Home / health care / Magellan fails to get contract rebid in budget, but effort may continue

Magellan fails to get contract rebid in budget, but effort may continue

SMagellan Health Services’ attempt to settle its dispute over a lost $3 billion contract in the state budget fell short, but an ally in the Legislature may try again before the session is over.

Rep. David Stevens, R-Sierra Vista, convinced fellow lawmakers to attach a provision in the budget that would have forced the Arizona Department of Health Services to rebid the contract to run the public behavioral-health-care system in Maricopa County, which Magellan says was improperly awarded to MMIC.

MMIC is a joint venture between the Maricopa Integrated Health System and Mercy Care Plan, which was formed to bid for the contract.

The victory for Magellan and Stevens was short-lived. Angry lawmakers forced the removal of Stevens’ amendment later in the night. And though Stevens said he would continue pushing when the budget went back to the Senate, no one proposed a similar amendment in the other chamber.

Stevens said he may try to get the measure passed again this year. It depends on how much longer the Legislature is in session, he said.

“If it looks like we’re going to be here a while, most definitely it will probably come back up. But if it looks like we’re going to be out of here in two weeks, it won’t come up. It’ll be next year,” Stevens said.

The move came just days before MMIC’s contract went into effect on April 1.

Sen. Don Shooter, who chairs the Senate Appropriations Committee, said Magellan lobbyists asked him to allow the committee to consider a similar amendment. The Yuma Republican declined.

“I just think it’s inappropriate,” Shooter said.

Nonetheless, MMIC isn’t letting its guard down. Jaime Molera, a lobbyist for the new regional behavioral health authority, said he’s concerned that even though Magellan was unable to get its rebid provision in the budget, it may push for it later in the session through a strike-everything amendment or by tacking it onto a germane bill.

Molera said he’s confident that the proposal can be defeated once more if it crops up again during the session.

“I’m confident in our position, in that the more people understood the issue the more I think members said we didn’t want to go down that path,” he said. “I think the more people who see what’s going on and why this came down this way, they just didn’t like that approach.”

A disputed contract

The impetus for Magellan and Stevens’ proposal is a dispute over the Arizona Department of Health Services’ decision to award the new contract to MMIC.

Magellan challenged the contract on several grounds, including a state law barring behavioral health providers from serving as a regional behavioral health authority, administrative entities that oversee services in an area.

The Arizona Department of Administration put a stay on the MMIC contract, which was originally scheduled to go into effect in October, while Magellan challenged it in the Office of Administrative Hearings. But after an administrative law judge approved the contract in November, ADOA lifted the stay.

Magellan is now contesting the contract in Maricopa County Superior Court. But Stevens said the court process can be long and drawn out. And because the contract was awarded to MMIC in violation of state law, Stevens said, it’s appropriate for the Legislature to enforce that law.

Michael Ryan, a consultant for Magellan, defended the move as well.

“Magellan does plan to let it play out in Superior Court. But the fact is that if there’s a legislative recourse to this situation, it probably behooves Magellan to examine that as well,” Ryan said.

The Stevens amendment also includes a legislative intent clause stating that the 2007 law was meant to bar a provider of behavioral health services from being any part of a regional behavioral health authority. That could bar MMIC from rebidding for the contract, because MIHS, a service provider, is part of the entity.

If the Legislature were to pass the Stevens amendment or a similar law, that would likely trigger a new legal battle, according to attorney Mike Liburdi, who represents MMIC.

Liburdi said the Stevens amendment would be unconstitutional on several grounds. He argued that it would violate the Arizona Constitution’s contract clause, which prohibits laws that impair contracts. Liburdi also said the law would violate the constitutional ban on special legislation and the constitution’s separation-of-powers provision.

“They’re trying to cancel the contract. And that is the epitome of unconstitutionality, on various levels,” Liburdi said.

John Kaites, a lobbyist for Magellan, said state contracts are generally subject to change, and said there is nothing that would bar the Legislature from forcing a rebid of MMIC’s contract. Kaites, an attorney, said the Legislature can also force the rebid because the contract violated the 2007 law in the first place.

“There’s always a way for a state to be able to leave a contract for nearly any reason, but especially if the Legislature directs it,” Kaites said.

Don Peters, an attorney with experience dealing with government contracts, said it would depend on the details. Peters emphasized that he isn’t familiar with the MMIC contract. But he said the contract would have to have a provision allowing the state to pull out of it.

Impairment problem

The Maricopa County contract stipulates that the state can void the contract if MMIC becomes bankrupt or insolvent, if it fails to adequately perform the required services, or if it fails to improve compliance.

“As a matter of law and there is an existing contract, and the Legislature passes a law that unduly interferes with it, then you have an impairment of contracts problem,” Peters said.

Even if Magellan makes another push for the legislation, it will need to round up more support than it received in the House. Rep. Paul Boyer, R-Phoenix, said there’s no shortage of opposition, including from himself.

Boyer said the contract went through a competitive bid, and it’s not the Legislature’s place to void it.

“We’re not a court of appeals. We’re the legislative branch,” he said.

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