1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Office of Administrative Hearings 1400 West Washington, Suite 101 Phoenix, Arizona 85007 (602) 542-9826 IN THE OFFICE OF ADMINISTRATIVE HEARINGS MAGELLAN HEALTH SERVICES OF ARIZONA, INC. and MAGELLAN COMPLETE CARE OF ARIZONA, INC., Appellants, vs. ARIZONA DEPARTMENT OF HEALTH SERVICES, Respondent, and MERCY MARICOPA INTEGRATED CARE, and ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM, Intervenors. No. 13F-006-ADM ADMINISTRATIVE LAW JUDGE DECISION HEARING DATES : September 18, 2013, September 19, 2013, September 20, 2013, September 23, 2013, September 24, 2013, September 25, 2013, September 26, 2013, and September 27, 2013, beginning at 8:00 a.m. on each day. The record was held open until October 29, 2013, to allow the parties to submit post-hearing Proposed Findings of Fact and Conclusions of Law or legal memoranda and to respond to their opponents’ submissions. APPEARANCES : Magellan Health Services of Arizona, Inc. and Magellan Complete Care of Arizona, Inc. were represented by David G. Derickson, Esq., John P. Kaites, Esq., Michael S. Love, Esq., Patricia Premeau, Esq., and Calvin L. Raup, Esq., Ridenour, Hienton & Lewis, P.L.L.C. The Arizona Department of Health Services was represented by Kevin D. Ray, Esq., Gregory D. Honig, Esq., and Laura T. Flores, Esq., Assistant Attorneys General.
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Office of Administrative Hearings1400 West Washington, Suite 101
Phoenix, Arizona 85007(602) 542-9826
IN THE OFFICE OF ADMINISTRATIVE HEARINGS
MAGELLAN HEALTH SERVICES OFARIZONA, INC. and MAGELLANCOMPLETE CARE OF ARIZONA, INC.,
Appellants,
vs.
ARIZONA DEPARTMENT OF HEALTHSERVICES,
Respondent,
and
MERCY MARICOPA INTEGRATED CARE,
and
ARIZONA HEALTH CARE COSTCONTAINMENT SYSTEM,
Intervenors.
No. 13F-006-ADM
ADMINISTRATIVELAW JUDGE DECISION
HEARING DATES: September 18, 2013, September 19, 2013, September 20,
2013, September 23, 2013, September 24, 2013, September 25, 2013, September 26,
2013, and September 27, 2013, beginning at 8:00 a.m. on each day. The record was
held open until October 29, 2013, to allow the parties to submit post-hearing Proposed
Findings of Fact and Conclusions of Law or legal memoranda and to respond to their
opponents’ submissions.
APPEARANCES: Magellan Health Services of Arizona, Inc. and Magellan
Complete Care of Arizona, Inc. were represented by David G. Derickson, Esq., John P.
Kaites, Esq., Michael S. Love, Esq., Patricia Premeau, Esq., and Calvin L. Raup, Esq.,
Ridenour, Hienton & Lewis, P.L.L.C.
The Arizona Department of Health Services was represented by Kevin D. Ray,
Esq., Gregory D. Honig, Esq., and Laura T. Flores, Esq., Assistant Attorneys General.
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Mercy Maricopa Integrated Care was represented by Andrew S. Gordon, Esq.
and Roopali H. Desai, Esq., Coppersmith Schermer & Brockelman, P.L.C.; Paul F.
Eckstein, Esq. and D. Andrew Gaona, Esq., Perkins Coie, L.L.P.; and Brett W.
Johnson, Esq. and Michael T. Liburdi, Esq., Snell & Wilmer, L.L.P.
The Arizona Health Care Cost Containment System was represented by Logan
T. Johnston, Esq., Johnston Law Offices, P.L.C.
ADMINISTRATIVE LAW JUDGE: Diane Mihalsky_____________________________________________________________________
FINDINGS OF FACT
THE PARTIES, RELATED ENTITIES, AND ADHS’S RFP
1. The Arizona legislature authorized the Arizona Department of Health
Services (“ADHS”) to contract with a Regional Behavioral Health Authority (“RBHA”) to
administer the provision of behavioral health services to those persons who have been
determined to be eligible because they are Seriously Mentally Ill (“SMI”) or have
another potentially qualifying diagnosis.
2. The legislature created the Arizona Health Care Cost Containment System
(“AHCCCS”) to be the state’s Medicaid agency and to administer the provision of
primarily physical health care to persons who meet certain income requirements.
3. ADHS and AHCCCS entered into an Intergovernmental Agreement (“IGA”) to
design a new health care service delivery system that would provide integrated
physical and behavioral health services to SMI adults who were also eligible to receive
Medicaid and/or Medicare benefits.
4. The Arizona Department of Administration (“ADOA”) delegated authority to
ADHS to draft and administer Solicitation # ADHS 13-0000225 for Geographic Service
Area (“GSA”) 6, including Maricopa County and parts of Yavapai and Pinal Counties,
for the 2013 RBHA contract (“solicitation,” “Request for Proposals,” or “RFP”). The
value of the 2013 RBHA contract is approximately $1,000,000,000 per year for the
three-year term of the contract, with two possible one-year extensions thereafter.
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5. ADHS had awarded Magellan Health Services of Arizona, Inc. the 2007
RBHA contract. Magellan Health Services of Arizona, Inc. provided behavioral health
services to eligible members between 2007 and 2013.
6. Phoenix Health Plan is an organization that has contracted with AHCCCS to
oversee the provision of physical health care to persons who are eligible for Medicaid
or Medicare. Vanguard Health Systems (“Vanguard”) is Phoenix Health Plan’s parent
corporation. A related entity is Abrazo Advantage Health Plan (“Abrazo”).
7. Magellan Health Services of Arizona, Inc. entered into a joint venture with
Phoenix Health Plan to create Magellan Complete Care of Arizona, Inc. to submit an
offer in response to ADHS’s RFP for the 2013 RBHA contract (Magellan Health
Services of Arizona, Inc. and Magellan Complete Care of Arizona, Inc. will be referred
to collectively as “Magellan”).
8. Maricopa County Special Healthcare District dba Maricopa Integrated Health
System (“MIHS”) is a special health care taxing district that the Board of Supervisors of
Maricopa County established under A.R.S. § 48-5501.01(B) after voters in Maricopa
County approved the formation of the district. Among other activities, MIHS operates
the Maricopa County Hospital, Desert Vista Behavioral Center and Behavioral Health
Annex sites, and other facilities that provide physical and behavioral health services.
9. Southwest Catholic Healthcare Network Corporation dba Mercy Care Plan
(“Mercy Care”) is an organization that like Magellan’s joint venturer, Phoenix Health
Plan, has contracted with AHCCCS to oversee the provision of physical health care to
eligible persons.
10. Mercy Care and MIHS formed Mercy Maricopa Integrated Care (“MMIC”) to
submit an offer in response to ADHS’s RFP for the 2013 RBHA contract.
ADHS’S AWARD OF THE 2013 RBHA CONTRACT TO MMIC, MAGELLAN’S PROTEST, ANDADOA’S REFERRAL OF THE PROTEST TO OAH FOR AN EVIDENTIARY HEARING
11. On or about January 8, 2013, the deadline for responses to the RFP,
Magellan, MMIC, and three other offerors submitted their proposals in response to the
RFP to ADHS.
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12. All five offerors were separate legal entities. Because three of the offerors,
including MMIC and Magellan, were newly formed entities, they relied upon the
experience of their parent companies or sponsors in the proposals that they submitted
to ADHS.
13. Although not required to do so by the Arizona Procurement Code, ADHS’s
Chief Procurement Officer (“CPO”), Christine Ruth, elected to use an evaluation
committee as authorized by A.A.C. R2-7-C316(B) to evaluate offers submitted in
response to the RFP (the “Evaluation Committee”).
14. On March 25, 2013, CPO Ruth signed MMIC’s offer1 and electronically
notified all of the offerors that ADHS had accepted the recommendation of the
Evaluation Committee and Rebecca O’Brien, ADHS’s Deputy CPO who was assigned
to the RFP, and had determined to award the 2013 RBHA contract to MMIC.
15. The Evaluation Committee gave MMIC’s proposal a total of 810 points out
of a possible 1,000, and ranked Magellan’s proposal second, with 715 points.2
16. Due to technical difficulties, Magellan was not able to obtain MMIC’s
proposal for several days after CPO Ruth notified offerors that ADHS had determined
to award the 2013 RBHA contract to MMIC. Magellan did not request that CPO Ruth
extend the time for submitting a protest.
17. On April 3, 2013, Magellan filed a protest to ADHS’s award of the 2013
RBHA contract to MMIC.3 Magellan’s April 3, 2013 protest raised the following seven
specific arguments:
I. Because MIHS was a direct provider of behavioralhealth services, MMIC’s organizational structureviolated A.R.S. § 36-3410(C) and Section L of theRFP’s Special Terms and Conditions.
II. MMIC’s organizational structure created an inherentconflict of interest as defined by Section M of the RFP’sSpecial Terms and Conditions due to the risk of self-dealing that would jeopardize transparency and publictrust in its operations as the RBHA.
1 See Exhibit JNT-34 at 12.2 See Exhibit JNT-33 at 2.3 See Exhibit JNT-41.
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III. ADHS’s award of the contract violated A.R.S. § 41-2752 because MMIC was just a “shell” for MIHS, andMIHS is a political subdivision of the state that byoperating the RBHA, would provide services incompetition with private enterprise.
IV. MMIC was not a responsible offeror under A.A.C. R2-7-B313(6) because it did not have an ArizonaDepartment of Insurance (“ADOI”) certificate ofauthority when it submitted its offer.
V. MMIC did not comply with AHCCCS’s directive to timelyfile a completed application to the federal Centers forMedicare and Medicaid Services (“CMS”).
VI. ADHS’s Amendments 7 and 9 to the RFP evidencedbias in the procurement process in favor of MMIC.
VII. Magellan’s offer in response to the RFP was improperlyscored due to bias in certain specific respects,resulting in the loss of critical points that would havesupported the award of the RBHA contract toMagellan.4
Magellan’s protest requested that ADHS disqualify MMIC, rescind the award of the
RBHA contract to MMIC, and award the contract to Magellan as the next qualified
bidder or rebid the RFP.
18. On April 12, 2013, Magellan filed a memorandum in support of its bid
protest. In addition to the seven grounds raised in the April 3, 2013 bid protest,
Magellan argued that MIHS’s investment in MMIC violated A.R.S. § 48-5561, which
prohibits private investment of a special healthcare district’s monies.
19. On April 17, 2013, ADHS’s CPO Ruth issued a decision pursuant to A.A.C.
R2-7-A903 sustaining the award because the award properly went to “‘the responsible
Offeror whose offer [was] determined to be the most advantageous to the state based
on the evaluation factors set forth in the [RFP].’”5 The CPO’s decision found that
because Magellan knew or should have known about the grounds stated in arguments
4 See Exhibit JNT-40 at 7-22.
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I, II, III, and VI of its April 3, 2013 bid protest before it submitted its proposal, those
arguments were untimely and barred by A.A.C. R2-7-A901(C). The CPO’s decision did
not consider the new argument that Magellan raised in the April 12, 2013 memorandum
because Magellan was not entitled to amend or supplement its April 3, 2013 bid
protest.
20. On May 9, 2013, Magellan appealed to ADOA the CPO’s decision denying
its bid protest.
21. On or about June 17, 2013, ADOA referred Magellan’s bid protest to the
Office of Administrative Hearings (“OAH”), an independent state agency, for an
evidentiary hearing.
22. Over the next approximately four months, the Administrative Law Judge
(“ALJ”) assigned to conduct the hearing at OAH issued twenty-two Case Management
Orders (“CMOs”) addressing various requests by the parties, MIHS, and others. These
CMOs are incorporated by reference in this decision. The ALJ sustained MMIC’s,
ADHS’s, and AHCCCS’s objections to preclude Magellan from presenting evidence to
support legal arguments that were not contained in its April 3, 2013 bid protest. This
decision includes an expanded discussion of the analysis contained in CMO Nos. 9
and 21 concerning whether Magellan’s various legal arguments were timely.
23. Between September 18, 2013, and September 27, 2013, an evidentiary
hearing was held at OAH. One hundred ninety-three exhibits were admitted. Magellan
presented the testimony of eleven witnesses: (1) James Stringham, Magellan’s Vice
President of Public Sector Programs; (2) David Covington, Magellan’s Vice President of
Clinical and Program Outcomes; (3) Mary F. Temm, DSc, MHSA, Magellan’s expert on
scoring proposals submitted to a public health agency; (4) Margery Ault, ADHS’s
Assistant Director for the Division of Behavioral Health Services (“DBHS”) and a
member of the Evaluation Committee; (5) Kathy Bashor, Manager of ADHS/DBHS’s
Office of Individual and Family Affairs and a member of the Evaluation Committee; (6)
Richard Szawara, the procurement consultant whom ADHS hired to help administer the
RFP and to help the Evaluation Committee; (7) ADHS’s Deputy CPO O’Brien; (8)
5 Exhibit JNT-41 at 5 (quoting A.A.C. R2-7-A904(A) and R2-7-C317(A)).
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Victoria Navarra, ADHS/DBHS’s Medical Technology Program Administrator and a
member of the Evaluation Committee; (9) Betsey Bayless, MIHS’s President and Chief
Executive Officer (“CEO”); (10) ADHS’s CPO Ruth; and (11) Richard T. Clarke, Ph.D.,
Magellan’s CEO.
OVERVIEW OF THE TERMS OF ADHS’S RFP
24. On October 4, 2012, ADHS issued the RFP for the 2013 RBHA contract.
The Scope of Work on the RFP contained the following overview:
Integrating the delivery of behavioral and physical healthcare to SMI members is a significant step forward inimproving the overall health of SMI members. Under thisContract, the Contractor is the single entity that isresponsible for administrative and clinical integration ofhealth care service delivery, which includes coordinatingMedicare and Medicaid benefits for dual eligible members.From a member perspective, this approach will improveindividual health outcomes, enhance care coordination andincrease member satisfaction. From a system perspective, itwill increase efficiency, reduce administrative burden andfoster transparency and accountability.
The Contractor shall be responsible for delivering medicallynecessary covered services as follows:
1.1.1 Behavioral health services to Medicaid eligiblechildren and adults;
1.1.2 Behavioral health services to Non-Medicaid eligiblechildren and adults, for which ADHS/DBHS receivesfunding; and
1.1.3 Integrated behavioral and physical health services toMedicaid eligible adults with SMI, including Medicarebenefits for SMI members who are eligible for bothMedicare and Medicaid (dual eligible members),through [CMS] Capitated Financial AlignmentDemonstration or as a Dual Eligible Special NeedsPlan, as specified by the State.6
25. The Uniform Instructions to Offerors contained the following information
regarding inquiries about the RFP:
6 Exhibit JNT-4 at 8.
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2. Solicitation Contact Person. Any inquiry related to aSolicitation, including any requests for or inquiriesregarding standards referenced in the Solicitation shallbe directed solely to the Solicitation contact person. . . .
3. Submission of Inquiries. The Procurement Officer or theperson identified in the Solicitation as the contact forinquiries except at the Pre-Offer Conference, require thatan inquiry be submitted in writing. . . . The State shallconsider the relevancy of the inquiry but is not requiredto respond in writing.
4. Timeliness. Any inquiry or exception to the solicitationshall be submitted as soon as possible and should besubmitted at least seven days before the Offer due dateand time for review and determination by the State.Failure to do so may result in the inquiry not beingconsidered for a Solicitation Amendment.7
26. The Uniform Instructions to Offerors in the RFP included the following
definition:
As used in this Solicitation and any resulting Contract, theterms listed below are defined as follows: . . . .
3. “Contractor” means any person who has a Contractwith the State.8
27. Solicitation Exhibit 1 provided the following additional definitions:
1.50. Contractor means any person who has a Contractwith the State, which includes the organization orentity directly contracted with ADHS/DBHS tocoordinate the delivery of and to provide coveredservices specified in the contract, in conformancewith the stated contract requirements; federal andstate law and regulations.. . . .
1.133. [RBHA] means an organization under contract withADHS, which administers covered health services ina geographically specific area of the state.
7 Exhibit JNT-8 at 1-2.8 Exhibit JNT-7 at 1.
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. . . .
1.148. “Subsidiary” means an entity owned or controlled bythe contractor.9
28. The Uniform Instructions to Offerors in the RFP included the following
requirement:
G. Protests
A protest shall comply with and be resolved according toArizona Revised Statutes Title 41, Chapter 23, Article 9and rules adopted thereunder. Protests shall be inwriting and be filed with both the Procurement Officer ofthe purchasing agency and with the State ProcurementAdministrator. A protest of a Solicitation shall bereceived by the Procurement Officer before the Offer duedate. A protest of a proposed award or of an award shallbe filed within ten (10) days after the protester knows orshould have known the basis of the protest. A protestshall include:. . . .
