Background:
Facing unsustainable healthcare costs and dwindling resources, the State of Montana took bold steps to address its fiscal crisis by contracting transparent reference-based prices for its 31,000 state employee members beginning in July 2016. Montana established payment rates for inpatient and outpatient services that are a multiple of Medicare’s payment rate for the Montana acute hospitals.
In 2021, an independent consulting firm analyzed the financial impact of the plan’s transition to contracted reference-based pricing (RBP), finding that the total estimated savings were about $47.8 million from 2017 to 2019. This savings enabled the plan to become more financially sustainable and achieved Montana’s financial goal without cost-shifting to employees or reducing coverage. The compound annual growth rate in per member per month claims costs since implementing the program was 2.8% as compared to the Montana Health Exchange rate of 12.63% .
Instead of paying rates based on a hidden denominator (% off hidden charge/price), or paying rates based upon estimated pricing or average pricing (common pricing methodologies in the BCBS system), the Montana RBP plan relied on Medicare’s published pricing methodology, which is updated annually, transparent, geographically adjusted, and publicly available.
Despite the incredible success of the model, in March of 2022 the State of Montana issued a request for proposal which signaled to some industry insiders the State’s capitulation to the traditional industry’s preference for status quo. This capitulation was evidenced by their acceptance aggregate pricing guarantees, post-payment reconciliation of pricing guarantee, administrative fees only at risk, and the potential for a return to non-transparent pricing between a third party administrator and the “network” with which they contract for discounts.
Unsurprisingly, the State of Montana awarded the contract to Blue Cross Blue Shield of Montana with great fanfare. “Contracting with BCBSMT will allow us to enhance our ability to be responsible stewards of State Plan contributions while ensuring accessibility to high-quality medical care for State employees,” said DOA Director Misty Ann Giles. “This contract will result in nearly immediate savings for the self-funded State Plan in 2023, with a projected total savings of $28 million over the next three years, benefiting State agencies, State employees, and the taxpayers of Montana.”
Of course, I would not expect a press release to hedge bets or express cautionary statements about the uncertainty surrounding the proposed savings, but the hyperbole about being responsible stewards of State Plan contributions was a bit excessive in my view. Indeed, many well-informed healthcare reform advocates struggled to swallow the veracity of these statements.
Thankfully, one of the losing bidders (and current incumbent) was willing to challenge the public procurement process and resulting award, which will bring an incredible amount of valuable, and likely disturbing, information to light. As they say, sunshine is the best disinfectant and so I am hoping by the end of this process, more working Americans might be sanitized of any notion that these legacy status quo institutions or the politicians they control are working in their interests.
The Procurement Problem:
First, it should be noted that ensuring fair and effective competition is the key element of all public procurement systems that function soundly. Fairness, as a principle in procurement, means that the process must be free from preference, judgment, self-interest and favoritism. In order to guard against favoritism and to ensure a fair and level playing field, the Montana Procurement Act requires that all RFP’s must clearly set forth the RFP requirements, evaluation criteria, and their relative importance prior to opening the bid proposals. Unfortunately, it appears from the face of the documents and internal communications uncovered by Allegiance’s protest that the State and its consultant worked hard to change of the rules of the game to achieve an outcome they preferred. Not only do their machinations erode the hard fought savings and systemic achievements of the Montana State Health Plan, they erode faith and trust in our public institutions overall.
While not exhaustive, these are some of the more glaring and egregious examples of the way the State of Montana and their paid consultants put their thumb on the scale to ensure a particular outcome in this procurement. The first example, and perhaps the most damning, is the fact that the State evaluated BCBSMT’s bid using a completely different denominator than that applied to the incumbent’s.
Even my sixth grader knows that manipulation of the denominator can unfairly impact the result. In this case, Vendor A Repriced Claim Total/X as compared to Vendor B Repriced Claims/X would be appropriate so long as X is constant. Here, they changed X to manipulate the result.
The second glaring violation public procurement principles occurred when the State of Montana allowed BCBSMT to materially deviate from the terms of the RFP and exclude a material number of claims from the repricing requiring. Section 3 of the RFP states clearly that
Offerors must provide a detailed Claim Re-Pricing Results file indicating Offeror’s allowed network/participating charge for each claim included in State’s detailed claim file.
