State Health Plan officials conducted the selection of a third-party administrator for the plan’s benefits fairly and didn’t put a thumb on the scale to hinder or help Blue Cross and Blue Shield’s attempt to retain the contract, a judge ruled Monday.
Monday’s ruling from Administrative Law Judge Melissa Owens Lassiter sustained plan trustees’ late-2022 decision to give the service contract to Aetna instead of re-signing with Blue Cross.
About 740,000 state employees and family members get health care through the plan, making it the largest single entity in the N.C. insurance market. State Health Plan trustees are expected to oversee $17.5 billion in claims over the next five years. Blue Cross has long dominated the state’s healthcare market, and serves 4.2 million members, including 1.1 million in other Blue plans.
Blue Cross can appeal Lassiter’s decision to Superior Court. “We will carefully review the ruling and consider any appropriate next steps,” company spokeswoman Laura Eberhard said.
For now, everything remains on track for Aetna to take over the management of the claims process for state-employee health benefits at the start of 2025.
“Since the contract decision was first announced … we have been working on the impending, seamless transition at full speed all while demonstrating in court that the transition to Aetna is in the best interests of the State Health Plan and its members,” said Jim Bostian, Aetna’s North Carolina market president.
He added that “over 800 Aetna employees have contributed nearly 60,000 work hours to this implementation.”
The company’s “on schedule to begin serving the State Health Plan on Jan. 1” with a “robust statewide network of providers in all 100 counties,” he said.
The State Health Plan’s decision to dump Blue Cross has been among the more controversial state-government contracting moves in recent years.
It likely contributed to legislators’ decision last year to give Blue Cross expanded flexibility to restructure its business, on the grounds that the Durham-based nonprofit faces greater competition from for-profit insurers such as Aetna even as it remains the insurer of last resort in much of rural North Carolina.
Blue Cross went to court over the State Health Plan’s decision alleging an assortment of procedural violations of plan policy or the state’s Administrative Procedure Act.
Lassiter, however, said plan officials in State Treasurer Dale Folwell’s office had followed the law or — on some issues where allowed by law — had exercised appropriate discretion.
“This procurement, including the design and drafting of the 2022 [RFP] and the evaluation and scoring of [contractor] proposals, was conducted in good faith, and was not affected by any bias for or against any vendor,” the judge said.
The judge’s opinion pointed out, subtly, that Blue Cross was in many ways the author of its own fate.
State Health Plan officials decided to issue the RFP back in 2022 because they were unhappy with Blue Cross’ implementation of a new claims-processing system called FACETS.
The rollout of FACETS caused numerous problems, the fallout of which “negatively impacted the plan’s cash flow and required an enormous expenditure of time and money by plan staff and the plan’s other vendors to resolve,” Lassiter said.
Once into the RFP process, Blue Cross made a couple more mistakes that hindered its cause.
The company’s proposal got marked down on the technical front because it didn’t offer a few customer-service concessions the plan’s staff was looking for.
A Blue Cross executive testified that the company made “a business decision” against offering one, and didn’t believe any vendor could meet six others. But Aetna met the plan’s wishes on all seven.
Meanwhile, on the cost front, Aetna benefited from a pledge to put 25% of its administrative fee at risk by way of promising to make sure the plan gets discounts from health providers.
To plan officials and the consultants they hired, Blue Cross’ submission appeared to put only 5% of its fee at risk. In court, the company argued that was really 15% — 5% times three, for discounts related to inpatient facilities, outpatient facilities and providers’ professional fees.
But the judge said the wording of Blue Cross’ submission used “identical language” in all three places about a maximum payout, and none of the people who reviewed it thought there was anything “ambiguous or unclear” about it.
That was reasonable, not least because “the onus was on Blue Cross to submit a clear proposal, not on the plan to seek clarification,” Lassiter said.
She added that no matter how one read the Blue Cross proposal on that specific point, Aetna had offered more.
Lassiter also found no fault with the plan’s decision not to score vendors on the possibility that members might have a harder time finding an in-network provider following a change of administrators.
Testing with 15 million claims records indicated that Aetna would pay 99% of them in-network, versus 99.4% for Blue Cross. Officials considered the difference “negligible” going in, and since being hired, Aetna’s added 3,500 providers to its network, Lassiter said.
