Official raised bias issue in Medicaid contracts
Firms say email backs claim of conflict of interest in state agency’s bidding process
The state Human Services Department announced in January that Molina Healthcare of New Mexico and United Healthcare of New Mexico wouldn’t receive contracts to continue to provide managed care for Medicaid recipients after this year.
But with hundreds of millions of dollars in contract fees at stake, Molina and United aren’t going quietly into the night.
The companies are lawyered up and fighting the decision by the Human Services Department, saying it violated state law and regulations that government agencies must follow in awarding contracts.
Molina and United also are alleging the department’s contracting process may have been biased in favor of Western Sky Community Care, a contract winner and subsidiary of industry giant Centene Corp. of St. Louis.
Molina and United say Mercer Health & Benefits LLC, which helped the department evaluate contract proposals, has business ties to Western Sky.
Molina has cited a 2016 published report that Mercer had partnered in a pharmacy service with Envolve Pharmacy Solutions, a sister company of Western Sky and another subsidiary of Centene.
Molina and United also have said Western Sky, in its Medicaid contract proposal, told the Human Services Department that it would use Envolve as its pharmacy benefits manager in New Mexico. The companies contend that all adds up to a potential conflict of interest on the part of Mercer as it advised the department on how to score Medicaid managed care contract proposals from Western Sky, Molina, United and other companies.
The Human Services Department, run by the administration of Gov. Susana Martinez, has countered that the contracting process was competitive and fair. But an email obtained by The New Mexican shows an official with the Human Services Department was concerned about a potential Mercer conflict of interest at least as far back as October.
The email — titled “Contractor Conflict Issue?” — was written by Daniel Clavio, procurement manager and compliance officer for the department’s
Medical Assistance Division. The recipients of the email were the department’s chief contracting officer, Gary Chavez, and an assistant general counsel for the agency, Constance Tatham.
Clavio wrote that Mercer had disclosed it had been approached about a possible business deal by the parent company of a firm seeking a Medicaid managed care contract. The email doesn’t name the parent company or the subsidiary.
Clavio wrote Mercer would consult with the parent company on the “private/commercial side” and not on the “government/Medicaid side.” But, he asked in the email, “Does this really make a difference?”
He also wrote that Mercer’s contract with the parent company wouldn’t start until after the Medicaid managed care contracts were issued. “But obviously, the intention/potential for $$ is there right now,” Clavio wrote.
Clavio said Mercer had disclosed it would work with the parent company in the area related to parity of mental health and medical benefits. He said Mercer also was helping the Human Services Department in that area.
“They [Mercer representatives] claim there are major firewalls within their organization to stop undue influence, but it makes you wonder. Are there problems with this arrangement?” he asked.
Clavio also asked whether the department should make sure that no one from the Mercer parity team gets involved with the process of issuing the Medicaid managed care contracts.
“Can this be a spoiler for the [Medicaid] procurement, or do you feel it’s OK, that their [Mercer’s] internal integrity is fine?” he asked. “Should we put the kabosh [sic] on it, or approve it?”
Investigation sought
In a written statement, Molina said the email validates the company’s concern about a conflict of interest on the part of Mercer.
“The conflict of interest must be thoroughly and impartially investigated before [the Medicaid] contracting process is allowed to proceed further,” the company said in its statement.
Mercer has declined comment on the controversy over the new contracts for the Medicaid managed care organizations. has been unable to reach Centene representatives for comment.
A spokeswoman for the Human Services Department said in an email Wednesday that “Mercer had requested the department approve their working on a separate consulting engagement with a potential bidder” for a Medicaid contract. At time of the email, managed care companies hadn’t yet submitted contract proposals.
“HSD instructed them not to pursue the separate contract and they did not move forward with the consulting engagement,” the email said.
The department declined to name the company with which Mercer was considering consulting. It also didn’t respond when asked what disclosures, if any, Mercer made to the agency concerning conflicts of interests or potential conflicts.
