Despite firm's problems, state may extend managed-care deal Insurance fund chief pushes for contract

November 23, 1998|By Walter F. Roche, Jr. | Walter F. Roche, Jr.,SUN STAFF

Nearly three years ago a little-known state agency that provides workers' compensation insurance to thousands of Maryland businesses began an unusual relationship with a fledgling company that was among the bidders for a multimillion-dollar contract to manage care for injured workers.

Although the proposal from Statutory Benefits Management Corporation had not gotten top ratings in the competition, it emerged as the surprise winner after the chief executive of the agency abruptly halted the bidding process, threw out all the bids and negotiated a pact exclusively with SBMC. Justification for the action was later called "deficient, almost nonexistent" by an outside auditor.

Since then, records show, the Maryland Injured Workers Insurance Fund, or IWIF as the agency is known, has experienced a series of problems with the new company. Some top IWIF officials have openly expressed frustration and demanded improvements.

Yet when the IWIF board meets tomorrow, it will not be to consider finding a new managed-care contractor. Instead it will consider a proposal to extend the SBMC contract until June of 2000.

And IWIF records show there were plans, though they are now on a back burner, to buy SBMC outright, a deal that would net millions for SBMC officials.

IWIF is an independent state agency created by the state legislature in 1914 to provide workers compensation coverage to companies across the state. Run by a board appointed by the governor, IWIF acts in many ways like a private enterprise.

With $1 billion in assets, it competes directly with private insurance companies. Yet the agency also has two members of the General Assembly on its payroll, and has been amenable to hiring people recommended by politicians.

Its chief executive is Paul M. Rose, an accountant and former legislative auditor, who once owned a Baltimore County liquor store.

A near-insurrection

It was Rose who engineered IWIF's 1996 switch from a nationally-known firm that had been providing the service, to SBMC, a Maryland-based company founded in 1994. It was also Rose who defended SBMC against a near-insurrection by angry members of the IWIF board, and it was Rose who has taken the lead in promoting SBMC despite the problems with the current, $7 million-per-year contract.

The role played by IWIF's managed-care contractor is critical. The company receives the first report of an on-the-job injury and then manages and oversees the care provided. The goal is to get workers healthy and back to work as quickly as possible, a benefit to workers and employers.

In an interview last week, Rose repeatedly praised SBMC, citing the firm's "cutting edge" efforts and crediting it with creating "a visionary managed-care program" specially designed for IWIF's needs.

Start-up problems

Rose dismisses the criticism of SBMC, much of it from members of his own staff, as the result of normal start-up problems.

"It's not like handing off a baton in a relay," Rose said of the changeover to SBMC beginning in mid-1996.

And Louis J. Nicholas, the chief executive officer of SBMC and the head of its parent company, said his firm has made major improvements at IWIF.

"Did we make them more cost-effective and efficient? Positively we did," said Nicholas.

The history of the contract to manage medical and rehabilitative care for injured workers goes back to 1993, when IWIF chose Intracorp, a national firm that is a subsidiary of insurer Cigna Corp., as the provider. But as Intracorp's three-year contract neared an end, Rose began to raise questions about the company's performance.

At its March 1996 meeting, Rose informed the IWIF board that with the Intracorp contract due to expire June 30, the agency would be seeking proposals in a process called a "Request For Information" or RFI. Fred J. Pelosi, then an IWIF vice president who was put in charge of the procurement process, assembled a selection committee to review them.

By the May 24 deadline, Intracorp and 11 other interested parties,including SBMC and the Johns Hopkins University, had submitted proposals to take over the entire contract. Several other firms submitted proposals to take over parts of the program.

Just as the selection team began the review process, however, Rose ordered it halted, contending that none of the proposals was adequate. Instead, Rose later told the board, he decided to pursue a contract with SBMC because SBMC was willing to "customize" its proposal to meet IWIF's needs.

By that time only five of the other proposals had even been looked at by any of the committee members.

'Not a unilateral decision'

Rose said that the decision to scrap the bids was not his alone, but had the support of key staff.

L "It was not a unilateral decision," he said in an interview.

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