Court ruling favors Blue Cross NC, letting fight for state contract continue

In January 2023, State Treasurer Dale Folwell announced that Aetna would replace Blue Cross Blue Shield of North Carolina as the administrator for the state’s health insurance plan, which covers nearly 740,000 teachers, state employees and retirees and their dependents.

Following this decision, Blue Cross NC, which had been the state’s third-party administrator for more than 40 years, in mid-February filed a case with the North Carolina Office of Administrative Hearings. Blue Cross NC requested the state reverse its decision and either give the contract back to Blue Cross or open a new bidding process.

On Wednesday, Administrative Law Judge Melissa Owens Lassiter denied motions by the plan and Aetna attempting to expedite an end to Blue Cross’s challenge.

Lassiter’s decision means that the contested case will continue, with hearings set for next month, according to court documents.

Lassiter also ruled against the state’s petition to toss the testimony of Blue Cross NC’s expert witness, Gregory Russo, a managing director at Berkeley Research Group, a consulting firm.

In a statement sent to The News & Observer on Wednesday, Blue Cross NC said it’s “pleased with today’s decision and look forward to the opportunity to share more details about why Blue Cross NC’s proposal was the best deal for the state. Our proposal would save tens of millions of dollars and provide the strongest network with more providers, especially in our rural communities.”

“Serious errors were made in a decision with significant ramifications for State Health Plan members,” the company said. “Those who serve our state every day – teachers, law enforcement officers and health care workers – will pay the price for the State Health Plan’s errors. Additional details on the errors and distorted scoring in the process, as well as the failure to compare the bidders’ networks of providers in any detail, will be presented at the February hearing.”

Aetna said in a written statement that it “was awarded the North Carolina State Health Plan contract because our bid was deemed superior to other carriers based upon the requirements and scoring set forth by the State Health Plan. We’re incredibly excited to begin serving the State Health Plan next year, and we are already more than a year into our full-scale implementation effort. The previous carrier does not have a permanent right to this contract, although it seems to believe that it does.”

Folwell, who oversees the health plan, issued his own statement responding to Wednesday’s court order, saying the ruling “simply means that now we will proceed to a transparent hearing where we can lay out our case and present our evidence in full view of the public. We are confident we will prevail on the merits. It is unfortunate that the other party in the case has chosen an ill-considered approach of ‘sue till you’re blue’ whose costs will be borne by those who teach, protect and serve, and taxpayers like them.”

What were the arguments by Blue Cross and the State Health Plan?

Among other things, Blue Cross NC argued that during the bidding process the SHP had failed to score each company’s provider network appropriately and assigned points, used to score bidders’ proposals, in an irrational manner.

This, it said, led to it losing out on the contract despite offering the “lowest-cost proposal for this contract” and having “the most comprehensive network of providers,” says the contested case hearing filing against the SHP.

“The Plan made that award by applying arbitrary criteria, by failing to gather and consider critical information, and by using a distorted scoring system,“ Blue Cross NC argued.

In response, the health plan wrote that the bidders’ proposals were reviewed and scored in accordance with the methods described in its request for proposals during the bidding process, with Aetna receiving the highest combined score for its technical and cost proposals.

“The State Health Plan and the Board acted properly and within their authority and discretion in the Contract Award Decision,” it said. Aetna joined the case as a petitioner in mid-March.

During an hours-long hearing in Jan. 17 at the Office of Administrative Hearings, the attorney for the state said the “undisputed evidence shows that the procurement for a new TPA contract was conducted lawfully, diligently and fairly by the State Health Plan,” with the help of its longtime actuarial services contractor, Segal.

The State Health Plan and Segal did not violate state law, said the SHP’s attorney, Marcus Hewitt, “and their consideration of network access and disruption wasn’t arbitrary and capricious; instead it was entirely consistent with the RFP.”

But Blue Cross’ attorney, Eric Zimmerman, pushed back on these claims, saying “the plan’s basic argument here on the legal standards is that the plan had discretion to do whatever it wanted.”

“And if we challenge anything that the plan did, we’re just quote unquote, disagreeing with what the plan did … but that’s not the law. The plan did not have unbounded discretion to do whatever it wanted,” he said.

What were the scores?

North Carolina has a “self-funded” employee health plan, which means the state contracts with a third-party administrator to handle all of the administrative tasks associated with health insurance, which include contracting with providers, issuing cards, processing claims, setting up technological systems and more, as previously reported by The N&O.

The administrator, which receives an administrative fee for the services it provides to the state, sends claims to the state, which is on the hook for covering health care costs.

Documents released by the SHP show that bidders for the TPA contract received points and rankings for cost and technical proposals, both weighted equally.

Blue Cross NC had the lowest overall bid. All bidders were in the $17.5 billion range, with BCBS coming in lower by $17 million or less than a tenth of a percent, as previously reported by The N&O.

But Aetna was found to have stronger network pricing guarantees — or guardrails should the TPA fail to meet savings — which led to Blue Cross NC and Aetna tying in terms of their overall cost proposals, both receiving 3 points.

On the technical questions, a series of yes-or-no questions regarding the services they could provide, Aetna achieved the maximum score of 310 points, with Blue Cross slightly behind at 303. This led to Aetna receiving three points, while Blue Cross NC received 1. The final score had Aetna at 6 points and Blue Cross NC at 4 points.

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