Prior to Mercer disclosing being approached about the consulting deal, there had been “a back-and-forth” between the company and the department about Mercer signing confidentiality agreements, according to Clavio’s email.
“We decided that their confidentiality clause in their contract with HSD would suffice,” he wrote.
Mercer’s contract with the Human Services Department, which expires June 30, says the company “shall not acquire any interest, direct or indirect, which would conflict in any manner or degree with the performance or services required with this Agreement.”
Mercer, a global company, provides a range of services to the department,
including setting per-patient rates for managed care organizations, evaluating the financial performance of the organizations and helping the agency with changes in managed care contracts. Mercer has been paid nearly $25.8 million since July 1, 2012, according to a state website.
In his email, Clavio said Mercer would run the department’s evaluation and scoring sessions for the proposals from the companies seeking managed care contracts.
He also said Mercer had provided comment on the Human Services Department’s request for proposals and that it was developing evaluation and scoring sheets for the proposals, as well as tips and pointers for proposal reviewers. Clavio added Mercer wouldn’t do any of the actual scoring.
The Human Services Department released the Clavio email in response to requests under the state Inspection of Public Records Act.
It has since said the agency considers the email to be attorney-client privileged communication, that the email was released in error and that it should be deleted by recipients.
Company protests
The Human Services Department estimates it will spend $5.7 billion this budget year on running Medicaid, the state- and federally funded health care program for low-income people.
More than 850,000 New Mexicans are enrolled in the program. About 700,000 of those are served by four managed care organizations under contract with the department: Molina, United, Blue Cross Blue Shield of New Mexico and Presbyterian Health Plan.
Since 2014, the managed care organizations have provided physical, behavioral, pharmaceutical and long-term care services to the Medicaid recipients.
All the organizations are in the final year of five-year contracts ending Dec. 31.
Last fall, the Human Services Department issued a request for proposals from managed care organizations to serve Medicaid recipients beginning in 2019.
The department announced the winners for the Medicaid contracts were Blue Cross, Presbyterian and Western Sky.
Four losers — Molina, United, WellCare of New Mexico and AmeriHealth Caritas New Mexico — have appealed the decision in protests filed with the department. The protests allege a smorgasbord of errors in the contracting process.
Molina also has filed a lawsuit in state District Court in Santa Fe, seeking to nullify the department’s contract with Western Sky and to force the department to enter into a contract with Molina.
In its lawsuit, Molina alleges Mercer and Centene, the parent company of Western Sky, have a billion- or multibillion-dollar contractual relationship through Envolve, the sister company of Western Sky.
“Mercer has a vested interest in the success of Envolve, and apparently will benefit from any revenue and profit Envolve obtains from operations in New Mexico” under Western Sky’s contract, the lawsuit says.
The lawsuit adds that if the Human Services Department knew of Mercer’s business relationship with Centene and allowed Mercer to continue to consult on the Medicaid contracting process, then the process “was conducted in a biased manner, fraudulently or in bad faith, and in violation of law.”
The department is seeking dismissal of Molina’s lawsuit, saying it’s premature because the agency hasn’t yet ruled on its protest of the contracting process. Western Sky also is seeking to intervene in the lawsuit and is making the same dismissal argument.
United says in its protest filed with the Human Services Department that the integrity and fairness of the contracting process may have been compromised by a conflict of interest or an appearance of a conflict.
“Based on information that surfaced after the announcement of the award, we understand that Mercer has a significant business alliance with Envolve that warrants further inquiry,” the protest says.
“The mere appearance of an undisclosed conflict of interest can be enough to justify overturning” a contract award, the protest adds.
Under its Medicaid managed care contract that expires at year’s end, United provides services to more than 88,000 New Mexicans. Molina serves more than 221,000.
In its lawsuit, Molina says it also provides health care services to 5,500 New Mexicans through Medicare and to 29,000 more residents who have purchased insurance through the Affordable Care Act exchange.
The department has accused Molina of attempting “to threaten and scare New Mexico’s poorest and most vulnerable citizens.”
A judge is scheduled to hold a hearing on the lawsuit Feb. 26.