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Administrative law judge upholds health care contract over Magellan protest

medical health care doctorAn administrative law judge recommended that the Arizona Department of Health Services move forward with a multibillion-dollar contract for behavioral health services in Maricopa County, rejecting an appeal by Magellan Health Services of Arizona, which argued that it should have received the contract instead.

Magellan argued that ADHS improperly awarded a $3 billion, three-year contract to administer integrated care – both physical and mental health services – for about 12,000 seriously mentally ill Arizonans to Mercy Maricopa Integrated Care, a partnership between Mercy Care Plan and the Maricopa Integrated Health Systems. Magellan has administered Maricopa County’s behavioral health services since 2007, and submitted a bid for the new integrated care contract.

The company alleged that the contract violated state laws on conflicts of interest in government contracts, barring government entities from competing with private businesses, and prohibiting regional behavioral health authorities from directly providing services.

Administrative Law Judge Diane Mihalsky rejected Magellan’s arguments on conflicts of interest, the direct provision of services and government competition with private enterprise, among others. She also rejected several other arguments that she said were not filed by Magellan in a timely manner.

The Arizona Department of Administration, which had temporarily halted the implementation of the contract with MMIC, now has 30 days to accept, reject or modify Mihalsky’s recommendation, according to MIHS spokesman Michael Murphy. ADOA’s decision can be appealed to Maricopa County Superior Court.

Even if the administrative law judge’s recommendation goes into effect, MMIC faces other obstacles. Magellan and a conservative nonprofit organization called the Arizona Public Integrity Alliance are challenging the contract in a separate suit in Maricopa County Superior Court.

In a statement provided by MIHS, MMIC president and CEO Eddy Broadway praised Mihalsky’s recommendation.

“We are very pleased with the decision today by the administrative law judge and look forward to clearing the last hurdles presented by Magellan’s challenge so that we can begin to serve the people of Maricopa County as the Regional Behavioral Health Authority,” Broadway said in an email. “This has been a long process.  Once we hear from the Department of Administration, we will be able to devote all our attention and resources to the launch of Mercy Maricopa Integrated Care!”

A Magellan spokesman was not immediately available for comment.

Mihalsky said MMIC’s organizational structure does not run afoul of a state law barring regional health authorities and their subsidiaries from directly providing behavioral health services because it is not a subsidiary of MIHS and the county hospital system’s 25 percent ownership does not give it a controlling stake in MMIC.

She said that if a direct service provider such as MIHS had control over MMIC’s decisions, that would be a potential conflict of interest.  And she said ADHS can scrutinize MMIC for future conflicts of interest. But Magellan did not show that MIHS has that kind of decision-making authority, Mihalsky said.

“Because MIHS is only one of four voting members, it cannot unilaterally cause MMIC to act. Magellan did not establish that MIHS controls or will control MMIC’s activities or decisions,” Mihalsky wrote in her recommendation.

Mihalsky also said public improvement districts such as the Maricopa County Special Health Care District are different from other government subdivisions, and are therefore not subject to prohibitions on government entities competing with private enterprises.

“Their function is purely business and economic, and not political and governmental,” Mihalsky wrote. “The business purpose of a public improvement district ‘implies possible competitors in the economy.’”

Mihalsky also rejected Magellan’s argument that its bid was improperly scored by ADHS. She noted that Mary Temm, a Magellan expert, testified that ADHS’s request for a proposal from potential bidders did not provide Magellan with adequate instructions in some areas. But Magellan did not establish that the instructions to other bidders weren’t also inadequate, or that it lost enough points to cost it the contract.

Read Mihalsky’s decision: https://portal.azoah.com/oedf/documents/13F-006-ADM/13F-006-ADM-0309.pdf

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