Health insurance company Aetna is suing the state of Kansas after losing its managed care organization contract with KanCare.
Aetna Better Health of Kansas filed the lawsuit July 24 in Shawnee County District Court, suing the Kansas Department of Administration, Kansas Department of Health and Environment and Kansas Department for Aging and Disability Services.
Aetna’s KanCare contract wasn’t renewed after rebidding
KanCare is the state’s privatized Medicaid system, with contracts worth more than $4 billion.
Aetna, Sunflower Health Plan and United Healthcare Community Plan have been contracted MCOs since 2018. The MCO contracts were rebid in 2023 and seven entities responded to the request for proposals.
The state announced in May that it had awarded contracts to incumbents Sunflower and United, while also awarding a contract to newcomer Healthy Blue. That left Aetna without a renewed contract.
Aetna, as well as CareSource, challenged the contracts through an administrative process. The Department of Administration on July 3 rejected those protests.
Now, Aetna is asking the court for an initial stay on the contracts, which would prevent the state from proceeding with implementing the new contracts. Ultimately, Aetna wants the court to either order the state to award a KanCare contract to Aetna or to invalidate all of the new contracts and restart the bidding process.
“This Petition is submitted to safeguard the accountability, trust, and fairness in one of the largest procurements in the history of Kansas,” Aetna said in its lawsuit. “Kansans expect and deserve a fair process that awards contracts to the managed care organizations best suited to provide healthcare services to its most vulnerable populations and that has not happened due to an unlawful, arbitrary, and capricious evaluation and award process.
“It is now left to this Honorable Court to ensure that the most vulnerable citizens in our State have access to the highest quality care and that Kansas procurements remain transparent and fair.”
Separate lawsuit found records have been destroyed
Aetna also filed an open records lawsuit against the state after multiple agencies denied portions of their records requests.
That open records lawsuit has since shown that the state destroyed individual scoring evaluations prior to the awarding of the contracts. Aetna contends those records could have shown scoring errors. But the state maintains that the importance of the documents to the committee review “is significantly overstated by Aetna” and “Aetna’s interest in the notes is a pure fishing expedition.”
The state also argued that it was not required to preserve those records, and there is nothing Aetna can do about it under the Kansas Open Records Act because the law does not provide for any private remedies.
That case was still pending as of Wednesday afternoon.
Aetna tied for third with Healthy Blue
When the bid responses were scored, two bidders placed first and second. Tied for third were Aetna and Healthy Blue, which is a partnership among Blue Cross Blue Shield of Kansas, Blue Cross Blue Shield Kansas City and Anthem.
Aetna takes issue with how that tie was broken and alleges the contract procurement process was “arbitrary and capricious,” used unstated evaluation criteria, “cherry-picked arbitrary and irrational” criteria and made errors in scoring the proposals.
The state agencies — DOA, KDHE and KDADS — contend that “the State did not engage in a ‘tiebreaking’ process” and reject the notion that there was anything wrong with choosing Healthy Blue and not Aetna.
“The procurement was a flexible, negotiated process where the State was free to make tradeoffs and identify its preferred contractors that would serve the State in the best interest of the State,” attorneys for the agencies argued. “It did so, and Aetna cannot second-guess the State’s policy judgment here.”
The agencies also contend that “the contract awards were never a straight mathematical calculation.”
“The scores of each of the different competitive sealed proposals received were only one part of the evaluation process used by the PNC and the evaluation committees in making its evaluations and award recommendations,” the DOA said in its final order.
Past performance and conflict of interest are also issues raised
Aetna also alleges that Healthy Blue should have been disqualified because Anthem is the successor company to Amerigroup — which had been criticized for poor performance and a payment dispute under a previous KanCare contract.
The state agencies responded that Healthy Blue “had no obligation to disclose anything” about past performance concerns because those were older than the five-year lookback period in the RFP.
Aetna also alleges a conflict of interest because Health Blue partners hired multiple government workers — including Sarah Fertig, the previous state Medicaid director, who they contend worked on developing the RFP, but left to work for BCBS of Kansas weeks before the RFP was released.
The agencies responded that state ethics laws only prohibit individual actions and “do not require a State contract to be declared invalid.” They added that “Aetna has not produced a shred of evidence that Ms. Fertig passed any information on to Healthy Blue, let alone that Healthy Blue benefited from that information.”
State says a stay would be ‘disastrous’
Aetna argues that a stay is necessary to prevent “immediate and irreparable harm” to the company, noting that the state will otherwise notify the KanCare population that Aetna will no longer be an option.
Healthy Blue, which has filed a motion to intervene, argued that blocking the implementation of the new contracts “would substantially harm Healthy Blue’s ability to proceed with its contractual obligation to the State.”
The organization has already “begun undertaking the necessary steps to meet its contractual obligations,” and “a stay would delay preparation and could seriously jeopardize that process, potentially causing harm to the State’s Medicaid members.”
The state agencies argued that a stay “would be disastrous for the citizens of the State of Kansas — the important stakeholders here.” They asked to expedite the legal process. The state also noted that “at this time, Aetna has not submitted a transition plan to KDHE and is in breach of its current contract with KDHE.”
Jason Alatidd is a Statehouse reporter for The Topeka Capital-Journal. He can be reached by email at jalatidd@gannett.com. Follow him on X @Jason_Alatidd.
