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One bidder, one winner in county care contract

Monday, April 28, 2014
Crain's Chicago Business
by Andrew L. Wang

Last fall, the Cook County Health & Hospitals System asked nine companies to bid on a monster contract to operate a new Medicaid managed care plan called CountyCare.

Or so county officials say.

Three of the vendors say they never received the system's email invitation, with one saying it would have submitted a proposal had it known about the ask. Of the rest, five did not respond by the submission deadline, 25 days later. In the end, only one company applied—IlliniCare Health Plan Inc., a division of St. Louis-based Centene Corp. The system's board approved the five-year, $1.8 billion contract last month.

Despite the paltry turnout, county health officials say they didn't compromise in choosing IlliniCare, nor did they break any of their own procurement rules. “Within the context of what we had available to consider, we do feel like we were able to find the vendor to meet our needs,” says Steven Glass, the system's executive director of managed care.

But outsiders say the county would have been better off if it had more than one vendor to choose from before launching into its first large-scale foray into the fraught world of managed care. Settling on an adequate contractor, they add, is not the same as finding one that offers the most bang for the taxpayers' buck.

“It's pretty hard to evaluate that if you only have the one bid,” says Jocelyn Johnston, a professor at American University in Washington who studies public contracting. “Hopefully they're not just saying this (company) does enough—that it fits the bill.”

IlliniCare's performance on the five-year contract will be crucial to the success of CountyCare, the brainchild of former hospitals system CEO Dr. Ramanathan Raju that officials hope will bolster the finances of both the system and the county after it becomes a full-fledged care plan on July 1 (see the PDF).

Much as it does now under a pilot version of the plan, the system would receive a flat payment every month for up to 115,000 Medicaid members, from which it must cover each patient's costs, including claims payments to providers in the CountyCare network. Such “capitated” models are meant to nudge hospitals and providers to better manage the health of patients, addressing ailments before they require high-cost care.

With CountyCare, the health system bears most of the financial risk for patient outcomes, while IlliniCare would be at risk for a small portion of care but be compensated mostly through flat, per-member fees for managed care and administrative services, regardless of how well it performs.

“The incentives are misaligned,” says Robert Kaestner, a professor of economics and public policy at the University of Illinois at Chicago. “The organization at risk doesn't have control over implementation to influence that risk.”

Centene, founded in Wisconsin in 1984, specializes in Medicaid managed care services, with 2.7 million members in 20 states. The company posted record high results last year: a profit of $165.1 million on revenue of $10.86 billion. Centene stock, which closed at $66.50 on April 25, has tripled in price over the past four years.

Its IlliniCare unit is relatively new in Illinois. Since 2011, it has provided managed care in suburban Chicago and northern Illinois under a Medicaid contract with the Illinois Department of Healthcare and Family Services. Membership totaled 22,000 as of March. In January, the department said IlliniCare missed some quality benchmarks in 2012. Mr. Glass dismisses them as “reflective of the nature of a startup.”

IlliniCare CEO Jeffrey Joy says the CountyCare contract was a “unique opportunity.” In an email, he adds: “Our organizations are committed to the Medicaid population, so we considered it a natural fit.”

WHERE WERE THE OTHERS?

It is unclear why the county's request for proposal drew so little interest. The system's procurement staff notified executives at nine firms about the contract via email on Sept. 30, according to county officials. It also posted the RFP on its website. The system sent a second round of emails about a week later.

Humana Inc. of Louisville, Ky., and Health Alliance Health Plan, a division of the Carle Foundation in Urbana, tell Crain's they were unaware of the request. Community Care Alliance of Illinois, part of Chicago-based nonprofit Family Health Network Inc., says it, too, wasn't informed and that it would have submitted a proposal. Family Health's fees would have been “very competitive,” spokeswoman Sarah Mahisekar says.

HealthSpring of Illinois, a division of Bloomfield, Conn.-based Cigna Corp., and Harmony Health Plan, a division of WellCare Health Plans Inc. in Tampa, Fla., evaluated the RFP but opted not to participate. Aetna Inc., based in Hartford, Conn., and Molina Healthcare Inc. of Long Beach, Calif., say they generally decline to comment on contracts. Chicago-based Meridian Health Plan of Illinois did not respond to Crain's inquiries.

After receiving only one proposal by the Oct. 25 deadline, system officials could have started over to get more. “Based on the evaluation that was done on the criteria, we did not feel that was necessary,” says Regina Besenhofer, the health system's supply-chain management director.

A group of senior staff then evaluated IlliniCare's proposal more closely and asked “clarifying questions,” says Mr. Glass, who was on the panel. Impressed with the answers, the group voted to move forward with negotiations. “We had one responder, but we didn't let them go lightly,” he says.

The county health contract came before the system's independent board on March 28, and the directors unanimously authorized the system to execute it. It likely will be signed this month, Mr. Glass says.

Though the system abided by its bidding process, it still may not have ended up with the best vendor for the job, says health care consultant Dr. Rick Kunnes, CEO of Sevenex Group LLC in Dublin, Ohio. “You can be rigorous until the cows come home,” he says. But with only one option to consider, “you may be being rigorous about the wrong things.”

In Chicago, officials received 16 responses in early 2013 to an RFP to lease and operate Midway International Airport. But Mayor Rahm Emanuel halted the process in September when one of the two finalists dropped out because, he said, he didn't want to negotiate with only one bidder.



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