Molina Wins Spur Lawsuits – Los Angeles Business Journal

A battle is heating up over Long Beach-based Molina Healthcare’s big contract win over the summer for California’s Medi-Cal business, including the addition of more than 1 million Medi-Cal enrollees in Los Angeles County.
The companies that lost out in the statewide bidding for Medi-Cal contracts – including Health Net of California Inc., the Woodland Hills-based subsidiary of St. Louis-based Centene Corp. and Oakland-based Blue Shield of California – have filed appeals of the contract awards and have also filed lawsuits against the California Department of Health Care Services demanding the release of the agency’s scoring documents used to determine the contract winners.
Blue Shield has also launched a public pressure campaign, including an open letter to Californians saying that switching out these Medi-Cal contracts will be disruptive to patients.
Molina has not commented publicly on the appeals and lawsuits.
But in remarks to analysts in Molina’s third-quarter earnings conference call on Oct. 27, Molina’s chief executive, Joseph Zubretsky, addressed its rivals’ criticisms. He said that the company is prepared to spend $60 million to staff up and otherwise prepare to handle the 1.4 million-plus new customers it is set to assume responsibility for as of Jan. 1, 2024; that spending will be taken as a charge against earnings throughout 2023.
Zubretsky said the scope of its California Medi-Cal contract wins and some other contracts the company won during the quarter will transform the company over the next several years, bringing in as much as $6 billion in additional revenue. Last year, Molina reported $27.8 billion in revenue.
“The new business wins will have a profound impact on our company over the next few years,” he told analysts. “In 2023, we will be busy scaling our proven operating infrastructure to service this new revenue, incurring front-end implementation costs. In 2024, we expect to achieve full run-rate contract revenue with earnings beginning to emerge from this significant new revenue.”
But even as it starts to increase its staff, Molina must defend its contract wins against an escalating campaign from the companies that lost the most.
At stake in this battle between medical insurance giants is billions of dollars in 28 new Medi-Cal contracts that the state Department of Health Care Services awarded on a preliminary basis in late August. It was all part of the first major overhaul of Medi-Cal service contracts undertaken by the agency as part of a strategy to improve the delivery of health care to the state’s low-income residents, who comprise about one-third of the state’s total population of 40 million. A major aim was to reduce the overall number of health plans with Medi-Cal contracts.
Three commercial managed-care plans – Molina, Anthem-Blue Cross Partnership Plan and Health Net of California – received the lion’s share of the contracts, covering Medi-Cal enrollees in 21 counties. Molina won contracts to operate in Los Angeles, Riverside, Sacramento, San Bernardino and San Diego counties.
The crown jewel in this network is Los Angeles County, with just over 1 million Medi-Cal enrollees. Since the late 1990s, when the county was transitioned to a managed-care model for delivery of Medi-Cal health services, the county’s Medi-Cal enrollees have been split among two plans: the commercial Health Net plan and the nonprofit Westlake-based L.A. Care plan.
Molina actually has had a slice of the enrollee pool as a subcontractor to Health Net.
But with this round of Medi-Cal contracts, Health Net was excluded entirely from the Los Angeles market, as well as Sacramento and Kern counties. The commercial managed-care plan was left with eight counties, mostly in the Central Valley and other rural parts of the state.
Blue Shield, which had only a portion of San Diego’s Medi-Cal population, was excluded entirely from this round of 28 contracts.
Immediately after the preliminary contract awards were announced, Health Net’s parent company, Centene, issued a statement opposing the awards in Los Angeles, Sacramento and Kern counties.
“Through our local health plan, Health Net of California, we have been providing quality, comprehensive and equitable healthcare to members throughout California for 25 years,” Centene’s August 25 statement read. “We strongly believe our exit in these counties will be a significant disruption in services to our members and providers … We are evaluating all options to appeal the decision and protect our members and their access to quality healthcare.”
Blue Shield followed a few days letter with its own statement of protest.
HealthNet, Blue Shield of California’s Promise Health Plan and Community Health Group Partnership Plan (which serves San Diego County) did indeed file appeals with the California Department of Health Care Services in early September, according to an agency document issued that month.
But Blue Shield of California has gone further, mounting a public pressure campaign and becoming the first insurer to file a lawsuit against the state agency.
In early October, Blue Shield set up a website, “Stand Up for California,” and released an “open letter to all Californians” from Blue Shield of California Chief Executive Paul Markovich.
In the Oct. 2 letter, Markovich said the California Department of Health Care Services “intends to choose for-profit health plans with poor track records in improving access to quality care and constructively engaging local communities… This has implications for people’s lives and the kind of care they deserve.”
Markovich in the letter went on to call the intended award decision “a breach of trust with the very communities whose health and lives depend on Medi-Cal.”
On Oct. 6, Blue Shield announced it had filed a lawsuit against the Department of Health Care Services. The lawsuit alleges that the agency had up to then failed to comply with a public records request for documents related to the contract award decision.
“As part of the appeals process, Blue Shield submitted a public records act request to the state seeking crucial information about their scoring process, methodology, and their communications about the bid,” the company’s announcement said.
“On behalf of the Medi-Cal beneficiaries we serve today whose health care is directly impacted by this decision, and of every Californian, we are turning to the court to insist on a full, fair, and robust Medi-Cal procurement appeals process,” Kristen Cerf, Blue Shield of California Promise Health Plan’s chief executive, said in the lawsuit announcement.
The following week, Health Net and Community Health Group Partnership Plan filed their own lawsuits demanding release of contract award process documents.
In Molina’s Oct. 27 earnings call with analysts, Zubretsky, the chief executive, referenced criticism that the company doesn’t have the capacity to handle the new contracts.
“We are very confident in our ability to operationally prepare for this expansion,” Zubretsky said. “We have a deep knowledge of the [Medi-Cal] program, and we have an existing long-term presence in Los Angeles. We have already commenced the 15-month build-out for this significant expansion.”
Zubretsky said the 15-month program will cost 75 cents a share, as subtracted out from the company’s earnings. Later in the call, he said that was the equivalent of $60 million.
With all the lawsuits and appeals filed against the agency’s preliminary plan, it’s expected to take several months before the contract awards are finalized. And in that time, the original awards could be altered or overturned completely. If they are overturned, a new bid process would likely ensue, which would extend the transition well beyond the January 2024 target.
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