Judge tosses Medica lawsuit challenging DHS contract changes

A Ramsey County judge Wednesday dismissed a lawsuit from Minnetonka-based Medica against the state Department of Human Services, rejecting the HMO's argument that other insurers were unfairly offered better deals for managing care this year in public health insurance programs.

In late 2016, Medica announced it would drop its state contract to serve as a managed care organization (MCO) in the programs, arguing the contract's competitively bid payment rates to the insurance company were too low.

The Department of Human Services (DHS) recruited replacement HMOs to cover more than 300,000 people being dropped by Medica as of May and provided them with "transition factor" payments that Medica said it wasn't offered.

In her ruling, Judge Robyn Millenacker said that Medica's interpretation of state procurement laws would have had the state launch a new process and effectively disrupt safeguards that let the state get the best deal for taxpayers.

"Medica's interpretation of procurement laws creates an absurd result because it does not account for the fact that Medica's own conduct created the material change that warrants amending the 2017 contracts," Millenacker wrote in an order issued Wednesday.

"Medica's interpretation creates a perverse result by which an MCO could submit an improvidently low proposal, be awarded a significant portion of the available contracts, then threaten to withdraw and force another formal procurement unless DHS acquiesces to the MCO's demanded concessions, no matter how unfavorable to the state," the judge wrote.

DHS said Wednesday that the court's ruling validated the fairness of the state's bid process.

Medica said in a statement that it was "disappointed in the outcome" and is "still interested in serving this population."

"We look forward to further conversations with the state in the future," Medica said.

The legal battle marked the second time since 2015 that an HMO has taken the state to court over managed care contracts that collectively are worth billions of dollars in revenue each year for health plans.

DHS started awarding the contracts via competitive bidding in 2012 following concerns at the State Capitol that HMOs were generating too much profit from the agreements. For decades, Minnesota has hired HMOs to manage care for people in the Medicaid and MinnesotaCare programs, which provide coverage for low- and moderate-income Minnesotans.

For 2016, DHS conducted its first statewide bid for the "families and children" contract in the public programs, which is where most people in the programs get coverage. As a consequence of the bid results, Minneapolis-based UCare was dramatically downsized as a vendor in that portion of the programs, with Medica picking up many of UCare's enrollees.

DHS said in February the state would spend an extra $34 million to fill health plan gaps due to the Medica pullback. UCare is just one of the plans adding enrollees as a result.

Back in 2015, UCare sued DHS over the results of the competitive bid for 2016 but ultimately withdrew that lawsuit. In the Medica litigation, UCare intervened in support of DHS, joining the state agency as a defendant.

"We believe [Wednesday's] ruling by the Ramsey County District Court to dismiss Medica's lawsuit was the best outcome for Minnesotans enrolled in Medicaid and MinnesotaCare programs," UCare said in a statement.

Christopher Snowbeck 612-673-4744