4. A detailed statement of the legal and factual groundsof the protest including copies of relevant documents. . . .10
29. The Special Instructions to Offerors amended the Uniform Instructions to
require potential offerors to submit questions or concerns about the RFP through the
website that ADHS set up for communications regarding the RFP, ProcureAZ, in
relevant part as follows:
L. Inquiries and Timelines (for the Submission ofInquiries)
1. The Uniform Instructions, section B. “Inquiries”subsection 4 “Timeliness” is amended to change the timefor submission of inquiries before the offer due date from“seven” to “fifteen” days. Should the Offeror finddiscrepancies, omissions, ambiguities or conflicts in thesolicitation, or should the Offeror be in doubt as to the
9 Exhibit JNT-6 at 6, 14-15.10 Exhibit JNT-8 at 6.
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true meaning of anything contained in this solicitation,the Offeror should submit a written request for aclarification to the Procurement Officer, as indicated inProcureAZ. . . . Any omissions or discrepancy not inaccordance with the Arizona Procurement Code A.R.S. §41-2501 et seq., and the administrative rules andregulations A.A.C R2-7-101 et seq., shall be submitted inaccordance with this section. Offerors shall submitinquiries in accordance with the ProcureAZeProcurement system. . . .11
30. Deputy CPO O’Brien testified that it was not appropriate to respond to a
letter from one offeror or an offeror’s attorney that was not submitted through
ProcureAZ because the offeror would have the benefit of information that was not
available to other offerors on the ProcureAZ website.
31. Between October 4, 2012, when ADHS posted the RFP for the 2013 RBHA
contract, and January 8, 2013, when offerors’ proposals in response to the RFP were
due, ADHS posted thirteen amendments to the RFP.
EVIDENCE ON THE ARGUMENTS IN MAGELLAN’S APRIL 3, 2013 BID PROTEST
I. Whether MMIC’s organizational structure violated A.R.S. § 36-3410(C) andSection L of the RFP’s Special Terms and Conditions.
A. Magellan’s experience with its RBHA predecessor’s self-dealing that ledthe Arizona legislature to enact A.R.S. § 36-3410(C).
32. Before ADHS awarded the 2007 RBHA contract to Magellan, ValueOptions,
Inc. (“ValueOptions”) was the RBHA for GSA 6. ValueOptions owned and operated
clinics that provided behavioral health services to members. In September 2006, an
auditor general’s report of ValueOptions’ business practices revealed that
ValueOptions referred all adult members to its own clinics rather than to community
clinics. The auditor general’s report also revealed that ValueOptions paid more for
services at its own clinics than it paid for comparable services at community clinics.12
33. As a result of ValueOptions’ practice of enriching itself by limiting its
members’ choices, ADHS increased its fiscal oversight over the RBHA. In 2007, the
11 Exhibit JNT-9 at 6.
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legislature amended A.R.S. § 36-3410 to add subsection (C), providing in relevant part
as follows:
[B]ehavioral health contractors under contract with [ADHS]to act as [RBHAs] may perform only managed carefunctions. [RBHAs] and their subsidiaries shall not deliverbehavioral health services directly to clients. The prohibitionon [RBHAs] and their subsidiaries delivering behavioralhealth services directly to clients shall be fully implementedby September 1, 2009.13
34. When Magellan took over as the RBHA for GSA 6 in September 2007, its
contract with ADHS required that by September 1, 2009, Magellan must divest itself of
and transfer to community ownership and operation the 23 behavioral health clinics that
ValueOptions previously had owned and operated.
35. Magellan was able to meet the deadline for transferring to community
ownership behavioral health clinics that ValueOptions had previously owned and
operated without interrupting programming or care for RBHA members. Magellan
consolidated some of the clinics and by late August 2009, transferred the last
remaining clinic to community ownership. The transition involved 1,500 employees,
twelve buildings, and the transfer of $150,000,000 from Magellan as the RBHA to the
direct care providers.
B. The RFP’s relevant definitions and incorporation of A.R.S. § 36-3410(C)’s requirements.
36. The RFP included the following Special Terms and Conditions:
L. Separate Incorporation, Prohibition against DirectService Delivery
1. The Contractor shall be separately incorporated inArizona or be a separate legal entity from a parent,subsidiary or other affiliated company or corporationfor the purpose of conducting business as a
12 See Exhibit MAG 80.13 Added by Laws 2007, Ch. 263, § 14. A.R.S. § 36-3410(C) recognizes two exceptions to the prohibitionthat do not apply here. Subsection (D) of A.R.S. § 36-3410 allows the RBHA to provide direct servicesas long as necessary to deliver uninterrupted care if a direct behavioral health provider experiences acontract performance failure and ADHS approves. Subsection (E) provides that subsection (C) does notapply to a RBHA operated by a federally recognized Indian tribe.
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Contractor with ADHS, whose sole activity is theperformance of the requirements of this Contract.
. . . .
3. A.R.S. § 36-3410(C) prohibits a [RBHA] and itssubsidiaries from providing behavioral health servicesdirectly to clients. Because Special Terms andConditions[], L(1) requires that the Contractor be aseparate legal entity in Arizona whose sole activity is theperformance of the requirements of this Contract, thestatutory prohibition on direct behavioral health servicedeliver[y] applies to the Contractor and any subsidiary ofthe contractor.14
37. The Notice of Request for Proposals at Part Two of the Solicitation Notice
Page in the RFP informed potential offerors that a Pre-Offer Conference would be held
on November 7, 2012, at 9:00 a.m.15 The Uniform Instructions to Offerors in the RFP
informed potential offerors of the additional means by which they could make inquiries
about the RFP, including the following:
Pre-Offer Conference. If a pre-Offer conference has beenscheduled under this Solicitation, the date, time and locationshall appear on the Solicitation cover sheet or elsewhere inthe Solicitation. Offerors should raise any questions aboutthe Solicitation or the procurement at that time. An Offerormay not rely on any verbal responses to questions at theconference. Material issues raised at the conference thatresult in changes to the Solicitation shall be answered solelythrough a written Solicitation Amendment.16
38. On the day before the Pre-Offer Conference, November 6, 2012, Mr.
Stringham and Mr. Covington had a breakfast meeting with MIHS’s Chief Operating
Officer (“COO”), Bill Vanaskie, and CEO, Ms. Bayless. Mr. Vanaskie stated that MIHS
was considering entering into a 50/50 partnership with Mercy Care to submit a
response to ADHS’s RFP for the 2013 RBHA contract. Mr. Stringham asked Mr.
Vanaskie and Ms. Bayless whether they were concerned about A.R.S. § 36-3410(C).
Mr. Stringham testified that his impression was that Mr. Vanaskie and Ms. Bayless were
14 Exhibit JNT-5 at 3.15 Exhibit JNT-3 at 1.
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aware of the issue created by A.R.S. § 36-3410(C) and were working on a way around
it.
39. Mr. Covington testified that he was shocked that MIHS was considering
submitting a response to ADHS’s RFP due to the statutory prohibition on self-dealing
and the fact that Magellan had spent the first two years after ADHS had awarded
Magellan the 2007 RBHA contract transitioning away from directly providing behavioral
health services. Mr. Covington testified that he had a hard time understanding how, if
MIHS were part of a RBHA, it would not have a conflict of interest if MIHS directly
provided behavioral health services to members.
40. On November 13, 2012, MMIC filed its articles of incorporation with the
Arizona Corporation Commission.17 The articles of incorporation did not mention MIHS.
41. On November 16, 2012, Dr. Clarke sent a letter to Susan Gerard, the Chair
of the MIHS’s Board of Directors, and Ms. Bayless in which he: (1) complained about
MIHS’s plan “to partner with [Mercy Care] to compete with Magellan on the pending
RFP for GSA 6 [RBHA]”; (2) stated that Magellan believed “that any partnership
between MIHS and [Mercy Care] to bid on the RFP for the RBHA would violate both the
letter and the spirit of A.R.S. § 36-3410(C)”; and (c) stated that Magellan understood
“that MIHS believes that it can avoid violating the law by forming a separate entity that
is co-owned by MIHS and [Mercy Care], and having that entity submit a response to the
RBHA RFP.”18
42. Dr. Clarke testified that although Ms. Bayless and Mr. Vanaskie had
mentioned a 50/50 partnership between MIHS and Mercy Care to Mr. Stringham and
Mr. Covington, Dr. Clarke was unsure what MIHS’s role in the proposed RBHA would
be.
43. On December 13, 2012, MIHS’s Board of Directors considered whether to
approve a Letter of Intent between MIHS and Mercy Care to respond to ADHS’s RFP
for the 2013 RBHA contract. Magellan’s lobbyist, John P. Kaites, warned MIHS’s Board
that a partnership between MIHS and Mercy Care would violate A.R.S. § 36-3410(C)
16 Exhibit JNT-8 at 2.17 See Exhibit MMIC-33.
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because MIHS directly provided behavioral health services. After Mr. Vanaskie
informed the Board that the Letter of Intent was not complete and that MIHS would not
be bound until bylaws were created for the new organization to establish MIHS as an
incorporator, MIHS’s Board of Directors determined not to take any action on the Letter
of Intent.19
44. On December 17, 2012, MIHS’s Board of Directors again considered
whether to approve a Letter of Intent between MIHS and Mercy Care to respond to
ADHS’s RFP for the 2013 RBHA contract. Mr. Kaites again attended the board
meeting on Magellan’s behalf. The Board directed Ms. Bayless and MIHS’s staff to
continue negotiations concerning the Letter of Intent and to come back to the Board for
review and approval once the bylaws were finalized.20
45. On December 21, 2012, Ms. Bayless on behalf of MIHS signed the Letter of
Intent with Mercy Care to submit a response to ADHS’s RFP for the 2013 RBHA
contract.21 Ms. Bayless acknowledged that MIHS’s Board of Directors had not formally
approved the Letter of Intent when she signed it. Ms. Bayless testified that in January
2013, she was not sure whether MMIC consisted of Mercy Care and MIHS because she
was not sure when MIHS was added as a member.
46. MMIC’s initial bylaws were signed on January 4, 2013, and listed Mercy
Care as the only member.22
47. On or about January 8, 2013, when MMIC submitted its response to
ADHS’s RFP for the 2013 RBHA contract, almost every page of MMIC’s offer contained
the following legend:
[MMIC] is sponsored by [Mercy Care] and [MIHS]. [MercyCare] is sponsored by Dignity Health, d.b.a. St Joseph’sHospital and Medical Center [“Dignity”], and CarondeletHeath Network, a ministry of Ascension Health[“Carondelet”]. [MIHS] is the Special Health Care District inMaricopa County. [MMIC] will subcontract the management
18 See Exhibit JNT-35.19 See Exhibit MAG-227 at 5-7 (Minutes at Item No. 7).20 See Exhibit MAG-228 at 6-7.21 See Exhibit MMIC-29 at 4.22 See Exhibit MMIC-36 at 2.
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of all administrative services to Schaller Anderson, LLC, anAetna company. Throughout our proposal, we draw uponSchaller Anderson’s experience with like populations.23
48. MMIC’s offer also disclosed that “[t]wenty-five percent of its membership
will consist of peers and family members who are, or have . . . been active participants
in the Maricopa County Behavioral Health System. . . . MMIC’s Board will also include
members from its sponsoring organizations, [Mercy Care] and [MIHS].”24
49. As noted above, on March 25, 2013, CPO Ruth informed offerors that
ADHS had determined to award the 2013 RBHA contract to MMIC. Mr. Stringham and
Mr. Covington testified that they first heard of MMIC when ADHS awarded it the 2013
RBHA contract.
50. On September 9, 2013, MMIC adopted Amended and Restated Bylaws that
identify Mercy Care as the managing member and Mercy Care, MIHS, Dignity, and
Carondelet as members.25
II. Whether MMIC’s organizational structure created an inherent conflict ofinterest due to the risk of self-dealing that would jeopardize transparencyand public trust in its operations as the RBHA.
A. The RFP’s relevant definitions and requirements.
51. The RFP included the following definition of Conflict of Interest in the
Special Terms and Conditions:
M. Conflict of Interest
The Contractor shall not knowingly engage in any actions orestablish any relationships, arrangements, contracts orsubcontracted provisions that would create a potential oractual conflict of interest (COI) regarding the performance ofthis Contract. If the Contractor discovers a COI and doesnot immediately notify ADHS and discontinue any relatedactivities or relationships, ADHS may consider theContractor to be in breach of this Contract. If, as a result ofa COI, ADHS incurs a financial loss to a State or federal
23 See, e.g., Exhibit MAG-331 at 155-156.24 Id.25 See Exhibit MMIC-48 at 4-7.
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program or the Contractor realizes an inappropriate financialgain to its organization, an employee or subcontractor, suchloss or gain shall be considered an overpayment subject torecoupment by ADHS. In addition to exercising its remediesunder this Contract, ADHS may refer the Contractor’s COIactivities to the appropriate law enforcement agency assuspected fraud or program abuse.26
52. Exhibit 1 to the RFP contained additional definitions, including the definition
of Conflict of Interest at § 1.45 as follows:
Conflict of Interest (COI) means any situation in which theContractor or an individual employed or retained by theContractor is in a position to exploit a contractual,professional or official capacity in some way for personal ororganizational benefit that otherwise would not exist.27
53. The RFP’s Uniform Instructions to Offerors included the following provision:
I. Contract Termination
1. Cancellation for Conflict of Interest. Pursuant toA.R.S. § 38-511, the State may cancel this Contractwithin three (3) years after Contract execution withoutpenalty or further obligation if any person significantlyinvolved in initiating, negotiating, securing, drafting orcreating the Contract on behalf of the State is orbecomes at any time while the Contract or anextension of the Contract is in effect an employee ofor a consultant to any other party to this Contract withrespect to the subject matter of the Contract. Thecancellation shall be effective when the Contractorreceives written notice of the cancellation unless thenotice specifies a later time. If the Contractor is apolitical subdivision of the State, it may also cancelthis Contract as provided in A.R.S. § 38-511.28
54. Exhibit 1 to the RFP provided the following additional definitions:
1.134. "Related Parties" means, but is not limited to, agents,managing employees, persons with an ownership orcontrolling interest in the Contractor or Contractor’s
26 Exhibit JNT-5 at 3.27 Exhibit JNT-6 at 6.28 Exhibit JNT-7 at 1, 8.
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immediate families, subcontractors, wholly-ownedsubsidiaries or suppliers, parent companies, sistercompanies, holding companies, and other entitiescontrolled or managed by any such entities orpersons.
1.135. “Related Party” means a party that has, or may have,the ability to control or significantly influence aContractor, or a party that is, or may be, controlled orsignificantly influenced by a Contractor. 29
B. The potential conflict created by MIHS’s relationship to MMIC.
1. Magellan’s history with MIHS.
55. During the time that Magellan was the RBHA for GSA 6, it contracted with
MIHS for court-ordered evaluation services. During most of this time, MIHS was the
only provider in Maricopa County that was able to provide inpatient court-ordered
evaluations.
56. Magellan attached as an exhibit to its April 3, 2013 bid protest a copy of a
letter dated May 8, 2009, from Ms. Bayless as CEO of MIHS, that responded to
Magellan’s letter informing a Maricopa County Superior Court judge that Magellan’s
responsibility for court-ordered evaluations of persons who were neither eligible for
AHCCCS nor SMI would cease at the end of the 72-hour period provided for in A.R.S. §
36-530.30 Ms. Bayless’s letter stated that “[MIHS] will not be able to accept referrals
from Magellan for court ordered evaluation or court ordered treatment unless they have
an identified payor source.”31 Ms. Bayless copied her letter to the governor, the
superior court judge, the director of ADHS, and various legislators who were involved in
the legislative oversight over the RBHA’s provision of behavior health services.
57. Dr. Clarke testified that the RBHA is responsible for implementing ADHS’s
policies and that direct providers needed to be accountable to the RBHA. Dr. Clarke
testified that he had discussions with Ms. Bayless about the requirement that court-
29 Exhibit JNT-6 at 14-15.30 See Exhibit JNT-40 at 117.31 Id.
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ordered evaluations take place within the first 72 hours after a person was admitted as
an inpatient. Dr. Clarke testified that although Magellan adopted ADHS’s policy
requiring inpatient court-ordered evaluations to take place within 72 hours to avoid
using state dollars beyond the 72-hour window and to protect the rights of persons who
were the subjects of evaluation orders, the average length of inpatient hospitalization
was ten days.
58. Dr. Clarke testified that when Ms. Bayless stated that MIHS would no
longer provide court-ordered inpatient evaluations, no other facility was able to provide
this service. Dr. Clarke testified that the fact that Ms. Bayless copied her letter to the
governor, the superior court judge, the director of ADHS, and members of the
legislature made him believe that Ms. Bayless was trying to use her influence to impact
a policy decision that already had been made. Dr. Clarke testified that he organized
meetings with certain state senators and ADHS personnel, who ended up agreeing that
ADHS should limit payment for court-ordered inpatient evaluations to five days, rather
than 72 hours, and that weekends would not count in the limit. Dr. Clarke testified that
Magellan would not have been able to maneuver changing the requirements if MIHS
had been a member of the RBHA at the time.