Section 3.3, RFP, Cost Proposal (emphasis added). The RFP does not allow the bidders to exclude claims, nor does it contemplate a process by which the bidder would be able to request exclusion of certain claims. The terms are clear, yet despite this express requirement BCBSMT chose to exclude .3% of claims from the repricing exercise and the State chose to let this slide.
Of course, the State and its consultant deem this to be a “very small percentage of claims” and therefore ignored the potential impact this could have on the results. In a world where the top 1 % of high cost claimants can account for 28% of the spending, it is mind blowing that that this material deviation was “overlooked” by the State in its evaluation and analysis. While we do not know which .3% of claims were excluded from BCBSMT’s bid, it is certainly possible that this would have a HIGHLY MATERIAL impact on their overall bid and could have significantly impacted the results. This type of manipulation by bidders and those responsible for evaluating their bids is exactly the type of manipulation that the strict public procurement laws are designed to guard against.
Finally, the last example is perhaps the most unsavory, and deeply disappointing as a former public servant who worked diligently to protect the sanctity of the public’s trust in a public procurement system. Under Montana law, and under almost every other public procurement regulatory scheme (including Federal), a purchasing agency may, but is not required to engage in clarifications that give bidders an opportunity to clarify certain aspects of a proposal or to resolve minor or clerical errors. However, clarifications MAY NOT be used to cure proposal deficiencies or material omissions, nor are they permitted to materially alter the technical or cost elements of the proposal, or revise the proposal.
Internal emails clearly illustrate that the State was aware that they were materially altering the terms of the RFP, its requirements, the evaluation criteria and the weights of those criteria when it conceded that “our only avenue short of canceling [the RFP] is asking Offerors for clarification.” See Exhibit 1 to Allegiance Protest, 9/29/2022. In fact, the State knew that its additional requests, changes in scope, modifications and RFP revisions were well beyond the scope of “clarification” within the meaning contemplated by Montana Statute:
To fix the RFP, do you think we could just alter it to state we desire to have a facility spend goal of 195%? …. I may be oversimplifying, but this seems like an easy solution and easy clarification on the RFP scope side…
To fix the RFP, I think we could alter it to state we desire to have a facility spend goal of 195%... I’m thinking we may need to do something about the M[ultiple] o[f] M[edicare] guarnatee and repricing documents, we will work with Alliant on these.
Id. Generally speaking, there is a difference between the terms “to clarify” and “to fix” in the English language. BUT in the world of public procurement, there is a purposeful and intentional distinction whose legal lines cannot be blurred.
Everyone must know the rules of the game before the game begins; and the rules cannot change at halftime. If I am playing football and my team scores the most points but the other team gained the most total yards, who was the winner? If the ref is permitted to change the rules of the game to total yardage in the last 30 seconds of the 4th quarter – I will lose.
In this high stake game of public procurement, the losing bidder may be Allegiance, but the biggest losers are those who will bear the true cost: the taxpayers of Montana. The lengths to which the State went to change the rules of the game midstream, seemingly to ensure a particular outcome, are incredible and outrageous given what was/is at stake.
What is at Stake?
The country has looked to Montana as a shining example of what can be done to arrest runaway healthcare costs prices, all without shifting costs to the American worker. The Montana model was aspirational for State health plans around the country, a prime demonstration of what can be done across party lines with good data, good people, and hard work. Montana’s reference based pricing success was something that could be built upon, a place to begin restoring transparency and sanity in our healthcare pricing crisis.
Montana may yet continue to be an example for the rest of the country, but perhaps not for what it had heretofore accomplished. While pure speculation on my part, I anticipate that as the protest and ensuing litigation plays out additional documents and communications will be disclosed making clear that this was not a procurement decision, but rather a political one. Political influence will lay at the heart of this story, with the Montana hospital systems and BCBSMT playing key roles in the unwinding of the achievements Montana’s State health plan had accomplished.
Perhaps the strongest piece of evidence I can point to supporting my position is the tens of millions of dollars saved by the State of Montana over the last six years. When those tens of millions of dollars were saved by the State and returned to taxpayers, they were necessarily lost to those healthcare entities who previously claimed them as revenue and/or profit. The insatiable appetite for margin, revenue growth, and profit may very well overtake the momentum built by one of the greatest examples of healthcare pricing reform our troubled healthcare system has ever known.
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