Well-placed allies couldn't save WellCare's Iowa Medicaid contract

They were so close. Florida-based WellCare played the game almost perfectly to win a contract for its Iowa subsidiary to manage care for Medicaid recipients, which could have been worth hundreds of millions of dollars over the next three years.

The first sign that WellCare’s ambitions might come to nothing attracted little notice, appearing just before the long Thanksgiving weekend. More bad tidings for WellCare arrived yesterday in a late Friday afternoon dump, the classic way for government officials to bury news. Reading Jason Clayworth’s report for the Des Moines Register, it’s easy to see why the Branstad administration sought minimal attention for fixing an embarrassing oversight.

For most of this year, everything was lined up for WellCare to make a fortune off Iowans. Only days after the Iowa Department of Human Services put out a Request For Proposals to “modernize” Medicaid, WellCare hired former State Representative Renee Schulte as a consultant. She had spent the previous two years doing consulting work for DHS but terminated that contract early to help WellCare prepare its bid. Schulte maintained “that her role for DHS was not related to the agency’s efforts to privatize Medicaid management,” though affidavits indicated that while still working for DHS, Schulte had met with representatives of another insurance company to discuss Iowa’s plan to shift Medicaid to managed care.

WellCare then hired former Iowa House Speaker Chris Rants as a lobbyist. He and Schulte set out to identify members of the committee that would select companies to manage Medicaid. They approached contacts in the legislature and state government, some during a “blackout” period designed to prevent improper influence over the bidding process. Schulte also exchanged e-mails with Iowa’s top Medicaid official during that blackout period.

In August, WellCare became one of four companies awarded contracts to manage Medicaid in Iowa, despite having agreed to pay $80 million to settle claims “that the company had inflated expenses in Florida, skimped on health care services to Medicaid recipients there and pocketed the difference.” DHS Director Chuck Palmer rejected requests from losing bidders to reconsider the decision, dismissing as “multiple layers of hearsay” evidence pointing to Schulte’s improper actions.

WellCare and DHS signed a three-year contract in early October to allow the company to manage care for what would likely be more than 100,000 Iowans on Medicaid, the Iowa Health and Wellness Plan, or the Healthy and Well Kids in Iowa (HAWK-I) program.

Things started to unravel last month, when Administrative Law Judge Christie Scase ruled on a challenge filed by three companies not selected to manage care for Iowans on Medicaid. Clayworth covered court hearings in that case and reported the judge’s decision on November 26:

Judge Christie Scase found that WellCare should have disclosed information about its “integrity agreement” with the federal government following convictions in 2014 of three former executives who had schemed to keep money for the company that should have been returned to the state of Florida.

“Without this information, they could not exercise reasoned judgment as to whether WellCare’s failure to disclose these events in its initial response was an intentional or material omission,” Scase wrote. […]

Scase dismissed the argument involving Rants and Schulte, saying that, while troublesome, “the record lacks hard facts proving that WellCare had an organizational conflict of interest” and that the improper communications do not “sufficiently taint the entire process to necessitate reversal of the award of contracts to the remaining successful bidders.”

Rulings of an administrative law judge are not binding, however. WellCare still had grounds to hope Iowa Department of Administrative Services Director Janet Phipps would look more favorably on them. No luck. Phipps brought down the hammer yesterday, accepting Judge Scase’s recommendation that WellCare “should lose its state contract because of an unfair public bidding process.” Clayworth reported,

Phipps made the decision for Chuck Palmer, the director of the Iowa Department of Human Services, at Branstad’s request.

“In this case, the full record now before me shows that WellCare failed to disclose highly relevant information both in its initial response to the (public bid) and in its ‘clarifying’ answer,” Phipps wrote.

Phipps concluded: “In doing so, WellCare not only violated the terms of the (bid) but also deprived the agency decision makers — both the evaluation committee and the director Palmer — of the opportunity to fully exercise their discretion in determining which bid proposals would provide ‘the greatest benefit to the agency.’” […]

Branstad’s communications director, Ben Hammes, said in a statement that “the final decision this evening from Director Phipps confirms that the Department of Human Services conducted a ‘thorough and methodical’ procurement.”

I really did laugh out loud. Only in bizarro world could a bid review be called “thorough and methodical” when Iowa DHS officials failed to discover publicly available information about Medicaid fraud by one of the companies awarded a contract (make that more than one company awarded a contract). Hammes had similar praise for the supposedly “thorough and methodical” process last month, when Judge Scase recommended that Iowa terminate WellCare’s contract.

WellCare’s state president in Iowa told the Register that the company will pursue “every avenue available within the legal system to correct this erroneous outcome.” Given the firm’s mismanagement of Medicaid in Florida and failure to reveal the criminal scheme that led to prison terms for three of WellCare’s former top executives, I doubt any court will overturn the state’s decision.

Schulte and Rants may turn out to be the only ones who profit from WellCare’s Iowa adventure. That must be frustrating for the company’s leaders. They were so close.

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