2. Mercy Care and MIHS’s December 21, 2013 Letter of Intent.
59. The December 21, 2012 Letter of Intent between Mercy Care and MIHS
anticipated that MIHS would be a major provider of behavioral and physical health
services to MMIC if ADHS awarded the 2013 RBHA contract to MMIC:
Subcontracts. MMIC will subcontract with a provider network consistingof many entities that will provide the range of services identified in theRFP, understanding that [MIHS] will be a major provider of behavioralhealth, hospital, and medical services to MMIC. . . .32
3. MMIC’s Proposal in Response to ADHS’s RFP.
60. The December 21, 2013 Letter of Intent between Mercy Care and MIHS
also provided that MIHS would contribute $10,000,000, half in cash and half in a
32 Exhibit MMIC-29 at 2.
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promissory note, of MMIC’s initial capitalization costs of $90,000,000, with Mercy Care
contributing the remaining $80,000,000 in cash.33
61. MMIC’s proposal anticipated that MIHS would continue to provide
behavioral health services to MMIC as the RBHA as it had in the past to Magellan, as
follows:
MIHS is licensed for 190 inpatient psychiatric beds in twolocations. It operates Desert Vista, a center specialized inproviding both inpatient and outpatient psychiatric care, witha licensed capacity of 122 beds, and 68 additional beds inthe Psychiatric Annex (Building 2619) on the Main campus.These facilities provide a full array of services, including:
a. Acute crisis care;
b. Peer support;
c. Outpatient services for children and adults, such aspsychiatric evaluation, individual and grouppsychotherapy, family therapy, and medicationmanagement;
d. Psychiatric inpatient services;
e. Court-ordered evaluation and treatment;
f. Geriatric care; and
g. Treatment for co-occurring medical problems. Other servicesinclude recovery planning that emphasizes dischargingindividuals safe, supportive environments while stayingconnected to the services they choose.34
62. MMIC’s proposal also anticipated that MIHS would continue to provide
court-ordered inpatient evaluations for the RBHA if ADHS awarded the 2013 contract to
MMIC.35
/ / / /
/ / / /
33 Exhibit MMIC-29 at 1.34 Exhibit MAG-316 at 8-9.
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4. MMIC’s September 9, 2013 Amended and Restated Bylaws.
63. As noted above, on September 9, 2013, MMIC adopted its Amended and
Restated Bylaws, with Mercy Care, MIHS, Dignity, and Carondelet as members and
Mercy Care as the managing member. The Amended and Restated Bylaws provided
that the managing member could not be changed without the unanimous consent of the
four members, including Mercy Care.36 The decisions that MMIC’s Amended and
Restated Bylaws reserved to the managing member included determining whether a
distribution should be made to members, borrowing money in excess of $5,000,000,
approving standards, policies, and directives for investment of funds of any health plan
operated by MMIC, and selecting any administrator of any plan.37
64. MMIC’s September 9, 2013 Amended and Restated Bylaws reserved to the
members the following decisions:
a. approval or disapproval of an annual Strategic Plan andAudit Plan;
b. approval, disapproval or modification of the annualOperating Budget and any Capital Budget;
c. approval and removal of President and CEO;
d. review and consultation regarding succession planningfor senior leadership, including CEO, COO, [ChiefFinancial Officer], and [Chief Managing Officer] (orequivalents);
e. approval of contracts with payors;
f. approval of provider payment policies in effect from timeto time;. . . .
j. appointment of one or more compliance officers and acompliance committee to oversee Plan complianceactivities specifically for Medicare or other government
35 See Exhibit MAG-325 at 51.36 See Exhibit MMIC-48 at 4-5, §§ 3.1 and 3.7.37 See id. at 5, § 3.8.
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healthcare Plans as and to the extent required by law; . ..
k. establishment or amendment of the philosophy, theobjectives and purposes, or the long-range goals of aPlan; [and]
l. establishing policy and procedures for the functioning ofthe operations of [MMIC], including, if not otherwisespecifically addressed in these Bylaws, policiesregarding the size and types of expenditures, obligationsor contracts that require Managing Member, Member, orBoard approval or approvals . . . .38
65. MMIC’s September 9, 2013 Amended and Restated Bylaws did not prohibit
MIHS from voting on its own provider payment policies.39
66. Dr. Clarke testified that MIHS’s participation in the decisions that MMIC’s
September 9, 2013 Amended and Restated Bylaws reserved to members inevitably
would lead to a conflict of interest that would prevent MMIC from fulfilling its functions
under the RBHA contract with ADHS. For example, every year the RBHA is required to
develop a strategic plan related to systems on care development. Dr. Clarke testified
that because MIHS was both a provider and had reserved powers to determine whether
services should be expanded, it had an incentive to expand its own area of providing
services, rather than other network providers’ areas of service. Dr. Clarke testified that
the power to approve MMIC’s annual operating budgets and contracts with payors also
provided MIHS with an incentive to serve its own financial interest at MMIC’s expense.
67. With respect to the members’ reserved right to review and consult on the
succession of MMIC’s senior leadership, Dr. Clarke testified that as the CEO of a
RBHA, he “would have tremendous concern if I had a provider making decisions about
whether I was removed or not, especially when I’m also responsible for holding them
accountable for their performance, the quality of care, the outcomes that they achieve,
38 Exhibit MMIC-48 at 5-6.39 Exhibit MMIC-48 at 6.
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[and] their ability to spend money in the way money was intended to be expended
through the contractual relationships.”40
68. Dr. Clarke testified that a provider’s potential input into a RBHA’s contracts
with payors also presented a significant potential conflict of interest, as follows:
[T]he RBHA has to negotiate, on an annual basis, contractrenewal and contract provisions. And those provisions, asI've said previously, are translated down through [ADHS] tothe RBHA. Some of those are hard and you don't negotiatearound them because they relate to federal law, they'retranslated to AHCCCS, they come down to [ADHS]. Thereare other contractual parameters around how high thethreshold is for performance of providers in particular areas,you know, whether it's standards around case managementcaseloads or standards with -- with regard to how high youget on a particular outcome, like employment goal, forexample. And those negotia- -- are negotiated all the time.And so the RBHA is constantly trying to figure out, youknow, what's reasonable for a system in development?What's reasonable for a system that's a certain level? And -- and certainly having a provider participate in thatconversation about what they're going to be heldaccountable for, in my mind, is inappropriate. It's my job --or, it's our job, as a RBHA, to manage providers'performance and to set the standards and not breach thatline of what influence you have over those standards.41
69. Dr. Clarke testified that a provider’s potential input into a RBHA’s approval
of provider payment policies also presented a significant potential conflict of interest, as
follows:
[W]e have lots of provider payment policies, from those thatare contained in the financial reporting guide that getsnegotiated with the state, that translate into ours and theproviders' performance, to policies that get written becausethe RBHA is executing the direction of the state. Andproviders don't always agree with those policy decisions andthe pol- -- and the payment policies that we're going to bemaking around things, whether we change the rate structureor we change the method in which they're going to bereimbursed, from block to fee-for-service, or whether or not
40 September 25, 2013 Reporter’s Transcript (“R.T.”) at 1538:14 to 1541:21.41 Id. at 1541:22 to 1542:22.
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a service is actually going to be funded based on thepolicies of the state regarding a benefit package and abenefit redesign. And it's hard to hold somebodyaccountable if they're also helping set the policies thatyou're going to hold them accountable for.42
70. Dr. Clarke acknowledged that ADHS exercises significant oversight over
the RBHA’s compliance with contractual terms and has available remedies, including
contract termination, in the event that ADHS determined that an actual or potential
conflict of interest existed.
III. Whether ADHS’s award of the RBHA contract violated A.R.S. § 41-2752because MMIC was just a “shell” for MIHS and MIHS is a political subdivisionof the state that by operating the RBHA, would provide services incompetition with private enterprise.
71. Magellan’s April 3, 2013 bid protest argued that “allowing MMIC to bid on
the Solicitation through the knowledge and experience of MIHS, a subdivision of the
State, is a blatant violation of A.R.S. § 41-2752(A)-(B)” and that “[a]s MIHS has unfairly
competed with private enterprise through the shell of MMIC, the organization should be
stripped of its award of the RBHA Contract.”43
72. Mr. Stringham testified that on or about May 1, 2013, after ADHS had
announced the award of the 2013 RBHA contract to MMIC, he received a telephone
call from a recruiter inquiring whether he would be interested in working for MMIC as its
COO. Mr. Stringham testified that he did not respond to the recruiter’s telephone call.
Mr. Stringham testified that even though MMIC’s offer in response to ADHS’s RFP
named employees who would occupy key positions, after the award of the 2013 RBHA
contract was announced, advertisements for those positions were posted online.
73. MMIC’s financial statement revealed that as of February 28, 2013, MMIC
had $2,500,000 in assets and no liabilities.44 MMIC’s financial plan showed that upon
ADHS’s award of the 2013 RBHA contract to MMIC, Mercy Care would provide
additional capital to MMIC in the amount of $15,000,000. According to Mercy Care’s
42 September 25, 2013 R.T. at 1543:1 to 1544:14.43 Exhibit JNT-0040 at 15.44 See Exhibit MAG-67 at 143.
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June 30, 2012 audited financial statement, it had net assets of $180,584,000 and was
sufficiently capitalized to meet the RFP’s initial capitalization requirements.45
IV. Whether MMIC was not a responsible offeror under A.A.C. R2-7-B313(B)(6)because it did not have an ADOI license when it submitted its offer.
A. The RFP’s additional relevant definitions and requirements.
74. The original RFP that ADHS posted on October 4, 2012, included the
following Special Instructions to Offerors:
H. Offer Preparation
Offer Forms (Attachments). Failure to adhere to thefollowing may have a negative impact on the evaluationof the Offeror's proposal. The Offer should, at aminimum, include the following completed Offer Formsfor documents labeled as an Attachment in thesolicitation, or as indicated submit Offer developeddocuments as an Attachment in accordance with thefollowing:
. . . .
6. Method of Approach (Methodology): CompleteAttachments 6, 6.1, 6.2, 6.3 and 6.4 in accordance withthe following:
. . . .
6.3 Proof of Medicare Submissions: The Offeror shouldprovide proof of submission of the following inaccordance with Exhibit 3, "Medicare Requirement toCoordinate Care for Dual Eligible SMI Members":
6.3.1 The CMS Notice of Intent to Apply as a Medicare-Medicaid Demonstration plan. No form is provided,title/name the Attachment "Attachment 6.2, Notice ofIntent Demonstration Plan, (insert Offeror name)" andupload to the "Attachments Tab" in ProcureAZ.
6.3.2 The CMS Notice of Intent to Apply as a MedicareAdvantage Dual Eligible Special Needs Plan. No formis provided, title/name the Attachment "Attachment6.3, Notice of Intent Dual Eligible, (insert Offeror
45 See id. at 145-146.
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name)" and upload to the "Attachments Tab" inProcureAZ.
6.3.3 The State has a preference for CMS confirmation ofreceipt of online submission. If CMS confirmation isnot available provide an attestation of submission toinclude the date that each Notice of Intent wassubmitted.46
75. On October 22, 2012, ADHS posted Amendment 1 to the RFP’s Special
Instructions to Offerors that provided as follows:
1. Special Instructions to Offerors, Paragraph H,“Offer Preparation”, section 6.3, is amended toadd a new section placed at 6.3.3, the entire 6.3section is replaced to read the following:
6.3 Proof of Medicare and Arizona Department ofInsurance (ADOI) licensing requirementsubmissions: The Offeror should provide proof oran attestation of intent to submit the following inaccordance with Exhibit 3, “Medicare Requirementto Coordinate Care for Dual Eligible SMIMembers”:
6.3.1 The CMS Notice of Intent to Apply as a Medicare-Medicaid Demonstration plan. No form isprovided, title/name the Attachment “Attachment6.2, Notice of Intent Demonstration Plan, (insertOfferor name)” and upload to the “AttachmentsTab” in ProcureAZ.
6.3.2 The CMS Notice of Intent to Apply as a MedicareAdvantage Dual Eligible Special Needs Plan. Noform is provided, title/name the Attachment“Attachment 6.3, Notice of Intent Dual Eligible,(insert Offeror name)” and upload to the“Attachments Tab” in ProcureAZ.
6.3.3 Arizona Department of Insurance (ADOI) licensingrequirements.
46 Exhibit MAG-363 at 2-3, 4-5.
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6.3.4 The State has a preference for CMS confirmation of receipt ofonline submission. If CMS confirmation is not available providean attestation of submission to include the date that eachNotice of Intent was submitted. Proof of or an attestation ofcompliance with the ADOI licensing requirements.47
76. The original RFP that ADHS issued on October 4, 2012, included Exhibit 3
concerning Medicare Requirements to Coordinate Care for Dual Eligible SMI Members
that provided in relevant part as follows:
3.1 Background Information
3.1.1 Medicaid members who are also enrolled in Medicareare considered dual eligible. In an effort to improvecare coordination for SMI dual eligible members, theState will require the RBHA to be an organization thatmanages and provides Medicare benefits to SMI dualeligible members.48
77. On November 15, 2012, ADHS posted Amendment 8 to the RFP’s Exhibit 3
concerning Medicare Requirements to Coordinate Care for Dual Eligible SMI Members
that provided in relevant part as follows:
8. Exhibit 3, a new section is added at 3.1.2, and thesection numbers under it role [sic] to appropriatenumbers, the new section 3.1.2 reads:
3.1.2 Arizona Department of Insurance (ADOI) D-SNPCertification Requirement: In order to comply with therequirement to be a D-SNP, Contractor must obtaincertification from ADOI as a Health Care ServicesOrganization. In addition, Contractor must submit acomplete application by February 23, 2013 to CMS tooperate as a D-SNP. Proof of ADOI certification is anecessary requirement for CMS to approve a D-SNPapplication. Because of these very short time framesand the time needed by ADOI to accept, process anddetermine a request for a Health Care ServicesOrganization certificate, an application to obtain aHealth Care Service Organization certificate should befiled with ADOI as soon as possible. Failure to timely
47 Exhibit JNT-11.48 Exhibit MAG-359 at 25.
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file or a delay in filing could negatively impactContractor’s ability to comply the requirement tooperate as a D-SNP. For more information, see theADOI web site at http://www.id.state.az.us/statespecificlists.html or contact Cary Cook in theADOI Financial Affairs Division at 602-364-3999 [email protected]
78. Deputy CPO O’Brien testified that she finalized the wording of Amendments
1 and 8 to the RFP. Deputy CPO O’Brien explained that under the IGA between ADHS
and AHCCCS, AHCCCS had greater expertise in CMS requirements and that although
ADHS was the only agency issuing the RFP, Amendments 1 and 8 reflected AHCCCS’s
concerns that the RBHA must meet CMS’s requirements, including ADOI licensure.
Similarly, CPO Ruth testified that Amendment No. 1 regarding ADOI licensure was not
generated due to an offeror’s question, but resulted after AHCCCS received a
communication that CMS required that the contractor be licensed by ADOI.
B. Magellan’s efforts to comply with its understanding of the RFP’srequirements to obtain an ADOI license.
79. On November 16, 2012, Dr. Clarke on behalf of Magellan wrote a letter to
Deputy CPO O’Brien about the Amendments 1 and 8 to the RFP, in relevant part as
follows:
Amendment 1 requires the bidder to obtain [ADOI] licensure.Amendment 8 confirms this ADOI requirement. As youknow, this change was a surprise to all bidders as ADHShas not historically required ADOI licensure. In fact, noADOI license is required under the existing Area 6 RBHAcontract in which [Magellan] participates. This amendmenthas caused many prospective bidders to scramble toprepare ADOI license applications. Undoubtedly, ADOI andits limited staff will be inundated with multiple applicationsfiled at approximately the same time.
The ADOI license requirement apparently is driven byconcerns that [CMS] and federal law require such license foran organization operating as a Medicare Advantage DualEligible Special Needs Plan (“DSNP”). However, CMS and
49 Exhibit JNT-18 at 2-3.
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federal law impose no such requirement. The operativeprovision of federal law is 42 CFR Section 422.400 [,requiring that an entity be licensed, or otherwise authorizedto operate as a risk-bearing entity, or if the entity is notcommercially licensed, to have obtained certification offinancial solvency from the state]. Thus, federal law not onlydoes not require [ADOI] licensure but also specificallyauthorizes a state to certify a Medicare AdvantageOrganization as a risk bearing entity and in fact [AHCCCS]traditionally has certified organizations providing Medicaidand Medicare services to operate as risk bearing entities.
Apparently, however, AHCCCS has determined that it isunable to certify a DSNP organization operating under acontract pursuant to this [RFP] because such organizationwill be under contract with ADHS and not AHCCCS.Magellan’s legal staff has investigated this determinationand has not found any controlling legal authority thatsupports this restriction. Certainly, federal law is not solimiting. . . .50
80. Dr. Clarke testified that he wrote the November 16, 2012 letter because he
thought that ADHS had misunderstood CMS requirements, which he felt did not require
ADOI licensure, and was concerned about the effect that the requirement for ADOI
licensure would have on anyone who was considering submitting an offer in response
to the RFP.
81. Because Dr. Clarke did not submit his letter through the ProcureAZ
website, as ADHS’s RFP required, ADHS did not respond to his concerns about his
understanding that the RFP required offerors to obtain ADOI licensure before they
submitted their proposals in response to the RFP.
82. Dr. Clarke testified that because Amendment 1 to the RFP made it clear
that Magellan would need to submit proof of ADOI licensure with its proposal, Magellan
started immediately on the license application process and expended significant
resources to obtain such licensure shortly before the proposals were due. Dr. Clarke
testified that he was not sure initially whether anyone could obtain licensure by January
50 Exhibit JNT-26 at 2-3.
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8, 2013, but assumed that personnel at ADOI were prepared to expedite its processing
of applications.
C. ADHS’s determination that MMIC was a responsible offeror under A.A.C.R2-7-C312(B)(6), despite the fact that it did not have an ADOI license onJanuary 8, 2013, when it submitted its proposal.
83. Deputy CPO O’Brien testified that she performed the required reference
checks after the Evaluation Committee scored the proposals. She reviewed the
documents that were submitted with MMIC’s offer and did the required checks on the
Arizona Corporation Commission’s website and the federal site for debarment. Deputy
CPO O’Brien testified that she did not find any reason to determine that MMIC was not
a responsible bidder.
