Idaho awards $1.2 billion contract for behavioral health. Both losing bidders sue

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Originally published July 5 on IdahoCapitalSun.com.

Idaho state agencies are facing two lawsuits after awarding a new, expanded $1.2 billion contract to manage behavioral health services statewide.

The contract, which could change care as soon as next March, controls how more than 425,000 Idahoans — about one in five residents of the state — access behavioral health care. The new organization selected, Magellan Health, will manage care for Idahoans on private health insurance or Medicaid, and those who are uninsured. The new contract includes inpatient care, like hospitalization for mental health issues, while the previous contract only included outpatient care, like visits to a therapist.

A managed care organization is a company that manages health benefits and care for patients.

One Idaho analyst sees the new contract structure as promising because it makes one company accountable for the costs of a patient’s entire mental health care. But two companies who lost their bids for the contract argue that the process was flawed, alleging that the state made errors in evaluating proposals.

The state awarded the new contract to Magellan Health, which was recently acquired by Medicaid managed-care giant Centene Corporation. The parent company in February settled to pay California $215 million to settle a drug-pricing scandal, the Ohio Capital Journal reported.

In legal filings released Friday, Magellan argued that the companies suing — Beacon Health and Optum Health — do not have the legal standing to sue, requesting the cases be dismissed. The state, meanwhile, also requested the cases be dismissed, arguing that the court is not legally allowed to review procurement cases. 

Agency spokespeople for the Idaho Department of Health and Welfare and the Idaho Department of Purchasing told the Idaho Capital Sun that they cannot comment on pending litigation, which is a standard practice for Idaho state agencies. Spokespeople for Magellan Health and Centene could not be reached for comment.

What the Idaho lawsuits argue

The new contract has a drastically expanded scope. And the winning provider does not have minimum qualifications to be eligible for the contract, argues Optum Health, which has held a contract with the state to operate the Idaho Behavioral Health Plan for a decade.

In its lawsuit, Optum argues that Magellan failed to meet the contract’s requirement for a managed care organization to be accredited under the National Committee for Quality Assurance. Magellan says it could not become accredited until 2024, Optum claims.

Optum argues in its lawsuit that it earned an “excellent reputation by exceeding review standards, expanding provider access” and claims that it “saved Idaho taxpayers around $400 million compared to projected Medicaid spending.” Previous reporting by the Idaho Statesman found complaints that the company had violated some patients’ privacy.

To evaluate bids, the state scored and ranked each proposal. Magellan’s had the lowest initial cost, Lori Wolff, interim head of the Idaho Division of Purchasing, told the Idaho Capital Sun. But the initial cost estimates only included administrative costs, Wolff added, not benefit costs.

Optum did not make it to the final round, earning the lowest score on its proposal. Beacon and Magellan advanced to the negotiation stage, allowed under a contracting process the state used called invitation to negotiate, which lets someone requesting bids for projects to negotiate with finalists. 

Beacon was originally slated as the contract winner earlier, but it was disqualified after a judge found that the company’s work on a 2019 report on crisis health care needs was related to the contract bid.

Beacon, in its suit, argues that decision “is unsupported by any direct evidence that (the state health department) used Beacon’s prior work to prepare” the bid. 

Beacon, which got the highest technical score, also argues it was unaware that the request for a behavioral health managed care organization drew upon its previous report, which Beacon says was meant to help understand the national behavioral health crisis system, identify needs in Idaho and regionally and recommend ways to address them. The company argues the entire bidding process should be restarted.

Optum says in its lawsuit that it helped 67,739 Idahoans access specialty mental health services last year, including 13,325 who were treated for substance abuse.

The state’s process for obtaining bids on the contract was flawed, Optum attorneys argue, and they also argue that the state should void Magellan’s contract and award a contract to Optum.

“If immediate action is not taken, transition activities could begin that will be costly to the State and Idaho taxpayers,” Optum argues in its suit.

The state applied certain weights to information companies submitted in their bids without disclosing those weights beforehand, Optum says. And after the state chose Beacon and Magellan, not Optum as finalists, it negotiated, which Optum claims is illegal.

“[Errors] deprived Optum of a full and fair opportunity to compete for a public contract,” Optum argues in its lawsuit. “Optum will suffer great and irreparable injury as a result, including this lost opportunity to provide critical services in Idaho and serve the State’s most vulnerable population.”

In addition to arguing that both other companies are ineligible for the contract, Optum argues that only its bid “should have been permitted to advance.” Optum was not considered a finalist for the contract, scoring the lowest on its technical proposal and second on cost proposal.

“We have developed trusted relationships across the state, and Optum Idaho remains committed to providing high quality services to the people we serve,” said Chris Smith, director of strategic communications in Idaho for Optum. “We have significant concerns with the highly irregular and fundamentally flawed procurement process and its effect on those who rely on these vital behavioral health services.”

Improved contract structure for behavioral health in Idaho

The Idaho Behavioral Health Plan provides a framework for how to provide mental health and substance use treatment across the state. The plan has for a decade contracted with Optum Health, one of the organizations that lost the bid and is suing.

The new contract’s structure makes a promising improvement though, said Ryan Langrill, analyst for the Idaho Office of Performance Evaluations. Previously, Idaho’s contract for a managed care provider only included outpatient behavioral health services, putting those who are hospitalized for behavioral health issues under the care of the state.

Langrill said that excluding inpatient care from the contract created an incentive for an organization to not offer the best, and sometimes costliest outpatient care to patients, since allowing them to be admitted as inpatients would relieve the organization of responsibility.

Put another way: Having one provider manage inpatient and outpatient behavioral care meant that that organization had an incentive to make sure the person got the care they needed, instead of shifting them to inpatient, where the state foots the bill and risk.

“Everything we’ve seen, all the research we did about how managed care is supposed to work, was that you want to bundle substitute services together because of the big risks with managed care is the way the state pays managed care organizations on a per member, per month rate,” Langrill said. “And if the managed care organization can deliver services at less (cost), then they get to keep some of the money.”

The state has administered inpatient behavioral health care through its Division of Behavioral Services. But under the new contract, that division will no longer administer inpatient care, according to a new webpage.

Langrill said he didn’t have any proof that Optum was doing that, but a 2016 report by OPE highlighted this gap, recommending the Department of Health and Welfare formally evaluate including inpatient services with its behavioral care managed care contract.

“We didn’t actually see this happening, but the fact that the incentive is there and that gives them a business reason to potentially not provide the best care, that was our problem,” Langrill said.

What’s next

Nothing changes in the short term, until the plan transitions to the new contract. The new contract takes effect June 16, 2023, In the meantime, Magellan is in an “implementation period,” when it prepares to transition to providing behavioral health services, according to Wolff, interim head of the Idaho Division of Purchasing.

Changes will happen sometime in 2024, an IDHW webpage says. Optum’s contract expires Feb. 29, 2024.

The Department of Health and Welfare said more information on the contract change will be shared when a transition date is established. 

Magellan’s new contract has a service date of March 1, 2024, lasting for four years until its end date of Feb. 29, 2028.

All eligible Idaho Medicaid members will receive a letter explaining the new managed care organization, the webpage says. New insurance cards will also be mailed to members on a future date.