting with “total disregard” for the law, changing the rules to favor United, and even allowing United to alter its final offer after the bid had been awarded. The state has issued a point-by-point rebuttal.
Vogel did not re-analyze the bids to determine which was superior, but rather ruled that the process had been so flawed that it should be started from scratch.
The governor’s office put its own spin on the ruling.
“It is important to remember that nobody contests that UnitedHealthcare submitted the best bid,” Neal said in his statement. “United deserved to win the state employee health care contract. The United contract will save Rhode Island taxpayers $25 million, compared to the old Blue Cross contract. Even if the court’s conclusions were true, UnitedHealthcare’s bid would still be superior to the bid submitted by Blue Cross. Getting the best contract possible was always our primary objective. We have no doubt that we achieved that objective.”
State officials have said they hope to resolve this matter – and continue the process of switching to United – within days. If that doesn’t happen, state workers and retirees are expected to continue to be covered by Blue Cross in the meantime, though officials have said the terms of a contract extension would have to be negotiated.
Blue Cross has been ordered to post a $1-million bond to cover the costs incurred by the state and United if the insurer ends up losing its case anyway.