84. CPO Ruth testified that she determined to accept MMIC’s offer on behalf of
ADHS on March 4, 2013.51 CPO Ruth testified that even though MMIC did not yet have
an ADOI license, it was not out of compliance with the RFP because there would be a
transition period and the condition could be corrected.
D. The timing of MMIC’s efforts to comply with its understanding of theRFP’s requirements.
85. Magellan submitted a public records request to ADOI for MMIC’s licensure
file. According to the documents that Magellan obtained in response to its public
records request, MMIC submitted documents to begin the process of obtaining a
license from ADOI on December 31, 2012.52
86. According to the documents that Magellan obtained from ADOI, it did not
issue a license to MMIC until March 20, 2013.53
87. CPO Ruth explained that she heard that the award of the RBHA contract
was not announced until March 25, 2013, even though she had determined to accept
the Evaluation Committee’s recommendation on March 4, 2013, because the governor
planned several speeches in which she would address the changes to the RBHA
51 See Exhibit JNT-34 at 1.52 See Exhibit MAG-67 at 3.53 See id. at 2.
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contract. CPO Ruth testified that the delay was not due to any concern by ADHS or to
allow MMIC more time to comply with the RFP requirements.
V. Whether MMIC was a responsible bidder even though it failed to comply withAHCCCS’s directive to timely and completely file a completed application toCMS.
88. Findings of Fact Nos. 74 to 78, as set forth above, are incorporated by
reference.
89. MMIC submitted with its response to ADHS’s RFP a Notice of Intent to
Apply for a Medicare Part C and/or a Part C plus Part D Contract.54
VI. Whether Amendments 7 and 9 to the RFP evidenced bias in the procurementprocess in favor of MMIC.
A. The single-entity requirement.
90. Before ADHS issued the RFP, to assist the committee that was drafting the
Scope of Work in the RFP, on August 16, 2011, ADHS issued a Request for
Information (“RFI”).55 The purpose of ADHS’s RFI was to gather information about the
subject matter of the planned RFP. ADHS held RFI meetings on September 16, 2011,
and March 21, 2012.56 Because the only purpose of the RFI was for ADHS to gather
information, ADHS did not represent that discussions held during the RFI process
would be binding on ADHS or any other participant.
91. The original October 4, 2012 RFP included Exhibit 3 that provided in
relevant part as follows:
3.1 Background Information
3.1.1 Medicaid members who are also enrolled in Medicareare considered dual eligible. In an effort to improvecare coordination for SMI dual eligible members, theState will require the RBHA to be an organization thatmanages and provides Medicare benefits to SMI dualeligible members.57
54 See Exhibit MAG-335.55 See Exhibit JNT-55.56 See Exhibit JNT-34 at 3.57 Exhibit MAG-359 at 25.
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92. Dr. Clarke testified that Magellan participated in the RFI process that ADHS
conducted because Magellan has a strong interest in helping shape how services are
delivered to persons suffering from mental illness. In addition to formal meetings with
ADHS, Dr. Clarke testified that he attended an informal meeting with Thomas Betlach,
the Director of AHCCCS, and another AHCCCS employee. Dr. Clarke testified that he
expressed his concerns about the single-entity requirement that ADHS was considering
because he felt that the RBHA needed more flexibility in being able to be structured to
subcontract certain functions. Dr. Clarke testified that Mr. Betlach responded that it
was not ADHS’s or AHCCCS’s responsibility to conform the RBHA requirements to
potential offerors’ business practices and that he wanted “one neck to choke.”58
93. Dr. Clarke testified that Magellan expended substantial resources to
develop an organization that would comply with the single-entity requirement. Dr.
Clarke testified that when the RFP was issued on October 4, 2012, it was very clear to
him that any potential RBHA would be required to be a single entity.59
B. The November 7, 2012 Pre-Offer Conference and ADHS’s Amendments 7and 9 to the RFP.
94. Representatives of ADHS, AHCCCS, and the five entities that later
submitted proposals in response to the RFP, including Magellan and MMIC, attended
the November 7, 2012 Pre-Offer Conference. Mercy Care’s CEO, Mark Fisher, Ph.D.,
asked a question at the Pre-Offer Conference about whether the RBHA contractor
would be allowed to subcontract administrative functions. Dr. Fisher indicated that
AHCCCS allowed such subcontracting and that if AHCCCS’s practices were not
allowed, Mercy Care would not be able to submit an offer in response to the RFP.
95. AHCCCS’s employee, Shelli Silver, answered Dr. Fisher’s question by
stating that the intent of the RFP was to insure that the contract was not split so that
one entity would be responsible for acute care and a different entity would be
responsible for behavioral health care, but that the RFP did not intend to exclude
58 September 26, 2013 R.T. at 1599:2 to 1602:1.59 See also Scope of Work Overview, quoted at Finding of Fact No. 24, above.
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potential offerors from subcontracting management or administrative functions, as long
as such services were subcontracted in their entirety.
96. Dr. Clarke attended the November 7, 2012 Pre-Offer Conference. Dr.
Clarke testified that the question by Dr. Fisher and answer by Ms. Silver raised a “red
flag” in his mind, but that he was not overly concerned due to the RFP’s requirement of
a single entity.
97. On November 13, 2012, a representative of Mercy Care submitted a written
question to ADHS through ProcureAZ that was nearly identical to the question raised
by Dr. Fisher during the Pre-Offer Conference, as follows:
In reading these three sections as written, [Mercy Care]would be excluded as a qualified Offeror due to ourHealth Network of Work Section management servicesagreement with Schaller Anderson, LLC Corporation (anAetna company). Mercy Care has successfully managedseveral AHCCCS programs (including a Medicare dual SNP)under this plan management services agreement since2002. Mercy Care Plan is a 501(c)3 not-for-profit providersponsored health plan governed by a board of directorsmade up of representatives of the plan sponsors. ExcludingMercy Care Plan from bidding would not be in the bestinterest of the members, ADHS/DBHS and the program.Please revise these sections and provide clarification thatthis arrangement will be acceptable as indicated at the Pre-Offer Conference. Please also include clarification that it willbe acceptable to utilize Aetna's national experience inMedicaid and Medicare in Attachment 5, Experience andExpertise, Section 1.0.60
98. On or about November 13, 2012, in response to Mercy Care’s question on
ProcureAZ, ADHS posted Amendment 7 that changed the single-entity requirement in
Section 3.1.1 of Exhibit 3 to the RFP to read as follows:
1. Part Two (2), Solicitation Exhibits, Exhibit 3,“Medicare Requirement to Coordinate Care for DualEligible SMI Members”, Section 3.1, “BackgroundInformation”, Paragraph 3.1.1, has been amendedand replaced with the following:
60 Exhibit JNT-54 at 1.
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3.1.1 Medicaid members who are also enrolled in Medicareare considered dual eligible. In an effort to improvecare coordination for SMI dual eligible members, theState will require the RBHA (Contractor) to be thesole organization that manages the provision ofMedicare benefits to SMI dual eligible membersenrolled with the Contractor and may not delegate orsubcontract with another entity except as specifiedbelow. The Contractor may delegate or subcontractthe managed care functions described in Scope ofWork, 18.3.261 with another entity for the provision ofMedicare benefits when that entity is also responsiblefor performing those functions for the Contractor’sMedicaid line of business. ADHS has the solediscretion to approve other exceptions in addition tothe circumstances described above. In addition, theContractor must establish an easily identifiable brandthat is recognized by SMI dual eligible members andproviders as an integrated service delivery healthplan for both Medicare and Medicaid services.62
99. Section 18.3 of the RFP’s Scope of Work concerned Organizational
Structure and originally provided as follows:
The Contractor shall:. . . .
18.3.3 Not delegate or subcontract key functions of healthplan operations that are critical to the integration ofbehavioral and physical health care for members asset forth in Section 20.3.2, Management ServicesSubcontracts.63
100. Section 20.3 of the RFP’s Scope of Work concerned Management
Services Subcontracts. Section 20.3.2 provided in relevant part as follows:
The Contractor shall:. . . .
61 Section 18.3.2 of the original Scope of Work of the RFP required the contractor to “provide all majoradministrative functions of a managed care health plan including but not limited to” networkmanagement/ provider relations, member services, quality management, medical management, finance,claims/ encounters, information services, and grievance system. See Exhibit MAG-362 at 108.62 Exhibit JNT-17 (footnote added).63 Exhibit MAG-362 at 108.
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20.3.2 Not delegate or enter into subcontracts to performkey operational functions that are critical for servicedelivery including integrated health care servicedelivery, including, at a minimum:
20.3.2.1 Grievance System;
20.3.2.2 Quality Management;
20.3.2.3 Medical Management;
20.3.2.4 Provider Relations;
20.3.2.5 Network and Provider Services contracting andoversight;
20.3.2.6 Member Services; and
20.3.2.7 Corporate Compliance.64
101. To make RFP’s Scope of Work consistent with Amendment 7 to the
amendment to Solicitation Exhibit 3, on or about December 4, 2012, five weeks before
responses to the RFP were due, ADHS posted Amendment 9 to the RFP’s Scope of
Work section 18.3.3 that provided in relevant part as follows:
2. Scope of Work, section 18.3.3 is amended to read:
18.3.3 [The Contractor shall] [n]ot delegate or subcontractkey functions of health plan operations that arecritical to the integration of behavioral and physicalhealth care for members as set forth in Section20.3.2, Management Services Subcontracts unlessone entity under subcontract provides all of thedelegated functions in Section 20.3.2 for both theMedicaid, which includes physical and behavioralhealth, and Medicare lines of business.65
C. The intent and effect of ADHS’s Amendments 7 and 9 to the RFP.
102. As noted above, on November 16, 2012, Dr. Clarke on behalf of Magellan
sent a letter to Deputy CPO O’Brien. In addition to questioning whether federal law
64 Id. at 136.
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required ADOI licensure, Dr. Clarke’s letter responded to ADHS’s Amendment 7, in
relevant part as follows:
Amendment 7 modified the Solicitation restrictions regardingthe ability of a contractor to delegate or subcontractmanaged care functions described in the scope [of] work.This change appears aimed at supporting one specificprospective bidder, Aetna/Mercy, and demonstrates a clearbias in favor of that entity. Magellan believes that a fair andopen competition is in the best interests of the State ofArizona and its health care recipients. However, ADHSpolicy, and this the solicitation specifications, shouldadvance ADHS’s desired health care delivery system andnot be directed at supporting one bidder.
As you know, last year ADHS issued a [RFI] pertaining tothe program that is now the subject of this solicitation. Inthat RFI, ADHS indicated that it would require all caremanagement and care coordination functions, as well asother managed care functions, to be performed by a singleentity. In response to those stated requirements, Magellanand its stockholder companies (Magellan Health Services ofArizona, Inc. and VHS Phoenix Health Plan, Inc.) expendedtime, money, and resources to build a single, integratedorganization to respond to the anticipated solicitation.Presumably, other organizations did the same. Amendment7 now eliminates the prohibition of subcontracting under avery specific situation for one specific organization leadingto possible perceptions of bias.66
As noted above, ADHS did not address Dr. Clarke’s concerns about Amendments 7
and 9 to the RFP in the November 16, 2012 letter because he did not submit the letter
through ProcureAZ.
103. Dr. Clarke testified that Magellan did not file a protest after ADHS issued
Amendments 7 and 9 because they appeared to be legal on their face. Dr. Clarke
acknowledged that he was concerned, however, that Amendments 7 and 9 would be
applied inequitably or in such a manner that they would serve only to benefit MMIC and
harm the other four offerors. Magellan argued that it could not have known of the effect
65 Exhibit JNT-19.66 Exhibit JNT-27 at 3.
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of the bias in the application of Amendments 7 and 9 until after ADHS awarded the
2013 RBHA contract to MMIC.
104. Magellan did not request that ADHS extend the due date for the
proposals in response to the RFP to allow it and the other offerors to take advantage of
Amendments 7 and 9. Magellan’s April 3, 2013 bid protest argued that Amendments 7
and 9 created an impression of bias and that ADHS’s “abandonment” of the single-
entity requirement for the managed care functions of the RBHA “so late in the process”
was a “strong indication of bias in favor of MMIC.”67
105. When asked specifically about Magellan’s claims of bias in the
amendments to the RFP and in the evaluation process, Dr. Clarke testified that he
believed that there was a “systematic institutional bias” against Magellan that “comes
from several years of history of trying to carve the behavioral health system into . . .
AHCCCS.”68
106. Dr. Clarke testified that he believed that the bias against Magellan was an
institutional bias that was based on the desire by the leaders of AHCCCS and ADHS to
favor a particular organization and that others got swept up in the spirit. Dr. Clarke
testified that in his professional experience nationally, he has observed conflicts
between state Medicaid agencies, like AHCCCS, and state public health agencies, like
ADHS. Dr. Clarke testified that if behavioral health care is subsumed under Medicaid,
agency monies for behavioral health care will be siphoned off and subsumed into
Medicaid.
107. Deputy CPO O’Brien testified that ADHS is required to increase
competition in any procurement.69 Deputy CPO O’Brien testified that it is up to ADHS
to decide the best interest of the state and how ADHS can increase competition.
108. Deputy CPO O’Brien testified that Amendments 7 and 9 did not give any
advantage to any offeror because no one received or lost points based on whether or
67 Exhibit JNT-40 at 21-22.68 September 26, 2013 R.T. at 1681:10-1682:1669 A.R.S. § 41-2565 of the Arizona Procurement Code requires maximum practicable competition andthat “[a]ll specifications shall seek to promote overall economy for the purposes intended and encouragecompetition in satisfying this state's needs and shall not be unduly restrictive.”
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not they intended to subcontract administrative functions. When Magellan’s attorney
asked Deputy CPO O’Brien whether any bidder but MMIC benefited from Amendments
7 and 9, she responded that no one else requested to be allowed to subcontract
management services.
VII. Whether Magellan’s offer in response to the RFP was improperly scored incertain specific respects due to bias, resulting in the loss of critical pointsthat should have supported the award of the RBHA contract to Magellan.
A. Integrated behavioral and physical health care for SMIs who are eligiblefor Medicaid and Medicare
109. Persons who are SMI may have chronic health conditions such as chronic
obstructive pulmonary disease, diabetes, high blood pressure, obesity, and heart
disease, but may be reluctant to seek health care for their physical conditions due to
the stigma of mental illness. In the United States, the life expectancy for persons who
are SMI is 25 years less than for the general population. In Arizona, the life
expectancy for persons who are SMI is 32 years less than for the general population.
110. In response to these statistics, the mental health community has started
to create programs that provide integrated physical and behavioral health care to
persons who are SMI. According to Dr. Temm, funding has become available to
explore integrated health care programs for persons who are SMI in twelve states,
including Arizona.
111. Dr. Clarke testified that in July 2010, he and Mr. Covington attended a
national conference in Sedona, Arizona, concerning the delivery of integrated health
care to persons who are SMI. Dr. Clarke testified that by that time, Magellan had
implemented a suicide prevention program that reduced suicides among SMI members
in Arizona by 42% and that Magellan’s program had become a national model.
112. Magellan subsequently obtained a $500,000 federal grant under the
Affordable Care Act to create a pilot program to treat both the behavioral and physical
health care needs of persons who had been determined to be SMI.
113. Dr. Clarke testified that he approached Ms. Bayless and Mr. Vanaskie of
MIHS to begin developing an integrated health program. After working with ADHS and
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MIHS to develop the pilot program, on August 2, 2011, Magellan officially “kicked off”
the Integrated Home Health program. Dr. Clarke testified that after Magellan obtained
the required permits and licenses and performed the necessary build-outs, the first
Integrated Home Health clinics opened in early or mid-2012.
114. Mr. Covington testified that the Integrated Home Health clinics provided
joint treatment and medication plans. Mr. Covington testified that the Integrated Home
Health clinics provided a robust model of integrated care and that Magellan planned to
continue making innovations.
115. Dr. Clarke testified that Magellan currently has created eight Integrated
Home Health clinics and that it has continued to work toward its goal of creating 20
clinics, even after ADHS awarded the RBHA contract to MMIC.
116. Magellan submitted a brochure entitled, “Maricopa County Integrated
RBHA Overview March 2013,” that ADHS published to provide information to the
governor to use in her speeches about the 2013 RBHA contract. The brochure
included a photograph that was taken on August 2, 2011, for the “kick-off” of Magellan’s
Integrated Home Health program and showed Arizona’s Governor Jan Brewer flanked
by Ms. Bayless, Dr. Clarke, and others.70
B. The RFP’s relevant definitions and requirements.
117. The Special Instructions to Offerors included the following terms:
J. Evaluation Criteria
In accordance with the A.R.S. § 41-2534, CompetitiveSealed Proposals, awards shall be made to theresponsible Offeror whose proposal is determined inwriting to be the most advantageous to the ADHS basedupon the evaluation criteria listed below. The evaluationfactors are listed in their relative order of importance.
1. Method of Approach (Methodology) to include anydemonstration.*
2. Experience and Expertise.*
70 Exhibit MAG-404 at 9.
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3. Compliance with the Solicitation requirements; inaddition to being qualitatively evaluated, the Offermay be determined not susceptible for award.
* The strength of an Offer characteristic will be evaluatedmore favorably when it exceeds solicitation minimumstandards and is exceptional.71
118. Deputy CPO O’Brien testified that out of the 1,000 possible points, 600
points were available for the method of approach, 350 points were available for
experience and expertise, and 50 points were available for compliance with the RFP’s
requirements. All the offerors received 50 points for compliance.
119. Deputy CPO O’Brien testified that the RFP did not require pricing, but
instead was based on capitation rates that were determined by ADHS and AHCCCS.
