Magellan Health Services Inc. said Wednesday it is protesting its loss of a state-awarded contract in Arizona worth $3 billion to $5 billion to manage a behavioral health system in the Phoenix region.
The Avon-based specialty health insurer has had the existing contract since September 2007 with a partner, Vanguard/Phoenix Health Plan, in a joint venture that gives Magellan 80 percent ownership.
At stake is a deal to manage a behavioral health system that includes mental health, substance-abuse services and crisis services for about 720,000 adults and children in Maricopa County, which includes Phoenix and surrounding towns. The contract also includes integrated physical and behavioral care for a small number of individuals with serious mental illness.
The three-year contract is worth $1 billion a year with two optional one-year extensions. Funding comes from Medicaid as well as other federal and state funds.
Last year, the contract was worth $758.3 million total to Magellan and Vanguard/Phoenix. It's a major part of Magellan's business, considering the company's total revenue was $3.2 billion last year. Magellan's guidance to investors this year assumed the company would be awarded the Arizona contract. Magellan is assessing how its financial performance will be affected by losing the contract.
The Arizona Department of Health Services awarded the new contract on March 25 to Mercy Maricopa Integrated Care, which will take over on Oct. 1 unless Magellan successfully protests or appeals the decision. Another bidder, UnitedHealth Group, is protesting the state's decision, too.
Magellan has started what could be a four-stage process of protesting the contract. The first step is to ask for a review by the state's procurement officer. If that is denied, then Magellan could appeal to the state Department of Administration, then to the Administrative Law Judge and, finally, to the Superior Court of Arizona.
"At this time ADHS has received two Protests," Arizona's Chief Procurement Officer, Christine Ruth said in a prepared statement. "One from Magellan Health Services, Inc. and [one from] UnitedHealthcare. ADHS will follow the Arizona Procurement Code, found at the link below in reviewing the Protests received and respond accordingly."
Magellan contends that the winning bidder for the contract didn't meet requirements in the state's request for proposals.
Additionally, Magellan filed a civil lawsuit in the Superior Court of Arizona against Mercy Maricopa Integrated Care, Maricopa County Special Health Care District and the CEO of Maricopa Integrated Health System. The lawsuit claims that Magellan disclosed confidential and proprietary information to Maricopa Integrated Health System was wrongfully used to win the state contract. Magellan seeks compensatory damages and punitive damages as well as a permanent injunction prohibiting Maricopa Integrated Health System from using or disclosing any of Magellan's confidential and proprietary information.
"Mercy Maricopa Integrated Care (Mercy Maricopa) cannot respond to the specifics of the challenges that have been filed with the State and in Maricopa County Superior Court regarding the Regional Behavioral Health Authority (RBHA) contract," the company's CEO Betsey Bayless said in a prepared statement. "We are studying those protests and will respond in the appropriate venues. However, we are confident in the strength of our bid and we are proud to offer a unique, collaborative approach to meet Maricopa County Medicaid recipients' behavioral health needs, and to integrate the behavioral health and medical services for those with serious mental illness."
Bayless added that the state announced the contract award by saying that the occasion was "a historic time in the delivery of behavioral health services in Arizona."