Health Care

Firms eye options after state botches awarding of Medicaid contracts

By Michelle Swafford / Staff Writer

Nevada's managed-care companies are about to face round two in a state Medicaid contract bid after state officials rescinded the initial contract awards.

Since Dec. 20, the state Purchasing Division has issued a managed-care Medicaid contract worth $500 million to three different companies when it was intended for two, and on Wednesday canceled all of the contract awards because of scoring errors and confusion in the evaluation process.

"The long and short of it is human error," Nevada Purchasing Administrator Greg Smith said, adding that three scores were omitted when the results were transferred from paper to a Microsoft Excel spreadsheet. "I'm not comfortable that the process was as fair, equitable and above reproach as it can be.

"We are going to issue another RFP," Smith said, adding that it could be posted as early as this month and then firms would have a minimum of four weeks to reapply.

"I'm responsible to the governor and the citizens of Nevada to have a fair, equitable and above-board process and that's what the Purchasing Division and myself are responsible to provide," Smith said. "I know vendors will be disappointed because there's a lot of work that goes into this. This appears to be the best way to ensure fairness in the entire process."

The current Medicaid contracts for the 105,000 Nevadans who qualify for assistance expire June 30 and are held by Health Plan of Nevada and NevadaCare. In light of the canceled request for proposal, the plan is to have a new contract in place by July 1, but the current contracts may need to be extended for three to six months, Smith said.

On Nov. 8 the state announced that it intended to award the 2006 Medicaid contract to HMO of Nevada, a subsidiary of Anthem Blue Cross and Blue Shield of Colorado and Nevada in Colorado, and Health Plan of Nevada, a subsidiary of Sierra Health Services in Las Vegas.

NevadaCare, a subsidiary of i/mx Cos. in Arizona, Amerigroup Nevada, a subsidiary of Amerigroup Corp. in Virginia and Molina Healthcare of Nevada, a subsidiary of Molina Healthcare in California also applied for the Medicaid request for proposal.

The state Purchasing Division issued letters about 5 p.m. Dec. 22 to the five companies that bid on the contract that said "due to an error in calculation it is necessary for me to rescind the award to Health Plan of Nevada."

A second letter was issued about the same time that said that the intent was to award the Medicaid contract to Amerigroup Nevada Inc.

The transcription error meant that three of Amerigroup's scores were not calculated into the total and Sierra, Anthem and Amerigroup's scores were close, Smith said.

Anthem's HMO of Nevada had been the top scoring bidder, followed by Sierra's Health Plan of Nevada and Amerigroup respectively, Smith said. When the scores were refigured after the error was discovered, Amerigroup had the top score, followed by Anthem and Sierra respectively, he said.

The actual scores from the initial awards are confidential so companies will not be deterred from bidding when the new request for proposal is solicited, he said.

After the error was found the evaluation process was assessed and there were some other things that needed to be changed, Smith said.

For example, Nevada law requires two evaluators for request for proposals and the state often has five to seven evaluators, but only three were used for the Medicaid contract, he said.

Also, Smith wants to make sure each evaluator has the same set of ground rules in assessing the companies, which are graded on quality, experience and innovation.

The original request for proposal was posted Aug. 3 and proposals were due Oct. 24. The state requires that request for proposals must be solicited every four years unless the state Board of Examiners specifies otherwise.

It remains to be seen whether Amerigroup, Anthem or any of the other companies will sue the state over the canceled contract.

But the potential for litigation was considered when the state decided to rescind the request for proposal and issue a new one.

"Anyone can sue us for anything," Smith said. "We have a more defensible position doing what we're doing than had we continued to push forward and march this thing through."

Sierra Health and NevadaCare could lose revenue and employees if they ultimately lose their contracts.

If Sierra Health were to lose the Medicaid contract, it would affect the company's earnings by about $3.8 million, or 6 cents per share, in profit after taxes, CIBC World Markets managed-care analyst Carl McDonald said.

"It would have a modest negative impact on the stock price were they to lose the business," he said. "The impact for Sierra, from an earnings perspective, it's certainly meaningful to them, but is not a gigantic loss in the grand scheme of things."

Banc of America Securities managed-care analyst Joe France agreed that rescinding the Medicaid contract would have a minimal effect on Sierra's finances.

"While the contract is important from a political point of view, the financial impact is rather marginal," France said in a report issued Wednesday.

Sierra's current Medicaid contract insures about 53,000 Nevadans and generates about $100 million in annual premium revenue, Sierra Health spokesman Peter O'Neill said.

More than 100 Sierra Health employees could be susceptible to losing their jobs because they solely work on Medicaid contracts, he said.

NevadaCare spokesman Larry Hurst said about 150 of his company's employees could lose their jobs if NevadaCare loses its current Medicaid contract.

Because NevadaCare is not publicly held it did not release details of the potential financial effect of losing the contract.

Michelle Swafford covers health care and small business for In Business Las Vegas and its sister publication, the Las Vegas Sun. She can be reached by e-mail at swafford@lasvegassun.com or at (702) 259-2326.

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