120. The Evaluation Committee Guidelines for the RFP stated that “[p]oints are
determined by evaluating each proposal on its own merit and not by making a
comparison with other proposals; comparison will occur when proposals are ranked by
the order of total points awarded.”72
121. The Evaluation Committee Guidelines also stated that strength points are
to be awarded if a characteristic in an offer “exceeds the minimum standards of the
solicitation and is exceptional,” meaning “extraordinary, excellent, well above
average.”73
C. The selection of the members of the Evaluation Committee and theCommittee’s process of scoring the five proposals that were submittedin response to the RFP.
122. Vetting meetings were held on January 2, 2013, and January 7, 2013,
with potential evaluators. Potential evaluators were provided Evaluation Committee
Member Statement forms, Evaluation Committee Guidelines, and an Evaluation of Offer
instrument, for review, discussion, and signature.74
71 Exhibit JNT-9 at 5-6.72 Exhibit JNT-33 at 63.73 Id.74 See Exhibits JNT-41 5; JNT-29; JNT-33 at 59; and MAG-459.
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123. Potential members of the Evaluation Committee were vetted and were
required to disclose any conflicts of interest or potential conflicts of interest with
possible offerors before being selected to serve on the Evaluation Committee.75
124. Members of the Evaluation Committee were aware that Arizona law
imposes personal liability on a member of such a committee who does not disclose a
conflict of interest or who intentionally or knowingly violates the Arizona Procurement
Code.
125. On January 8, 2013, ADHS issued a memorandum to the Procurement
File finalizing the membership of the Evaluation Committee, which included the
Evaluation Committee Member Statement form, Evaluation Committee Guidelines, and
Evaluation of Offer instrument.76
126. The selected Evaluation Committee was comprised of the following eight
evaluators, who had significant experience in the provision of behavioral health care
and/or physical health care, as described below:
a. Cory Nelson is the Deputy Director of ADHS/DBHS. He was formerly the
CEO of the Arizona State Hospital, over which he continues to exercise
oversight in his current position. Mr. Nelson’s former position as the CEO
of the Arizona State Hospital required him to oversee the provision of
behavioral health care as well as physical health care to patients in the
hospital who were SMI.77
b. Kristin Frounfelker is the Behavioral Health Administrator for AHCCCS
and has knowledge of AHCCCS physical health care plans. Ms.
Frounfelker is a Licensed Professional Counselor and as the Behavioral
Health Administrator for AHCCCS, is responsible for “the development,
implementation and oversight of managed integrated behavioral health
and physical health care services for persons with [SMI] in Maricopa
County . . . .”78
75 See Exhibit JNT-29.76 See Exhibits JNT-41 at 5; JNT-29; JNT-33 at 0059.77 See Exhibit ADHS-4 (Mr. Nelson’s resume).78 Exhibit ADHS-5 (Ms. Frounfelker’s resume).
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c. Margery Ault is the Assistant Director for Compliance and Human Rights
for ADHS and has significant experience in behavioral health care
relating to grievances and appeals. Ms. Ault testified that grievances and
appeals touch all aspects of the services for which members are eligible.79
d. Victoria Navarra is the Program Administrator for the Office of Health
Care Development within ADHS and was involved in the development of
the Scope of Work for the RFP.80
e. Teresita Oaks is the System Design Manager for ADHS/DBHS and, like
Ms. Navarra, was involved in the development of the Scope of Work for
the RFP.81
f. Sheila Sjolander is the Assistant Director of the Division of Public Health
Prevention Services within ADHS and has substantial experience with
various aspects of public health, including some aspects of physical
health care and disease prevention.82
g. Kathy Bashor is the Chief of the Office of Individual and Family Affairs
within ADHS/DBHS and represents peers in the community. Ms. Bashor’s
expertise in integrated behavioral and physical care comes from her
intimate knowledge of the “[c]oncerns and needs of the community,” her
participation in the ongoing national dialogue over integrated care, and
“the role of the community . . . as we move forward into integrated care”
and her attendance at several national conferences on integrated care.83
h. Cynthia Lane is the Chief Financial Officer of ADHS/DBHS, has extensive
experience with capitated rates and financial statements, and was also
involved in the development of the RFP.84
127. Ms. Bashor testified that the concept of integrated care was very new and
that the behavioral health community was moving fast in implementing the concept.
79 See Exhibit ADHS-11 (Ms. Ault’s resume).80 See Exhibit ADHS-14 (Ms. Navarra’s resume).81 See Exhibit ADHS-15 (Ms. Oaks’ resume).82 See Exhibit ADHS-16 (Ms. Sjolander’s resume).83 September 20, 2013 R.T. at 556:15-24; see also Exhibit ADHS-12 (Ms. Bashor’s resume).84 See Exhibits JNT-33 at 2; see also Exhibit ADHS-13 (Ms. Lane’s resume).
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She testified that she was amazed how quickly ADHS’s employees who were involved
in drafting the RFP had become knowledgeable about integrated care.
128. Dr. Temm testified that the members of the Evaluation Committee were
unqualified because none of them had significant experience in integrated health care.
Dr. Temm testified that ADHS should have brought evaluators in from out-of-state who
had greater experience in integrated health care.
129. The Evaluation Committee was assisted by Mr. Szawara, the procurement
consultant under contract with ADHS for purposes of facilitating the RFP process, and
ADHS’s Deputy CPO O’Brien.
130. Each Evaluation Committee member independently reviewed all offers
that ADHS had received prior to meeting as a committee to begin the evaluation
process. Ms. Ault and Ms. Bashor testified that they received all five offers on CDs
shortly after January 8, 2013, and that they read the five offers at work, in the evenings,
and on weekends. Although the record does not contain information on the other three
offers, Magellan’s proposal was approximately 2,200 pages long and MMIC’s proposal
was 4,752 pages long.85
131. Ms. Ault testified that she reviewed thousands of pages. Ms. Ault testified
that although reviewing the proposals was a priority at her work for ADHS, sometimes
other things came up that required her attention. Ms. Ault testified that she did not
receive any additional compensation for serving on the Evaluation Committee.
132. Each of the Evaluation Committee members who testified at the hearing—
Margery Ault, Kathy Bashor, and Victoria Navarra—stated that the Evaluation
Committee evaluated all of the offers pursuant to the Evaluation Committee Guidelines
and the Evaluation Tool criteria.
133. Because the Evaluation Committee Guidelines instructed the Evaluation
Committee members that they were required to consider only the information that was
contained within the four corners of each proposal,86 it was the offerors’ responsibility to
make their offers clear and understandable. Ms. Ault and Ms. Bashor testified that the
85 See Exhibit JNT-39.86 See Exhibit JNT-33 at 62-63.
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Evaluation Committee members followed this instruction and did not consider
information that they may have gained through their personal experience with an
offeror or its parent or affiliated company if the information was not contained within the
four corners of the proposal.
134. After each member of the Evaluation Committee individually reviewed all
five offers, the Committee met as a group on January 28, 29, 30, and 31, 2013, and
February 1, 4, 5, 14, 15, 19, 20, 22, and 28, 2013, for a total of 67 hours.87 During the
Committee’s meetings, it used a Consensus Evaluation process. The Consensus
Evaluation process was used to deemphasize the subjective opinion of any one
individual.
135. Although some members of the Evaluation Committee were employed as
other members’ supervisors, Ms. Bashor testified that when the evaluators walked in to
the meetings, they set aside titles and who was whose boss to engage in a level
discussion without regard to supervisory authority or seniority. Ms. Bashor testified that
although she was the “lowest one on the totem pole,” she felt comfortable participating
as an equal with the other members of the Evaluation Committee.88
136. The Evaluation Committee first read all offers and gave preliminary
scores to, but did not tally, each section. Ms. Ault and Ms. Bashor testified that after
the Evaluation Committee assigned rough scores to each offer, they reviewed the
offers again and compared similar responses to make sure that they had treated all
offerors equally. Ms. Bashor explained that initially, the Evaluation Committee had
given high scores to some offers for exceptional responses, but after reviewing other
offers they realized that the responses only represented the norm.
137. The Evaluation Committee was required to support the consensus scores
that it gave to each section of each proposal with written comments, and the comments
were adopted only after the Evaluation Committee reached a consensus on the scoring
and comments for each section of the offer that was evaluated. All scores and
comments contained in the Evaluation Tool for each offer reflected the agreed-upon
87 See Exhibit JNT-34 at 3.88 September 20, 2013 R.T. at 603:6 to 603:13.
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conclusions of all eight evaluators. The Evaluation Committee repeated this process
for each offer.
138. On February 28, 2013, all eight members of the Evaluation Committee
signed the “Evaluation of Offers Report” that provided the scores given to each offer
and the comments that explained the scores.89
139. CPO Ruth conducted her own review of all five offers and reviewed and
considered the Evaluation Committee’s report. On March 4, 2013, CPO Ruth accepted
the findings and recommendation of the Evaluation Committee.
140. CPO Ruth, Deputy CPO O’Brien, Procurement Consultant Mr. Szawara,
and the testifying Evaluation Committee members, Ms. Ault, Ms. Bashor, and Ms.
Navarra, all confirmed that there was no bias against or favoritism toward any offeror
during the RFP and evaluation process.
141. Dr. Clarke testified that he did not believe that the evaluators were
personally biased against Magellan.
142. When CPO Ruth issued the April 17, 2013 Decision denying Magellan’s
bid protest, she attached as Exhibit 1 to the CPO’s Decision a detailed response to
Magellan’s claimed scoring errors.90 CPO Ruth’s specific responses to Magellan’s
claimed scoring errors are summarized below.
D. Dr. Temm’s testimony.
143. After Magellan filed the April 3, 2013 bid protest, the law firm representing
Magellan in this matter retained Dr. Temm to act as an expert on procurement and
scoring. Dr. Temm was awarded a Bachelor of Arts degree in Accounting from
Benedictine College in Atchison, Kansas in 1981, a Master of Health Services
Administration degree from the College of Business at Arizona State University in 1990,
and a Doctor of Science – Health Services Administration from the University of
Alabama at Birmingham in 2013. Between 1984 and 2002, Dr. Temm was employed
primarily to oversee the financial aspects of various health care plans.91 Since 2002,
89 See Exhibits JNT-41 at 5; JNT-33 at 2.90 See Exhibit JNT-41 at 16-29.91 See MAG-52.
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Dr. Temm has worked as a health care consultant and researcher through Temm &
Associates, Inc.
144. Dr. Temm testified that she has been involved in the development and
implementation of numerous managed health care programs and in a great number of
procurement matters, including integrated health care. Dr. Temm testified that she is
familiar with managed care procurement through AHCCCS, ADHS, ADOA, and the
Department of Economic Security/Developmental Disability Services Administration.
145. Dr. Temm testified that in 1999 and 2000, she worked with Mercy Care to
develop proposals for the contract to provide care under AHCCCS’s Arizona Long
Term Care System (“ALTCS”) program for Maricopa County. Dr. Temm testified that
ALTCS provides care to persons who are at risk for institutionalization, including senior
citizens and the disabled, to allow them to remain in the community in the least
restrictive setting. Dr. Temm testified that ALTCS provides integrated physical and
behavioral health care, but that SMI members are more mobile and are more severely
impacted by their behavioral health issues than the recipients of services under the
ALTCS program. Dr. Temm testified that SMI members may be homeless and
generally require more behavioral health services and present more challenges than
ALTCS recipients.
146. Dr. Temm has never worked for the State of Arizona or any governmental
entity in any capacity relating to procurements or government contracts. Dr. Temm’s
experience relating to procurements or government contracts is limited to consulting
with private companies in bidding for those contracts and to responding to
procurements as a health plan employee. Dr. Temm has never been a procurement
contract evaluator or received any government training on procurement issues.
147. Dr. Temm testified that because she wanted to make sure that she was
objective, she did not review Magellan’s bid protest before she reviewed Magellan’s
proposal and prepared her expert report. Instead, Magellan’s attorney provided a
number of documents for her review and, in preparing her report, Dr. Temm reviewed
only those documents. Dr. Temm testified that she reviewed ADHS’s RFP, Magellan’s
2,200-page response to the RFP, and some of MMIC’s response to the RFP.
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148. Dr. Temm did not review the entirety of MMIC’s proposal. Instead, Dr.
Temm only compared sections of MMIC’s proposal to corresponding sections of
Magellan’s proposal for which the Evaluation Committee had either deducted or
awarded points. Although Dr. Temm rescored Magellan’s proposal, she did not rescore
MMIC’s proposal.
149. Dr. Temm did not review CPO Ruth’s decision and findings—including the
Exhibit 1 to the CPO’s Decision on Magellan’s bid protest—until shortly before
testifying at the hearing on September 19, 2013.
150. Dr. Temm was not allowed to testify that the Evaluation Committee’s
overall scoring of Magellan’s bid was not based on an objective scoring tool and was
arbitrary because that ground was not raised in Magellan’s April 3, 2013 bid protest.
Dr. Temm also was not allowed to testify about any other alleged scoring improprieties
that were not raised in Magellan’s April 3, 2013 bid protest. In response to the order
limiting the scope of her testimony to the grounds set forth in the April 3, 2013 bid
protest, on the evening before she testified, Dr. Temm reviewed Magellan’s scoring
claims in the April 3, 2013 bid protest and found what she believed to be new errors
that were not included in her own report.
1. Ten-point deduction for staffing deficiencies
151. Magellan argued in its April 3, 2013 bid protest that although the
Evaluation Committee had deducted ten points from Magellan’s score because its
Medical Management Administrator and Maternal Health/Early Periodic Screening and
Diagnostic Treatment Service (“MH/EPSDT”) coordinator lacked physical health
experience, the resumes for these two staff members showed that they possessed the
experience that the RFP required.
152. Dr. Temm acknowledged that the Evaluation Committee properly
deducted five points for the Medical Management Administrator because she lacked
physical health care experience.
153. CPO Ruth’s analysis at Exhibit 1 to her CPO decision denying the protest
noted that the Evaluation Committee had deducted points because the RFP’s Scope of
Work required that the MH/EPSDT coordinator be an Arizona-licensed nurse,
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physician, or physician’s assistant or have a Master’s degree in health services, public
health, health care administration or other related field, or be a Certified Professional in
Healthcare Quality or Certified in Healthcare Quality Management. CPO Ruth stated
that the position would be responsible for ensuring that SMI members received EPSDT
services and maternal and post-partum care, promoting family planning services and
individual and preventative health strategies, identifying and coordinating assistance,
and collaborating with community system stakeholders. CPO Ruth noted that
Magellan’s MH/EPSDT coordinator, Judy Venezia, RN, had only a Bachelor’s of
Science in Nursing and that she had only been providing the services required since
2012. CPO Ruth determined that the Evaluation Committee properly exercised its
discretion in deducting five points for Ms. Venezia’s limited credentials and
experience.92
154. Ms. Ault testified that points were deducted from Magellan’s score
because Ms. Venezia’s resume showed that her primary experience was end-of-life
care and that she had limited experience working with the SMI population. Ms. Ault
testified that although the RFP required an RN or masters degree, the minimum
requirements must be considered in the context of the goals of the offeror’s staff.
155. Dr. Temm testified that Ms. Venezia had nineteen years of acute health
care experience, with eight years of experience providing services to the pediatric
population. Dr. Temm opined that Ms. Venezia met all the requirements set forth in
RFP’s Scope of Work.
2. Fifteen-point deduction for “Organizational staff isunderrepresented in acute care experience.”
156. Magellan argued in its April 3, 2013 bid protest that the resumes for its
organizational staff showed that staff had a total of 162 years of acute care experience.
157. CPO Ruth’s analysis at Exhibit 1 to her CPO decision denying the protest
noted that Magellan’s protest did not provide a basis for how it calculated years of
experience and that 26 of the 36 key personnel had little to no acute care experience.
CPO Ruth stated that the Evaluation Committee properly deducted points because ten
92 See Exhibit JNT-41 at 16-17.
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experienced personnel did not make up for 26 inexperienced personnel. CPO Ruth
further noted that the claimed collective experience for the most part related to
behavioral health services.93
158. Ms. Ault testified that the Evaluation Committee deducted points because
Magellan’s organizational staff was under-represented in acute care experience.94 Ms.
Ault testified that the Committee was looking for specific recent experience in physical
or integrated health care. Ms. Ault testified that many of the resumes that Magellan
submitted with its proposal reflected limited experience in physical health care, but
strong experience in behavioral health care.
159. Dr. Temm testified that the RFP did not define “acute care” and that
normally, “acute care” means physical health care. Dr. Temm testified that the resumes
attached to Magellan’s proposal, as well as the table that summarized relevant
experience, indicated that Magellan’s staff had over 600 years physical or acute health
care experience.
3. Twenty-five point deduction for “inconsistent reporting ofexperience and expertise related to parent and/or affiliatedorganizations.”
160. Magellan argued in its April 3, 2013 bid protest that because the RFP
requested that the offeror provide its “company” star rating, Magellan did not provide
the star rating of its affiliate, Abrazo. As a result, the Evaluation Committee deducted
twenty-five points from Magellan’s score.
