States can avoid challenges to Medicaid contract awards Greater use of competitive bidding in Medicaid managed care along with state personnel’s lack of experience in this new procurement process are among the reasons for the "relatively high number" of legal challenges to behavioral health contracts in Medicaid managed care, according to a recent study commissioned by the American Managed Behavioral Healthcare Association (AMBHA). The dollar value of these contracts and the bidder’s already significant investment in its proposal makes "the incremental costs of contesting the procurement" look relatively minimal, write the authors, Colette Croze of Croze Consulting and Wendy Krasner of McDermott, Will, and Emery. "Public mental health systems are moving from distributing grants of half a million dollars to each of 100 community mental health agencies to procuring services through single contracts of $50 million to $150 million. Vista Behavioral Health Plan, for example, spent $1.2 million on its bid for a contract awarded by the Montana Department of Human Services valued at $400 million. The company challenged the state’s award to another bidder. According to the AMBHA report, the company ended up reaching an out-of-court settlement with the winning bidder in which it received a settlement equal to half of its proposal development costs. Of the 12 competitive procurements studied, there were five challenges to the awards, with three of those challenges resulting in litigation—in Montana, Iowa and Ohio. Costs of contesting the procurement are relatively minimal when contrasted with the normous value of winning the contract. Still, the authors stress that "the majority of public procurements of managed behavioral healthcare have gone smoothly and unchallenged," that "health care procurement protests are not limited to behavioral health," and that "litigation is a way of life in the public sector. Lawsuits didn’t start with for-profit organizations getting into the public mental health business. "Government is continually sued around its provision of health and mental health services." The AMBHA report cites several other key factors that appear to have precipitated the procurement challenges: • most state offices of behavioral health are not familiar with all of the requirements of the Federal Procurement Act; • changes in the rules of the game during the course of the procedure; • and deficiencies in the procurement process, such as unclear design features, hastily developed evaluation processes, uneven knowledge base of review participants, conflicts of interest, and the use of a consensus approach in which everyone’s opinion is treated as equal. The report offers several recommendations for reducing the risk of litigation and improving the procurement process. They include using: •reasonable time frames for issuing and receiving proposals; •RFIs (Requests for Information); • pre-qualifications and effective evaluation criteria, site visits, clear appeals procedures, and a single point of contact for bidders; • experienced personnel and legal counsel during evaluations; • a neutral third party observer to oversee procurement process; • alternative dispute resolution techniques to settle disagreements; • a public process for advising on rates, methodologies, and justifications; and • a federal assistance process, such as the Medicare competitive procurement federal advisory committee. Copies of the report are available for $50, payable to AMBHA, 700 Thirteenth St., NW, Suite 950, Washington, DC 20005, 202-434-4565.