Hawaii health plan files suit over disputed Medicaid contracts

AlohaCare charges awards funnel $1.5 billion to out-of-state operations

By CLAUDINE SAN NICOLAS, Staff Writer
HONOLULU — The state Department of Human Services awarded $1.5 billion in Medicaid contracts to two Mainland, for-profit health insurance companies that do not have proper licenses to do business in Hawaii, according to a federal lawsuit filed Thursday by AlohaCare.

The nonprofit health plan followed through with a pledge to take legal action after its bid protest was rejected by Hawaii Human Services Director Lillian Koller.

At issue is a three-year contract — one of the largest awarded by the state — to provide services to Hawaii’s aged, blind and disabled Medicaid beneficiaries who live across the state, including Maui.

In its bid protest, AlohaCare raised concerns that the request for proposal for the state contract “was skewed to benefit large, for-profit, out-of-state health plans at the expense of nonprofit Hawaii plans like AlohaCare.”

The lawsuit filed in U.S. District Court in Honolulu seeks to overturn the contracts awarded on Feb. 8 to WellCare Health Plans Inc. and an affiliate of UnitedHealth Group. The complaint alleges violations of state and federal law that would invalidate the awards.

AlohaCare also alleges that the winning bidders are required under federal Medicaid law to have a provider network in place at the time of contract. According to AlohaCare, neither Wellcare nor UnitedHealth has such provider networks in the islands.

In a statement sent via e-mail after the lawsuit filing, Koller said: “It would be inappropriate for us to comment right now because the protest is a confidential process until the final decision is rendered. We have not received any lawsuit.”

DHS spokeswoman Toni Schwartz also explained that the agency has refrained from comment on AlohaCare’s bid protest because it was awaiting an independent, contract review from the state’s procurement officer.

AlohaCare serves Hawaii’s Medicaid and Medicare population with 59,000 health plan members statewide. It operates through a separate contract with the state for Medicaid and contracts with the federal government for Medicare health plan members.

In a statement issued Thursday afternoon, AlohaCare attorney Ed Kemper said the $1.5 billion contract should be of concern to everyone living in the state.

“Hawaii residents need to understand that it is their money being used to rebate state taxes to two Mainland publicly traded companies not even properly licensed in the state,” Kemper said.

“Sixty-five million dollars in tax reimbursements would fund a lot of schools and pave a lot of roads,” Kemper said. “This is a $1.5 billion bid gone bad.”

According to AlohaCare, its original bid was returned unopened for purportedly failing to meet the technical requirements of the request for proposal. Its initial bid protest was denied. An appeal of that decision is being considered by the state‘s chief procurement officer, who has twice asked for additional time before rendering a decision.

AlohaCare further claims that two violations of state and federal law should invalidate the awarded contracts. These involve a provision to use Medicaid funding for the reimbursement of $65 million in state premium taxes — which Kemper claims is unconstitutional under both state and federal law — and a section of the law that would illegally force 2,500 children under 19 years of age into Medicaid health maintenance organizations.

AlohaCare says the U.S. Centers for Medicare and Medicaid Services have been advocating inclusion of minors in Medicaid HMOs, but such inclusion would violate current federal Medicaid regulations.

• Claudine San Nicolas can be reached at claudine@mauinews.com.