161. CPO Ruth’s analysis at Exhibit 1 to her CPO decision denying the protest
noted that the Evaluation Committee’s concern was Magellan’s inconsistent reporting of
experience and expertise related to parent and other organizations listed in the offer
and that the Evaluation Committee’s deduction of points was reasonable.95
162. Ms. Ault testified that the Evaluation Committee looked at the offeror and
the parent companies. The star ratings apply to Medicare health plans, but Phoenix
Health Plan is not a Medicare health plan and Magellan’s proposal did not mention
93 See Exhibit JNT-41 at 17-18.94 See Exhibit JNT-33 at 32.
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Abrazo in this section. Ms. Ault testified that although the Committee knew that Abrazo
was not Magellan’s parent, Magellan’s proposal was inconsistent. When it was
advantageous, Magellan’s proposal used Abrazo, but not for the star rating. Ms. Ault
testified that the Committee looked at the consistency of the offeror’s reporting of
parents or affiliates.
163. Dr. Temm acknowledged that Magellan’s proposal was inconsistent and
somewhat confusing and that twenty points were properly deducted from Magellan’s
score for inconsistent reporting of experience and expertise. Dr. Temm also testified
that, “without having any idea of how points are awarded, at the values of them, I
basically said it looked like based on how many elements were here, five points is a
reasonable amount for the star rating to move it from a 25-point deduction to a 20-point
deduction.”96
4. Ten-point deduction for “Description of coordination for non-SMIpopulations does not include physical health care coordination.”
164. Magellan’s April 3, 2013 bid protest disputed the Evaluation Committee’s
10-point deduction because Magellan in its Method of Approach, Section 8.12, detailed
its reinvestment of $3,000,000 in the community to develop tools for coordination of
physical health care, including Health Risk Assessments developed and currently being
used for children, SMI individuals who were not eligible for Medicare or Medicaid, and
others.97
165. CPO Ruth’s analysis at Exhibit 1 to her CPO decision denying the protest
noted that the Evaluation Committee’s finding related to Method of Approach Section
8.11, “Care Coordination,” and that Magellan’s attempt to combine the responses to
Sections 8.11 and 8.12 “suggests that Magellan expected the evaluators to combine
two responses into one.”98
166. Dr. Temm testified that she “did find evidence that each potential
population was actually addressed and actually broken down by the individual types” in
95 See Exhibit JNT-41 at 18.96 September 19, 2013 R.T. at 295:17 to 297:19.97 See Exhibit JNT-40 at 23-24.98 Exhibit JNT-41 at 19.
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Section 8.11 and that Magellan’s proposal “did indicate coordination and, actually,
technology that would be used in basically including physical healthcare
coordination.”99
5. Ten-point deduction for “RBHA employed staff providing directservices.”
167. Magellan’s April 3, 2013 bid protest disputed the Evaluation Committee’s
ten-point deduction because the RFP “describ[ed] direct services as services that are
subject to encounters submitted for reimbursement” and asserted that Magellan’s staff
“does not submit encounters but instead provides care coordination at an
administrative level.”100
168. CPO Ruth’s analysis at Exhibit 1 to her CPO decision denying the protest
noted that Magellan’s proposal described as a sample experience that its Integrated
Care Coordinator would help a member “focus on achievable personal goals for weight
loss and design specific interventions that he could successfully incorporate into his
lifestyle,” which appeared to constitute direct care services.101
169. Ms. Bashor testified that Magellan’s bid lost points because it was
creating and using different terms that were not commonly used in the industry, for
example, case management, care management, and care coordinator. Although care
management is a RBHA function, case management is a provider function. Ms. Bashor
testified that as a result, Magellan’s bid was difficult for the Evaluation Committee to
understand. Ms. Bashor testified that the evaluators were concerned that Magellan
proposed to provide direct behavioral health care.
170. Dr. Temm testified that the Evaluation Committee should not have
deducted ten points because it had already deducted twenty points for “Lacks
description/ consistency of function in relation to service administrative actions
regarding case management, care management and care coordination.”102
99 September 19, 2013 R.T. at 300:5 to 301:5; see Exhibits MAG-302 at 18, 26-41; MAG-305 at 6-7.100 Exhibit JNT-40 at 24.101 Exhibit JNT-41 at 19-20.102 September 19, 2013 R.T. at 301:7 to 302:2.
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171. CPO Ruth’s analysis at Exhibit 1 to her CPO decision denying the protest
also noted that Magellan’s argument regarding multiple deductions for separate
sections was inconsistent with the methodology used to evaluate all of the offers,
because the evaluation methodology required each section to be evaluated separately
and apart from other sections.103
6. Fifty-point deduction for “Lack of balanced integrated careapproach for SMI.”
172. The Evaluation Committee deducted fifty points from Magellan’s score
because its proposal did not adequately demonstrate the importance of physical health.
As examples of Magellan’s deficiencies, the Evaluation Committee noted that only one
member of Magellan’s governing board was an acute care professional, Magellan
lacked oral health care liaison experience, Magellan’s overall organizational structure
demonstrated a lack of requisite physical health care experience, Magellan’s proposal
lacked sufficient physical and behavioral health care coordination, and Magellan’s staff
had limited physical health care training.
173. Magellan’s April 3, 2013 bid protest disputed the deficiencies that the
Evaluation Committee had identified, either because its proposal contained the
information that the Committee found lacking or because the RFP did not request the
missing information.104
174. CPO Ruth’s analysis at Exhibit 1 to her CPO decision denying the protest
noted that the 50-point deduction for not “adequately demonstrat[ing] importance of
[physical health]” was properly scored under the Method of Approach criteria and was
actually a deduction for the “[l]ack of a balanced integrated care approach for SMI.”105
CPO Ruth noted further that Magellan’s Protest either did not provide the section of its
offer where the information that the Evaluation Committee determined was lacking
could be found, the information that the offer provided did not satisfy the RFP’s
103 See Exhibit JNT-41 at 24.104 See Exhibit JNT-40 at 24-25.105 See Exhibit JNT-41 at 20-23
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requirements, or the information provided in the protest could not be found in the
offer.106
175. Ms. Bashor testified that Magellan did a nice job of sharing how it had
brought forth the Integrated Home Health program, but its proposal did not show that it
had moved forward. Ms. Bashor explained that if a member wanted to be seen by his
or her primary care physician, Magellan’s proposal did not address the coordination of
care and that Magellan’s proposal provided for co-location of physical and behavioral
health care, not integrated care. Ms. Bashor testified that although Magellan’s
proposal indicated that it wanted to move forward, it did not indicate a specific intent or
plan that ADHS could monitor.
176. Dr. Temm testified that she agreed with Magellan’s protest because all of
the information regarding the balanced integrated care approach for SMI members was
included in Magellan’s proposal. Dr. Temm testified that the Evaluation Committee
should not have deducted any of the 50 points, which were more than half the
difference between Magellan’s and MMIC’s final scores.
7. Failure to award points for elimination of duplicative administrativelayer of the children’s PNO.
177. Magellan’s April 3, 2013 bid protest argued that although it was not
awarded any points for the elimination of the administrative layer of the children’s
Provider Network Organization (“PNO”), both MMIC and another offeror were awarded
five points for eliminating the same duplicative layer of services.
178. CPO Ruth’s analysis at Exhibit 1 to her CPO decision denying the protest
noted that Magellan did not receive extra strength points because its offer eliminated
only the children’s PNO administrative function, leaving the adult PNO administrative
function in place and that MMIC eliminated the entire PNO administrative function.107
179. Dr. Temm testified that Magellan’s proposal included language that all
outpatient providers would contract directly with the RBHA and that it would eliminate
106 See Exhibit JNT-41 at 21-23.107 See Exhibit JNT-41 at 23.
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the duplicative administrative layer of the children’s PNO that was currently in place.108
Dr. Temm testified that if the Evaluation Committee were consistent, it would have
awarded Magellan five points for the elimination of the administrative layer.
8. Twenty-point deduction for “significant and repetitive history ofcontract non-compliance.”
180. Magellan’s April 3, 2013 bid protest argued that it had provided
outstanding services to members and the community in Maricopa County for six years
and that Magellan Health Services of Arizona had received exceptional scores from
ADHS/DBHS, including 88% full compliance in 2011, and 94% full compliance in 2012.
Nonetheless, the Evaluation Committee deducted 20 points from Magellan’s score,
even though it only deducted 15 points from MMIC’s score for compliance issues.
181. CPO Ruth’s analysis at Exhibit 1 to her CPO decision denying the protest
noted that Magellan’s comparison was not accurate. CPO Ruth explained that the
Evaluation Committee deducted points from MMIC’s score under Experience and
Expertise, Section 1.23, relating only to Medicare performance of the organization,
while the Committee deducted points from Magellan’s score under Section 1.22,
relating to all performance deficiencies for all affiliated companies.109
182. Dr. Temm testified that the Evaluation Committee should have deducted
only 10 points from Magellan’s score because although there were some compliance
issues, “they weren’t as severe or egregious as some of the contract noncompliance
issues that were identified in the MMIC response,” for which only 15 points were
deducted. Dr. Temm testified that MMIC’s compliance issues had resulted in
individuals being unable to enroll in certain programs, while Magellan’s compliance
issues only involved the timely reporting of encounters, which did not affect
membership.110
/ / / /
/ / / /
108 September 19, 2013 R.T. 306:22 to 308:13.109 See Exhibit JNT-41 at 25.110 September 19, 2013 R.T. 310:18 to 313:13.
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9. Five-point deduction for “Credit rating below A.”
183. Magellan’s April 3, 2013 bid protest disputed the Evaluation Committee’s
five-point deduction because the RFP did not state that bidding entities must be rated
“A” or higher to meet minimum standards.
184. CPO Ruth’s analysis at Exhibit 1 to her CPO decision denying the protest
noted that Section 1.18 of the Experience and Expertise of the RFP required the offeror
to provide the most recent financial statements. In response, Magellan stated that it did
not have a financial rating but that Magellan Health Services had a “BBB-” credit rating
and that Vanguard had a “B/Stable” credit rating from Standard and Poor’s and a “B2”
credit rating from Moody’s.
185. CPO Ruth rejected as unreasonable Magellan’s argument that the
Evaluation Committee could not deduct points for an offeror’s or parent’s poor credit
rating since it was required to provide that information in its response to the RFP and
“[f]ollowing the rational[e] of the Protest, if a vendor had a ‘D’ rating it could not be
evaluated because the Solicitation did not require an ‘A’ rating.”111
186. Dr. Temm testified that because the RFP did not include any standard for
an offeror’s or parent’s credit rating, the Evaluation Committee should not have
deducted any points from Magellan’s offer for its parent corporation’s less than stellar
credit ratings.
10. Twenty-point deduction for “Failing to fully disclose legalproceedings.”
187. Magellan’s April 3, 2013 bid protest disputed the Evaluation Committee’s
20-point deduction because its response to the RFP had provided a full summary of the
legal matters in which it had been involved for the previous seven years and the RFP
did not state the level or scope of detail that it required.
188. CPO Ruth’s analysis at Exhibit 1 to her CPO decision denying the protest
noted that although Magellan provided a “summary” with its response, the RFP’s
instructions required the offeror to “[f]ully disclose involvement in any legal proceeding,
111 Exhibit JNT-41 at 26.
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lawsuits, or government regulatory actions or demands for assurance . . . for the past 7
years.” CPO Ruth opined that the Evaluation Committee properly deducted twenty
points because Magellan only provided a “bare-bones,” high-level, three-category
“case type” classification that did not allow the evaluators to identify any referenced
item.112
189. Although Dr. Temm did not include the Evaluation Committee’s deduction
for Magellan’s alleged failure to fully disclose legal proceedings in her report, she
testified that she looked at Magellan’s proposal on the day before she testified and
determined that Magellan had disclosed what was required, especially in light of the
RFP’s failure to instruct offerors as to how much information they needed to disclose.113
11. Failure to award sufficient bonus points to Magellan for“exceptional crisis response.”
190. Magellan’s April 3, 2013 bid protest disputed the Evaluation Committee’s
failure to award Magellan sufficient bonus points because although the Committee
praised both Magellan and MMIC for having an “exceptional crisis response approach,”
MMIC was awarded five points but Magellan was awarded only two points.
191. CPO Ruth’s analysis at Exhibit 1 to her CPO decision denying the protest
noted that the Evaluation Committee commented on Magellan’s “[e]xceptional crisis
response approach – introduction of strategies, interventions, technology that includes
iPads, GPS tracking, additional 24/7 nurse line, inclusion and involvement of peer and
family, specialized mobile team.” CPO Ruth also noted that the Evaluation Committee
commented on MMIC’s “[e]xceptional crisis response approach – introduction of
strategies, interventions, technology that includes iPads, geo accessing, additional
24/7 nurse line, inclusion and involvement of peer and family, specialized children’s
mobile team, alternative administrative approaches and cost saving opportunities.”
CPO Ruth found that because MMIC’s response included elements that Magellan’s
112 See Exhibit JNT-41 at 26.113 See September 19, 2013 R.T. at 314:1 to 314:22.
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response did not, the small difference in the number of points awarded was
reasonable.114
192. Dr. Temm testified that she could not explain the difference in the number
of points that the Evaluation Committee awarded MMIC and Magellan for “almost
identical” strategies, interventions, and technologies. Dr. Temm testified that in her
opinion, the scores indicated that the Evaluation Committee scored Magellan’s and
MMIC’s proposals differently.115
12. Disparate five-point deduction for Magellan missing one financialdocument, while only seven points (as opposed to ten) werededucted from MMIC’s score for missing two documents.
193. Magellan’s April 3, 2013 bid protest challenged the Evaluation
Committee’s deduction of five points from its score for not providing one financial
document, while the Committee deducted only seven points from MMIC’s score, even
though it failed to provide two documents.
194. CPO Ruth’s analysis at Exhibit 1 to her CPO decision denying the protest
noted that the Evaluation Committee’s actual deduction was due to Magellan’s failure to
submit the most recent interim financial statements for Phoenix Health Plan. CPO Ruth
opined that “it cannot be assumed that each additional missing financial statement is
valued equally to the other.”
195. Dr. Temm did not review or testify about the alleged disparate deductions
from MMIC’s score and Magellan’s score based on missing financial documentation.116
13. Failure to award bonus points to Magellan for partnership withthe University of Arizona.
196. Magellan’s April 3, 2013 bid protest alleged that “[w]hile Magellan and
MMIC both reference unique relationships with local universities to advance their
practices, MMIC received a point for its partnership with Arizona State University but
114 See Exhibit JNT-41 at 26-27.115 See September 19, 2013 R.T. at 315:7 to 315:20.116 See September 19, 2013 R.T. at 315:21 to 316:2.
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Magellan did not receive any points for its work with the University of Arizona’s College
of Public Health (Phoenix Campus).”117
197. CPO Ruth’s analysis at Exhibit 1 to her CPO decision denying the protest
noted that MMIC’s evaluation related to section 4.5.4, behavioral health service
delivery for adult members, but that Magellan’s protest provided no specific offer
section citation to validate its claim. Because CPO Ruth was unable to evaluate the
merits of Magellan’s argument, she concluded that Magellan had not met its burden of
demonstrating a scoring bias.118
198. Dr. Temm testified that Magellan disclosed its partnership with the
University of Arizona through the EcoHealth Community Model in the Method of
Approach in Magellan’s response to the RFP, which provided in relevant part as
follows:
Magellan led a collaborative “EcoHealth” Coachesapplication for the 2012 CMS Healthcare InnovationsGrants. While not funded, the community collaborativeproposal received excellent feedback, encouraging us topursue the effort. We established a new relationship withthe University of Arizona’s Mel and Enid Zuckerman Collegeof Public Health and the Maricopa County Department ofPublic Health to bring an EcoHealth Community model tothe Integrated Healthcare Service Delivery System (seeAppendix G, Memorandum of Agreement between Magellanand University of Arizona). As demonstrated in Figure 1.3-abelow our approach will focus on the member and includebehavioral (BH) and physical health (PH) providers, OneHealth technology, and stakeholders. One Health is the firstcomprehensive online community specifically designed tohelp people change their behavior and lead healthierlives. This collaboration will create a complete solution tosupport the development of whole person health andcomplete care through individual and community capacitybuilding.119
117 Exhibit JNT-40 at 28.118 See Exhibit JNT-41 at 28.119 See Exhibit MAG-298 at 3-4. Although Dr. Temm also cited pages 5 and 6 of Exhibit MAG-298,those pages were redacted from the exhibit in evidence.
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199. Dr. Temm testified that in her opinion, the Evaluation Committee should
have awarded Magellan an extra five points because in her mind, Magellan’s
partnership with the University of Arizona “was very comparable to the 5 points that
were awarded to MMIC for what they referred to as ‘exceptional fiscal and
administrative approach.’”120
14. Failure to give Magellan additional strength points for RBHAexperience set forth in its proposal.
200. Magellan’s April 3, 2013 bid protest argued that “[t]he six years of
experience of Magellan Health Services of Arizona in providing behavioral health
services to the State was entirely overlooked and the organization was not awarded
any credit for such in the bid process.”121
201. Although no strength points were awarded based on the fact that
Magellan is the current RBHA, the Evaluation Committee awarded Magellan 215 out of
350 possible points for Experience and Expertise.122
202. CPO Ruth’s analysis at Exhibit 1 to her CPO decision denying the protest
noted that the evaluators appropriately considered Magellan’s RBHA experience and
appropriately awarded strength points only where warranted, not simply based on the
fact that Magellan is the current RBHA.123 CPO Ruth determined that it would be
inappropriate to award strength points to Magellan based solely on Magellan Health
Services of Arizona’s role as the current RBHA because that would unfairly penalize
the other offerors and show an undue bias towards Magellan.124
203. Dr. Temm acknowledged that Magellan’s six years of experience as the
RBHA would have had to have been contained in its 2,200-page proposal for the
Evaluation Committee to consider its experience. Based on her review of Magellan’s
proposal, Dr. Temm testified that the Evaluation Committee did not recognize or give
credit to Magellan for its experience. Dr. Temm testified that Magellan’s proposal
120 September 19, 2013 R.T. at 318:17 to 320:4.121 Exhibit JNT-40 at 28.122 See Exhibit JNT-33 at 31.123 See Exhibit JNT-41 at 28-29124 See id. at 28.
