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State accused of ‘blatant favoritism’ on $657M contract

Jonathan Oosting
Detroit News Lansing Bureau

Lansing — The state showed “blatant favoritism” and broke competitive bidding laws while picking Blue Cross Blue Shield of Michigan for a $657 million contract to provide child Medicaid dental services, according to a company that lost out on the bid.

Florida-based MCNA Insurance Co. took the Michigan Department of Technology, Management and Budget to court last month in Ingham County, alleging the contract notice for Healthy Kids Dental services was “unlawfully” determined. It is also suing to obtain records under the state’s Freedom of Information Act.

The award appeal accuses the state of holding secret discussions with Blue Cross during the bidding process, giving the Detroit-based nonprofit mutual health insurance company the exclusive ability to change its bid and choosing Blue Cross even though it intends to farm out much of the work to a subcontractor that may not have qualified on its own.

“Such blatant favoritism makes a mockery of the system of competitive bidding in a manner the Michigan Supreme Court has long held to be ‘the grossest abuse, collusion, and overreaching,’” argued attorneys for the MCNA Insurance Co. in a Jan. 16 filing.

The Blues are Michigan’s largest health insurer with traditionally 70 percent or more of the market.

The Michigan budget department did not respond to specific questions about the allegations, but state attorneys are asking Ingham County Circuit Judge William Collette to dismiss the case. They argue a “disappointed bidder” does not have grounds to challenge a public bid process.

A hearing is set for Feb. 21 in Mason.

“We have rigorous standards and a thorough review process for all competitively bid contracts with the state of Michigan,” said spokesman Caleb Buhs. “This process ensures a fair opportunity for all vendors while providing the best value for state taxpayers. We will respond to all allegations made in the court filing through the appropriate legal channels.”

Scott Eldridge, an attorney representing MCNA, said the state is attempting to dismiss the case on a “technicality,” suggesting it sends a “clear message” that the budget department believes its “procurement decisions are immune from judicial review and it can act with impunity no matter how flawed the process or how blatant a violation of the law has occurred.”

“Transparency and fiscal responsibility require judicial review of this flawed decision,” Eldridge told The Detroit News.

Blue Cross declined to comment on specifics of the case. The company “will let the legal system follow its course,” said spokeswoman Helen Stojic.

The state recommended Blue Cross and Delta Dental for the Healthy Kids Dental contract in October. The Medicaid dental care program for low-income kids is a top priority for Gov. Rick Snyder, who signed a 2017 budget with extra funding to expand the program statewide.

In a separate lawsuit filed in the Michigan Court of Claims, MCNA claims the budget department violated the Freedom of Information Act by failing to release requested records related to the bid that the department claims do not exist despite references in other documents.

“These notes would likely reveal important information about how the evaluators scored and evaluated bidders proposals for this $657 million contract with the state of Michigan,” attorneys wrote.

Michigan lawmakers last year closed off public access to contract documents during the bidding process. MCNA filed a request the same day the Healthy Kids Dental contract notice was published.

The contract award appeal claims that MCNA is more qualified to provide the Medicaid dental services than DentaQuest, the subcontractor under Blue Cross.

DentaQuest had been disqualified from similar contract bids in two other states, according to the suit, which alleges the bid was “a subterfuge to gain the benefit of BCBS’s political clout and name recognition in Michigan.”

Blue Cross’ political action committee is a major donor in Michigan. Snyder signed a law in 2013 allowing the company to transition from a charitable trust into a tax-paying, nonprofit mutual liability insurance company.

Prior to the law change, the Blues for 33 years were the state’s insurer of last resort. But all health insurers were required, starting in 2014, to insure anyone in Michigan regardless of pre-existing conditions

The appeal claims bidding process violated Michigan and federal law, and MCNA is asking the court to prohibit the state from executing the contract.

The award notice “is contrary to the best interests of Michigan’s Medicaid enrolled population, and is likely to severely impair the provision of Medicaid dental services in the state,” attorneys said.