Centene Corp. preparing to take legal action if California rejects protest over managed care contracts – St. Louis Business Journal – The Business Journals

Centene Corp. (NYSE: CNC) is preparing to take legal action if a California state agency rejects its protest over how bidders were chosen for Medicaid managed care contracts.
The California Department of Health Care Services announced in August its intent to award contracts to Centene’s subsidiary, Health Net of California Inc. in nine counties, but not in others, including Los Angeles and Sacramento counties.
The state agency said Molina Health Care, based in Long Beach, California, received higher scores than Centene’s subsidiary on the request for proposal for Los Angeles and Sacramento counties. Several bidders have filed protests in multiple counties over the intent to make awards for Medi-Cal, California’s Medicaid health care program for low-income individuals. Funded by federal and state tax dollars, it’s the largest Medicaid program in the nation.
Despite calling the situation “pretty close to a worst-case outcome” for Centene in California, analysts merely revised its stock guidance from $103 a share to $99, adding that the decision could shave $121 million from the company’s 2024 net income.
Centene CEO Sarah London said the Clayton-based health care giant expects a decision “imminently” from a hearing officer for the California department on its protest.
“First, we have to get that initial indication from the department and then take it into the courts and figure out how all of those processes are going to play out,” London said during a presentation to Credit Suisse earlier this week.
Her comments mirrored those at Centene’s third-quarter earnings call last month, when she said the state’s decision on the protest would be “fairly procedural” and “then from there, we would move into the courts with a lawsuit.”
Centene will suffer an estimated $4 billion drop in premium revenue due to losing the contract in Los Angeles County and four others where it was the incumbent, according to a research note by Wells Fargo Securities.
A Sacramento-based law firm representing Centene’s subsidiary said Molina’s response to the RFP made it ineligible for contract awards in five counties, including Los Angeles County. The five-year contracts, part of California’s first statewide procurement for Medicaid managed care plans, are set to start on Jan. 1, 2024.
“Molina’s proposal contains false, inaccurate and misleading information, including regarding its experience, provider network and proposed delegation to sub-contractors,” wrote V. Blair Shahbazian, an attorney with Murphy Austin Adams Schoenfeld LLP.
Shahbazian wrote that hearing officer Philip Heinrich, who was appointed by the director of the state department, should require the department to withdraw the RFP and conduct a “new, fair, open and impartial” procurement or reject Molina’s proposal.
“That Molina is slated to receive the sole Medi-Cal commercial managed plan care contract in Los Angeles is particularly troubling,” he wrote.
Shahbazian said Centene’s subsidiary serves 1.05 million Medicaid members in Los Angeles County, with Molina serving less than 80,000 and only as a subcontractor to that subsidiary.
Among the allegations in Centene’s protest is that Molina failed to comply with the requirement in the RFP to disclose all civil legal actions against it within the past five years.
Shahbazian said Molina “rewrote” the RFP requirement so that it would disclose only its self-defined “significant” civil legal actions that were “outside the normal course of operations.”
That enabled Molina to avoid listing 62 civil legal actions over the past five years in federal and state courts that included claims involving contractual fraud, breach of contract, unfair competition, wrongful termination, labor code violations and race discrimination, he wrote.
In its written response filed with the hearing officer, the law firm representing Molina said the allegations from Centene’s subsidiary “do not remotely approach cause for disqualifying Molina’s proposal.”
Molina met its obligations under the RFP to provide a history of bankruptcy and other actions, including civil legal actions, wrote Dennis Callahan, one of nine attorneys with San Francisco-based Rogers Joseph O’Donnell representing Molina.
Molina’s response also took a shot at Centene’s response to the RFP.
“Perhaps most interesting is that (Centene’s subsidiary) includes a Centene suit against Rite Aid in its listing of 13 cases, but fails to even mention Centene’s major settlement concerning alleged misfeasance by its pharmacy benefits manager in many states, which have caused Centene to set aside over $1.1 billion for settlements related to the issue,” Callahan wrote.
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