State says Medica is trying to manipulate contracts with lawsuit

The state Department of Human Services (DHS) says Medica is trying to use a recently filed lawsuit to manipulate the state into awarding the HMO a new contract with more favorable terms.

The argument came in a court filing this week in which the DHS offered its first legal response to Medica's lawsuit over contracts in public health insurance programs.

Last year, Minnetonka-based Medica canceled its contract to serve as a managed care organization in the programs due to financial losses. The programs are managed by DHS, which responded by negotiating with other HMOs to replace Medica.

Medica sued DHS in Ramsey County District Court earlier this month, saying the state didn't comply with procurement laws when hiring the health plans. DHS says the allegations are without merit.

"This lawsuit is Medica's attempt to undo the effect of its decision to terminate its … contract with DHS, and take advantage of the position in which the state found itself following Medica's notice of termination," state officials said in the court filing this week. "Medica now seeks to manipulate the procurement process so it can have a new contract with the state, despite causing great harm and inconvenience to the state."

Medica said it expects to file a response in court on Thursday.

The legal arguments are the latest chapter in the saga of how DHS pays for HMOs to manage care for roughly 800,000 people in the Medicaid and MinnesotaCare programs.

For decades, the state has hired health plans to manage care for enrollees in the programs, which generally provide coverage for lower-income Minnesotans. Following complaints that HMOs were making too much money on the contracts, the administration of DFL Gov. Mark Dayton moved to a competitive bidding process that included for 2016 the first-ever statewide procurement.

The statewide bid resulted in Minneapolis-based UCare being dropped as an option for about 300,000 people in the programs, with Medica picking up a large chunk of the enrollment.

But in November, Medica said the new contract was generating big financial losses.

For 2016, Medica says it posted an operating loss of $270 million on $4.5 billion in revenue. Much of the red ink stems from the public program contract, the HMO says.

In its lawsuit, Medica argued that competing HMOs were offered a better deal to serve as replacement managed care organizations.

Medica wants a preliminary injunction so it can compete for the business in 2018, but DHS said in its filing this week that Medica was told termination of the 2017 contract would impact the HMO's chance to serve as a vendor down the road.

DHS made the arguments in a memorandum explaining its opposition to Medica's request for expedited discovery in the case. Such discovery would be premature and burdensome, DHS said, adding that the state intends to file a motion to dismiss the lawsuit.

"Medica asks the court to allow it to abandon the rates it bid during the statewide procurement process for an anticipated multiyear contract, and instead enter into a more favorable contract for 2018 and beyond," DHS said in the filing. "The law does not permit this, and Medica's claim and purported need for expedited discovery is a result of its unilateral decision to terminate its prior contract."

Medica currently serves as a managed care organization for about 300,000 people covered through the public health insurance programs. DHS said it has begun a process to help enrollees transition to other health plans by May 1.

Christopher Snowbeck • 612-673-4744

Twitter: @chrissnowbeck