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showed that some of the work that the new RBHA would do, such as encounters, was
the same kind of work that Magellan had been doing. Dr. Temm testified that in the
Integrated Home Health model, Magellan addressed integrated behavioral and physical
health care for SMIs and that she did not get the impression that Magellan proposed to
do business as usual.125
15. Inadequate scoring of test files.
204. Magellan’s April 3, 2013 bid protest argued that although Magellan had a
92% success rate for test files and MMIC had only a 61% success rate, the difference
in the scores that the Evaluation Committee gave Magellan’s and MMIC’s offers was
only eight points.
205. CPO Ruth created a table of the scores that the Evaluation Committee
gave the entities that had submitted responses to ADHS’s RFP based on the results of
13 test records for enrollment and eligibility data exchange, as follows:
Offeror Number of E-Filescorrectly
processed
Points (2)Deducted per
file failure
% SuccessRate
Magellan 12 of 13 -2 92%United 11 of 13 -4 85%MMIC 8 of 13 -10 62%Cenpatico 7 of 13 -12 54%Partners 1 of 13 -24 8%
CPO Ruth concluded that the table showed that the Evaluation Committee had
determined that it would assign a 2-point deduction for every electronic record failure.
CPO Ruth concluded further that the scoring showed that the Evaluation Committee
had consistently scored all five offerors’ test results and that the evaluation of such
results was not biased against Magellan.126
206. Dr. Temm did not address Magellan’s argument in its April 3, 2013 bid
protest that the Evaluation Committee’s scoring of the test results evidenced bias
against Magellan.
/ / / /
125 September 19, 2013 R.T. at 320:5 to 321:20.126 See Exhibit JNT-41 at 29.
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CONCLUSIONS OF LAW
1. Magellan’s timely filed bid protest lies within ADOA’s jurisdiction to resolve.127
ADOA properly referred this entire dispute to OAH.
2. Magellan bears the burden of proof to establish: (1) The existence of one or
more of the statutory or Procurement Code violations, conflicts of interest, bias, failure
to comply with the terms of the solicitation, or scoring errors that it alleged in its timely
bid protest; and (2) Corresponding prejudice, including a showing that, but for the
proven improprieties, there was a substantial probability that Magellan would have
received the RBHA contract award.128
3. The standard of proof on all issues is by a preponderance of the evidence.129
“A preponderance of the evidence is such proof as convinces the trier of fact that the
contention is more probably true than not.”130
TIMELINESS
4. A.A.C. R2-7-A901(B)(4) required Magellan to include in its protest “a detailed
statement of the legal and factual grounds of the protest.” A.A.C. R2-7-A901(D)
required Magellan to file the protest “within 10 days after the agency [CPO] makes the
procurement file available for public inspection.” The RFP’s Uniform Instructions to
Offerors’ Section (G)(4) contained these same requirements.
5. No Arizona common-law authority interprets or applies the deadlines set forth
in A.A.C. R2-7-A901. Under federal case law, new grounds that are raised after the
ten-day period are untimely. Although the timely filing of a protest is a jurisdictional
requirement, evidence of later events may be considered to support a legal argument
that was contained in a timely protest:
Generally, the timeliness of an additional bases bear to theinitial protest. . . . Where the later bases present new andindependent grounds for protest, they must independentlysatisfy our timeliness requirements. Conversely, where thelater contentions merely provide additional support for an
127 See A.A.C. R2-7-B904(D).128 See CMO No. 10.129 See id.130 MORRIS K. UDALL, ARIZONA LAW OF EVIDENCE § 5 (1960).
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earlier timely raised objection, we consider these additionalarguments. . . .131
6. The alleged violation of A.R.S. § 48-5561 was not included as a ground in a
protest filed within 10 days after ADHS’s CPO made the procurement file available for
inspection. Magellan did not request an extension of time pursuant to A.A.C. R2-7-
A901(E) based on the alleged failure of the CPO to make MMIC’s proposal immediately
available on the ProcureAZ website. Magellan did not allege good cause for its failure
to timely raise A.R.S. § 48-5561.132 Therefore, Magellan’s protest based on the alleged
violation of A.R.S. § 48-5561 was untimely.
7. Magellan also attempted to argue at the hearing and in its post-hearing
submissions that in addition to providing direct behavioral health services, under
MMIC’s September 9, 2013 Amended and Restated Bylaws, MIHS would perform
RBHA functions, in violation of ADHS’s RFP’s requirements. This argument was first
raised at the hearing. Even if Magellan had established that the RBHA functions that
MIHS allegedly would provide could not be delegated under Section 20.3.2 of the
Scope of Work, which like the Conflict of Interest provisions of the RFP referred to the
Contractor, not the offeror, Magellan never filed a bid protest that raised this argument.
8. A.A.C. R2-7-A901(C) provides that “[i]f the protest is based upon alleged
improprieties in a solicitation that are apparent before the offer due date and time, the
interested party shall file the protest before the offer due date and time.” Similarly,
Section (G)(4) of the Uniform Instructions to Offerors required Magellan to file a protest
131 Protest of: Rodgers Brothers Custodial Services, Inc., DCCAB No. P-656 (1999) (1999 WL 94983)(citations omitted).132 A.A.C. R2-7-A901 also provides as follows:
E. The interested party may submit a written request to the agencychief procurement officer for an extension of the time limit forprotest filing set forth in subsection (D). The written request shall besubmitted before the expiration of the time limit set forth insubsection (D) and shall set forth good cause as to the specificaction or inaction of the purchasing agency that resulted in theinterested party being unable to submit the protest within the 10days. The agency chief procurement officer shall approve or denythe request in writing, state the reasons for the determination, and, ifan extension is granted set forth a new date for submission of thefiling.
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within ten days of when it “[knew] or should have known the basis of the protest.”
Arguments I, II, and III of Magellan’s April 3, 2013 bid protest were not based on
improprieties that were apparent on the face of the RFP but on MIHS’s involvement in
MMIC. Magellan’s witnesses credibly testified that although they suspected that
MIHS’s involvement in MMIC may have violated A.R.S. § 36-3410(C) and created an
inherent conflict of interest, they did not know what MIHS’s role would be in MMIC or
the full extent of the potential conflict of interest until shortly before the hearing.
Magellan’s witnesses’ testimony is supported by the documents that were submitted
regarding MMIC’s formation. Therefore, Magellan timely raised the grounds set forth in
Arguments I, II, and III of its April 3, 2013 bid protest.133
9. Because Magellan timely raised MMIC’s alleged conflict of interest in the
April 3, 2013 bid protest, the ALJ considers whether the provisions of MMIC’s
September 9, 2013 Amended and Restated Bylaws create an inherent conflict of
interest that will prevent MMIC from performing the RBHA contract.
10. Dr. Clarke’s November 16, 2012 letter specifically stated that ADHS’s
Amendment 7 to the RFP was aimed at supporting only one bidder, whom he identified
as “Aetna/Mercy,” and demonstrated a clear bias in favor of that entity. Because the
alleged impropriety was apparent to Dr. Clarke on the face of Amendments 7 and 9,
Magellan was required to have filed its protest within 10 days of when Amendments 7
and 9 were posted, November 13, 2012, and December 4, 2012, respectively.
Therefore, Magellan’s Argument VI in the April 3, 2013 bid protest was untimely.
11. Because Magellan’s April 3, 2013 bid protest included Argument VI,
Magellan submitted evidence to support this argument, and the ALJ only makes
recommendations to ADOA, which ADOA may accept, reject, or modify,134 this
recommended decision addresses the merits of Argument VI in the event that ADOA
determines that Magellan timely raised Argument VI.
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F. If the interested party shows good cause, the agency chiefprocurement officer may consider a protest that is not timely filed.
133 See A.A.C. R2-7-B904(C).134 See A.R.S. § 41-1092.08(B).
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I. WHETHER MMIC’S ORGANIZATIONAL STRUCTURE VIOLATES A.R.S. § 36-3410(C).
12. A.R.S. § 36-3410(C) prohibits “[RBHAs] and their subsidiaries” from
delivering behavioral health services directly to members. “In applying a statute, . . . its
words are to be given their ordinary meaning unless the legislature has offered its own
definition of the words or it appears from the context that a special meaning was
intended.”135 “In a statute, ‘the expression of one or more items of a class indicates an
intent to exclude all items of the same class which are not expressed.’”136 A subsidiary
corporation is “[a] corporation in which a parent corporation has a controlling share.”137
13. MMIC will be the RBHA. MMIC does not have a controlling share in MIHS
and MIHS is not MMIC’s subsidiary. MIHS does not have a controlling share in MMIC
and MMIC is not MIHS’s subsidiary.
14. A.R.S. § 36-3401(8) defines a RBHA as “an organization under contract with
[ADHS] to coordinate the delivery of mental health services in a geographically specific
service area of the state for eligible persons.” A.R.S. § 36-3401(8) does not change
the plain meaning of A.R.S. § 36-3410(C) to prohibit a parent or any other related entity
from delivering behavioral health services because such an expansive interpretation
would render the word, “subsidiaries,” in A.R.S. § 36-3410(C) superfluous.138
15. In Arizona Revised Statutes Title 36, which includes A.R.S. § 36-3410(C),
the Arizona legislature authorized ADHS to contract with RBHAs and to administer the
provision of behavioral health services to members who have been determined to be
eligible.139 In Arizona, administrative agencies’ interpretations of the statutes that they
are charged with implementing are entitled to deference140 and ambiguities in statutes
135 Mid Kansas Federal Savings and Loan Ass’n of Wichita v. Dynamic Development Corp., 167 Ariz.122, 128, 804 P.2d 1310, 1316 (1991).136 Piper v. Bear Medical Systems, Inc., 180 Ariz. 170, 176, 883 P.2d 407, 413 (App. 1994) (quoting PimaCounty v. Heinfeld, 134 Ariz. 133, 134, 654 P.2d 281, 282 (1982)).137 BLACK’S LAW DICTIONARY at 368 (8th ed. 1999); see also Section 1.148 of Solicitation Exhibit 1, quotedat Finding of Fact No. 27 above. No Arizona statute or case defines “subsidiary.”138 See State v. Hoggatt, 199 Ariz. 440, 443 ¶ 10, 18 P.3d 1239, 1242 (App. 2001) (setting forthfundamental rule of statutory construction that requires that every word or term in a statute be givenmeaning).139 See A.R.S. §§ 36-3401 to 36-3435.140 See, e.g., Bridgestone Retail Tire Operations v. Industrial Commission, 227 Ariz. 453, 456 ¶ 12, 258P.3d 271, 274 (2011).
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must be resolved according to the implementing agency’s interpretation.141 In awarding
the contract to MMIC, ADHS determined that the corporate structure of MMIC, which
included MIHS as a sponsor, did not violate A.R.S. § 36-3410(C).
16. For the reasons noted above, the legislature’s use of the terms, “RBHA” and
“subsidiaries,” in A.R.S. § 36-3410(C) does not appear to be ambiguous, but if it is, the
ALJ defers to ADHS’s reasonable interpretation that the statute does not prohibit a
parent who owns 25% of a RBHA, like MIHS, from providing direct behavioral health
services to the RBHA’s members.
17. Magellan did not establish that ADHS’s award of the 2013 RBHA contract to
MMIC violates A.R.S. § 36-3410(C) or Section L of the RFP’s Special Terms and
Conditions. Therefore, Magellan did not establish that its Argument I of the April 3,
2013 bid protest requires ADOA to rescind ADHS’s award of the 2013 RBHA contract
to MMIC.
II. WHETHER MIHS’S INVOLVEMENT IN MMIC CREATES AN INHERENT CONFLICT OFINTEREST.
18. Neither MMIC’s response to the RFP, any statute, nor any other legal
authority that the parties submitted defines the term, “sponsor.” Although MMIC’s
proposal made it clear that MIHS would have some role in the RBHA if ADHS awarded
the contract to MMIC, the details of MMIC’s ownership and membership continued to
evolve after MMIC submitted its proposal and ADHS announced its award of the 2013
RBHA contract.
19. Three of the five entities that submitted offers in response to ADHS’s RFP,
including MMIC and Magellan, were newly created entities. As long as the offeror was
separately incorporated and separate from any parent, subsidiary, or other affiliated
company or corporation for the purpose of conducting business as a contractor with
ADHS, Special Term and Condition L and A.R.S. § 36-3410(C) were not violated. The
RFP did not otherwise specifically limit the role that related parties or entities could
take in the offeror.
141 Eaton v. Arizona Health Care Cost Containment System, 206 Ariz. 430, 434 ¶ 16, 79 P.3d 1044, 1048(2003).
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20. Magellan is correct that if a direct service provider of behavioral health
services controls a RBHA’s decisions regarding approval and removal of the RBHA’s
key personnel, contracts with payors, and approval of provider payment policies, a
potential conflict of interest exists.
21. An offeror’s potential or hypothetical conflict is a contract performance issue
that does not require the contracting agency to rescind the award of the contract.142
Section M of the RFP’s Special Terms and Conditions prohibited the Contractor, not
the offeror, from knowingly engaging in any actions or establishing any relationships,
arrangements, contracts or subcontracted provisions that would create a potential or
actual conflict of interest. Under the Uniform Instructions to Offerors and Exhibit 1 to
the RFP, a “contractor” has the contract with ADHS.
22. Although ADHS awarded the 2013 RBHA contract to MMIC, making it the
contractor, MMIC has not yet started performing the contract or entered into a contract
with MIHS or any other provider to provide behavioral health services. Under MMIC’s
September 9, 2013 Amended and Restated Bylaws, because MIHS is only one of four
voting members, it cannot unilaterally cause MMIC to act. Magellan did not establish
that MIHS controls or will control MMIC’s activities or decisions as the RBHA.
23. In light of the evidence that Magellan submitted, ADHS may scrutinize
MMIC’s contracts with direct service providers like MIHS and may terminate the 2013
RBHA contract if ADHS determines that MIHS is in a position to exert undue influence
over MMIC’s RBHA operations. Under the RFP’s Special Terms and Conditions, a
possible future conflict of interest is a compliance issue, not a basis to rescind the
contract award.
24. Magellan did not establish that MIHS’s membership in MMIC creates an
inherent conflict of interest. Therefore, Magellan did not establish that Section M of the
RFP’s Special Terms and Conditions requires ADOA to rescind ADHS’s award of the
2013 RBHA contract to MMIC.
142 See, e.g., In re Am. Bristol Indus., Inc., B-249108.2, 1992 WL 328760, at *3, 92-2 CPD ¶268 (Comp.Gen. Oct. 22, 1992); In re Military Agency Servs. Pty., Ltd., B-290414, 2002 WL 1782774, at *3, 2002CPD ¶130 (Comp. Gen. Aug. 1, 2002) (holding that “matters of contract administration are within thediscretion of the contracting agency” and are properly dealt with during the performance of the contract).
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III. WHETHER ADHS’S AWARD OF THE 2013 RBHA CONTRACT TO MMIC VIOLATES A.R.S. §41-2752.
25. A.R.S. § 41-2752 provides in relevant part as follows:
A. A state agency shall not engage in the manufacturing,processing, sale, offering for sale, rental, leasing, delivery,dispensing, distributing or advertising of goods or servicesto the public that are also offered by private enterpriseunless specifically authorized by law other thanadministrative law and executive orders.
B. A state agency shall not offer or provide goods orservices to the public for or through another state agency ora local agency, including by intergovernmental orinteragency agreement, in violation of this section or section41-2753.
A.R.S. § 41-2751(5) defines “state agency” as “a department, office, commission,
institution, board or other agency of state organization regardless of whether monies
are appropriated to the agency.”143
26. MMIC will be the RBHA who will oversee the provision of behavioral and
physical health services to eligible members, not MIHS. As noted above, MIHS is a
special health care taxing district created by the Board of Supervisors of Maricopa
County under A.R.S. § 48-5501.01(D). Title 48 of the Arizona Revised Statutes relates
to special taxing districts, unlike Title 41, which relates to state government. Tax
levying public improvement districts, like MIHS, are authorized to compete in relevant
markets with private enterprise.144 Public improvement districts, “‘while in some senses
subdivisions of the state, are in a very different class. Their function is purely business
143 As additional support for their arguments, ADHS, MMIC, and AHCCCS cite A.R.S. § 41-1001(1) andMagellan cites A.R.S. § 41-2771(7). A.R.S. § 41-1001(1) defines “agency” for purposes of Title 41,Chapter 6, relating to Administrative Procedures and A.R.S. § 41-2771(7) defines “state agency” forpurses of Title 41, Chapter 25, Article 2, Competitive Government Program. Because A.R.S. § 41-2752is found in Title 41, Chapter 25, Article 1, General Provisions, A.R.S. § 41-2751(5) provides theappropriate definition of “state agency” to be applied.144 See Hohokam Irrigation and Drainage District v. Arizona Public Service Co., 204 Ariz. 394, 397-98, 64P.3d 836, 839-40 (2003) (special districts created pursuant to art. XIII, § 7 of the Arizona Constitution canengage in commercial enterprise under the powers granted by the state constitution).
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and economic, and not political and governmental.’”145 A public improvement district’s
operations are conducted “‘[to] better enabl[e] it to function and accomplish the
business and economic purposes for which it was organized.’”146 The business
purpose of a public improvement district “implies possible competitors in the
economy.”147
27. Magellan did not establish that A.R.S. § 41-2752 prohibits ADHS from
awarding the 2013 RBHA contract to MMIC due to MIHS’s sponsorship or membership
in MMIC. Therefore, Magellan has not established that A.R.S. § 41-2752 requires
ADOA to rescind ADHS’s award of the 2013 RBHA contract to MMIC.
IV. WHETHER MMIC’S FAILURE TO OBTAIN AN ADOI LICENSE AT THE TIME IT SUBMITTED ITSPROPOSAL RENDERS IT TO BE NOT A RESPONSIBLE OFFEROR.
28. Magellan argued in its April 3, 2013 bid protest that MMIC’s failure to obtain
a license from ADOI before February 23, 2013, should have caused the CPO to find
that MMIC was not a responsible offeror under A.A.C. R2-7-B313.148 Magellan argued
at the hearing that MMIC’s failure to obtain a license from ADOI should have caused
the CPO to find that MMIC was not a responsible offeror under A.A.C.R2-7-
145 International Brotherhood of Electrical Workers v. Salt River Project Agricultural Improvement andPower District, 78 Ariz. 30, 43, 275 P.2d 393, 402 (1954) (quoting Day v. Buckeye Water Dist., 28 Ariz.466, 472, 237 P. 636, 638 (1925)).146 International Brotherhood of Electrical Workers, 78 Ariz. at 43, 275 P.2d at 402 (quoting Taylor v.Roosevelt Irrigation District, 72 Ariz. 160, 163, 232 P.2d 107, 109 (1951)).147 International Brotherhood of Electrical Workers, 78 Ariz. at 44, 275 P.2d at 403.148 A.A.C. R2-7-B313 concerns competitive sealed bids and provides in relevant part as follows:
Responsibility DeterminationsA. The agency chief procurement officer shall determine before an award
whether an offeror is responsible or nonresponsible.B. The agency chief procurement officer shall consider the following factors
before determining that an offeror is responsible or nonresponsible:1. The offeror’s financial, business, personnel, or other resources, such as
subcontractors;2. The offeror’s record of performance and integrity;3. Whether the offeror has been debarred or suspended;4. Whether the offeror is legally qualified to contract with the state;5. Whether the offeror promptly supplied all requested information
concerning its responsibility; and6. Whether the offeror meets the responsibility criteria specified in the
solicitation.
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C312(B)(6).149 Because the two regulations set forth the same factors for the CPO to
consider in determining whether the offeror is responsible or nonresponsible, the ALJ
considers whether ADHS properly determined that MMIC met the RFP’s requirements
for ADOI licensure and CMS certification and, therefore, was a responsible offeror.
29. The original RFP did not mention ADOI licensure. Amendment 1 to Section
6.3.3 of the RFP’s Special Instructions to Offerors required offerors to include “[p]roof
or an attestation of intent to submit . . . [ADOI] licensing requirements,” not licensure.
30. The evidence in the record shows that MMIC began the process of
obtaining a license from ADOI on December 31, 2012, before it submitted its proposal
in response to ADHS’s RFP.
31. To the extent that Amendment 1’s requirement regarding ADOI licensure
may have been ambiguous, Amendment 8 to Exhibit 3 concerning Medicare
Requirements to Coordinate Dual Eligible SMI Members advised offerors that “an
application to obtain a Health Care Service Organization certificate should be filed with
ADOI as soon as possible.” Amendment 8 also set a deadline of February 23, 2013,
more that six weeks after the RFP’s January 8, 2013 deadline for offerors to submit
responses, for the “Contractor” to submit a complete application to CMS to operate as a
D-SNP. As noted above, “contractor” was defined in the RFP as an entity with whom
ADHS had a contract.
32. The portion of Dr. Clarke’s November 16, 2012 letter that disputed whether
Amendments 1 and 8 correctly set forth federal requirements and whether ADOI
licensure was required for CMS certification was based on a misunderstanding of
Amendments 1 and 8’s requirements. Because Dr. Clarke did not submit the letter
149 ADHS’s CPO corrected Magellan’s citation to A.A.C. R2-7-B313(B)(6) because the RFP was acompetitive sealed bid, not a competitive sealed proposal. See Exhibit JNT-41 at 8. A.A.C. R2-7-C312concerns “Responsibility Determinations” and provides in relevant part as follows:
A. An agency chief procurement officer shall determine, at any time duringthe evaluation period and before award, that an offeror is responsible ornonresponsible.
B. The agency chief procurement officer may consider the following factorsbefore determining that an offeror is responsible or nonresponsible:
. . . .6. Whether the offeror meets any responsibility criteria specified in the
solicitation.
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through ProcureAZ, ADHS did not correct his misunderstanding. Offerors, such as
Magellan and MMIC, were not required to be licensed by ADOI as a condition of
submitting their offers.
33. Contract administration matters are within the discretion of the contracting
agency and are properly dealt with during the performance of the contract.150 Although
licensure by ADOI is a contract compliance issue, the record shows that by March 25,
2013, when ADHS formally accepted MMIC’s offer, it had obtained an ADOI license.
Magellan therefore did not establish that MMIC’s failure to obtain an ADOI license at
the time it submitted its proposal requires ADOA to rescind ADHS’s award of the 2013
RBHA contract to MMIC.
V. WHETHER MMIC’S FAILURE TO MAKE A TIMELY FILING WITH CMS RENDERS IT TO BE NOT ARESPONSIBLE OFFEROR.
34. The original Section H(6.3) of the RFP’s Special Instructions to Offerors
required them to submit a notice of intent to apply for CMS certification. Amendment 1
to the RFP advised offerors that if they became the RBHA contractor, they would be
required to become qualified to render Medicare benefits to dual eligible members,
which as noted above, would require ADOI licensure.
35. Because the evidence in the record shows that MMIC complied with the
RFP’s Special Instructions to Offerors by submitting its Notice of Intent to Apply as a
Medicare Demonstration Plan, Magellan did not establish that MMIC’s failure to make a
timely filing with CMS requires ADOA to rescind of ADHS’s award of the 2013 RBHA
contract to MMIC.
VI. WHETHER ADHS’S ISSUANCE OF AMENDMENTS 7 AND 9 TO THE RFP EVIDENCEDIMPERMISSIBLE BIAS IN THE PROCUREMENT PROCESS.
36. To succeed on its claim of bias in the procurement process related to the
issuance of Amendments 7 and 9, Magellan must present evidence sufficient to
overcome the strong presumption that the state employees involved in the RFP process
150 See In re Am. Bristol Indus., Inc., B-249108.2, 1992 WL 328760, at *3, 92-2 CPD ¶268 (Comp. Gen.Oct. 22, 1992); In re Military Agency Servs. Pty., Ltd., B-290414, 2002 WL 1782774, at *3, 2002 CPD¶130 (Comp. Gen. Aug. 1, 2002).
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acted in good faith.151 To establish ADHS’s alleged bias, Magellan must submit
“evidence of some specific intent to injure [Magellan].”152
37. Magellan was not entitled to rely on any statements made during ADHS’s
RFI. AHCCCS Director Betlach’s statement to Dr. Clarke about the single-entity
requirement is hearsay.153 Although hearsay may be admitted in an administrative
hearing,154 it should not be relied upon if it is not the kind of evidence upon which
reasonable persons would rely in serious matters.155 Director Betlach’s statement to
Dr. Clarke is not the kind of evidence upon which reasonable persons would rely to find
“systematic institutional bias” to require rescission of a potentially $5,000,000,000
contract award.
38. ADHS was the agency that issued the RFP and awarded the 2013 RBHA
contract, not AHCCCS. ADHS had the discretion to determine its needs and the best
method to accommodate them in the RFP156 and “whether to issue an amendment [was]
essentially a discretionary matter for [ADHS].”157 Amendments 7 and 9 to the RFP were
a proper exercise of ADHS’s discretion because these amendments increased
competition, as required by A.R.S. § 41-2565, by at least one bidder.158
151 See, e.g., Galen Med. Assocs., Inc. v. United States, 369 F.3d 1324, 1335 (Fed. Cir. 2004) (citingAm-Pro Protective Agency, Inc. v. United States, 281 F.3d 1234, 1238-39 (Fed. Cir. 2002)); In re BasicConcepts, Inc., B-299545, 2007 WL 1574615, at *2, 2007 CPD ¶98 (Comp. Gen. May 31, 2007); seealso In re Pardee Constr. Co., B-256414, 1994 WL 269819, at *3, 941-1 CPD ¶372 (Comp. Gen. June13, 1994) (“[W]e will not attribute unfair or prejudicial motives to procurement officials on the basis ofinference or supposition.”).152 Galen Med. Assocs., Inc., 369 F.3d at 1330 (citing Torncello v. United States, 681 F.2d 756, 770(Fed. Cl. 1982)); see also In re Pacific Consolidated Indus., B-250136, 1994 WL 101039, at *3, 94-1 CPD¶206 (Comp. Gen. Mar. 22, 1994) (“Before we will find bias, there must be very strong proof that anagency has a specific intent to injure a protester.”).153 See Ariz. R. Evid. 801(c) (“‘Hearsay’ is a statement, other than one made by the declarant whiletestifying at the trial or hearing, offered in evidence to prove the truth of the matter asserted.”).154 See A.R.S. § 41-1092.07(F)(1).155 See Plowman v. Arizona State Liquor Board, 152 Ariz. 331, 337, 732 P.2d 222, 228 (App. 1986)(citing Begay v. Arizona Department of Economic Security, 128 Ariz. 407, 626 P.2d 137 (App. 1981)).156 In re Helionix Sys., Inc., B-404905.2, 2011 WL 2140484, at *3, 2011 CPD ¶106 (Comp. Gen. May 26,2011).157 In re Kisco Co., B-216953, 1985 WL 52512, at *2, 85-1 CPD ¶334 (Comp. Gen. Mar. 22, 1985); seealso In re R.L. Sockey Real Estate & Constr., Inc., B-286086, 2000 WL 1721654, at *4, 2000 CPD ¶184(Comp. Gen. Nov. 17, 2000) (rejecting claim of bias based on mere issuance of an amendment).158 See, e.g., In re Sea Containers Am., Inc., B-243228, 1991 WL 135567, at *2, 91-2 CPD ¶45 (Comp.Gen. July 11, 1991) (rejecting claim of bias related to amendment that relaxed contractual requirementbecause the change was “aimed at increasing competition”); In re Trident, LLC, B-405781.3, 2012 WL2870402, at *4, 2012 CPD ¶201 (Comp. Gen. July 5, 2012) (rejecting protest based on alleged bad faith
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39. Even if Magellan’s Argument VI in the April 3, 2013 bid protest were timely,
Magellan failed to establish that in issuing Amendments 7 and 9, ADHS evidenced
impermissible bias in the procurement process.159 Therefore, Magellan did not
establish that ADHS’s Amendments 7 and 9 to the RFP evidences bias and require
ADOA to rescind ADHS’s award of the 2013 RBHA contract to MMIC.
VII. WHETHER THE EVALUATION COMMITTEE IMPROPERLY SCORED MAGELLAN’S PROPOSAL,RESULTING IN MAGELLAN NOT BEING AWARDED THE 2013 RBHA CONTRACT.
40. Because the review of an agency’s scoring determinations is only
appropriate to determine whether those determinations were reasonable and consistent
with the terms of the RFP and applicable law, “[a] protester’s mere disagreement with a
procuring agency’s judgment is insufficient to establish that the agency acted
unreasonably.”160 Minor errors in the procurement process, evaluation, or contract
award will not suffice to rescind an award.161
41. Dr. Clarke acknowledged that the individual members of the Evaluation
Committee were not personally biased against Magellan. As noted above, Magellan
did not establish that ADHS was biased against Magellan because most of its
experience was in the provision of behavioral health services or biased in favor of
MMIC because its sponsor or member, Mercy Care, was more experienced in the
provision of physical health care services.
42. Nationally, integrating physical health care with behavioral health care is a
new concept in the public health field and according to Dr. Temm, to date, only twelve
states have attempted to implement integrated physical and behavioral health care
systems. Some members of the Evaluation Committee were involved in drafting the
RFP and were experienced in such programs that currently exist in Arizona and other
by agency in issuing amendments where the protesting party “provided no evidence to rebut the agency’sexplanation of the purpose of these amendments,” and thus there was “no basis to conclude that theywere improper”).159 See In re ARK Enters., Inc., B-29270, 2003 WL 22682424, at *3, 2003 CPD ¶210 (Comp. Gen. Nov.13, 2003) (rejecting claim of bias based on the issuance of certain amendments that allegedly benefittedanother offeror where protesting party “merely provide[d] a recitation of events spanning that course ofth[e] procurement and conclude[d] that they must have resulted from bias”).160 In re Gonzales-Stoller Remediation Servs., LLC, B-406183.2, 2012 WL 1095360, at *4, 2012 CPD¶134 (Comp. Gen. Mar. 2, 2012) (citation omitted).
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states for the delivery of integrated health care. AHCCCS’s ALTCS program was also
the only specific integrated health program with which Dr. Temm testified she had
experience.
43. Dr. Temm attributed the scoring errors alleged in Magellan’s April 3, 2013
bid protest to the Evaluation Committee’s members’ lack of experience in integrated
care and testified that ADHS could have selected individuals in other states who were
more experienced in integrated health care and better qualified to act as evaluators.
Magellan’s April 3, 2013 bid protest did not specifically allege that the members of the
Evaluation Committee were unqualified. Even if Magellan timely raised the evaluators’
alleged lack of experience or Dr. Temm’s testimony simply provided additional
evidence to support Argument VII in the April 3, 2013 bid protest, given the novelty of
the concept of integrated care, Magellan did not establish that the ADHS and AHCCCS
employees who were selected to serve on the Evaluation Committee were unqualified
to evaluate the offers.
44. All of the members of the Evaluation Committee devoted substantial time to
individually review the thousands of pages that comprised the five proposals and
devoted another 67 hours to attend and participate in Committee meetings to achieve a
consensus result for each of the five offers. ADHS’s Evaluation Committee’s scoring of
Magellan’s and MMIC’s responses to the RFP are entitled to deference.162
45. ADHS’s RFP for the 2013 RBHA contract was a large and complex
solicitation. Although Dr. Temm testified that certain sections of the RFP did not
provide Magellan with adequate instructions on what was expected of offerors’
responses, Magellan did not establish that other offers with similar deficiencies did not
receive similar deductions or that offers that received more points did not better comply
with the RFP’s requirements.
161 See Statistica, Inc. v. Christopher, 102 F.3d 1577, 1581 (Fed. Cir. 1996).162 See A.R.S. § 41-1092.07(F)(3) (“[N]otice may be taken of generally recognized technical or scientificfacts within the agency’s specialized knowledge. . . . The agency’s experience, technical competenceand specialized knowledge may be used in the evaluation of the evidence”); see also Tech Sys., Inc. v.United States, 98 Fed. Cl. 228, 243 (2011) (“[T]he evaluation of proposals for their technical expertise orquality is a process that . . . requires the special expertise of procurement officials”).
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46. Magellan was responsible “to submit a well-written proposal, with
adequately detailed information, which clearly demonstrate[d] compliance with the
solicitation requirements and allow[ed] a meaningful review by [ADHS].”163 Magellan
did not establish that enough points should have been deducted from MMIC’s score or
enough points added to Magellan’s score to make it the successful offeror.
47. A.R.S. § 41-2534(G) required that ADHS award the 2013 RBHA contract to
“the responsible offeror whose proposal is determined in writing to be the most
advantageous to this state taking into consideration the evaluation factors set forth in
the request for proposals. No other factors or criteria may be used in the evaluation.”164
Magellan did not establish that MMIC’s offer was not the most advantageous to the
State of Arizona, taking into consideration the evaluation factors set forth in the RFP.165
48. Therefore, Magellan did not sustain its burden to establish by a
preponderance of the evidence: (1) The existence of one or more of the statutory or
Procurement Code violations, conflicts of interest, bias, failure to comply with the terms
of the solicitation, or scoring errors that it alleged in its timely bid protest; and (2)
Corresponding prejudice, including a showing that, but for the proven improprieties,
there was a substantial probability that Magellan would have received the RBHA
contract award.
RECOMMENDED ORDER
Based on the foregoing, it is recommended that ADHS’s award of the 2013
RBHA contract to MMIC shall be affirmed and that Magellan’s appeal shall be
dismissed.
In the event of certification of the Administrative Law Judge Decision by the
Director of the Office of Administrative Hearings, the effective date of the Order will be
five days from the date of that certification.
163 In re LexisNexis, Inc., B-299381, 2007 WL 1150857, at *3, 2007 CPD ¶73 (Comp. Gen. Apr. 17,2007) (citation omitted).164 See also A.A.C. R2-7-C317(A).165 See In re TriWest Healthcare Alliance Corp., B-401652.12, 2012 WL 3106793, at *13, 2012 CPD ¶191(Comp. Gen. July 2, 2012) (The “evaluation of an offeror’s proposal is a matter within the agency’s broaddiscretion, since the agency is responsible for defining its needs and the best method for accommodating
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Done this day, November 18, 2013.
/s/ Diane MihalskyAdministrative Law Judge
Transmitted electronically to:
Jeff Grant, Deputy Director forBrian C. McNeil, DirectorArizona Department of Administration
them”); see also Synetics, Inc. v. United States, 45 Fed. Cl. 1 (1999) (explaining that agencies areentrusted with a good deal of discretion in determining which bid is the most advantageous).
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