State rejects extension of managed-care deal Insurance fund is told to solicit proposals for new contract

November 25, 1998|By Walter F. Roche Jr. | Walter F. Roche Jr.,SUN STAFF

The board of Maryland's Injured Workers' Insurance Fund voted down yesterday a proposed $7 million no-bid contract extension for a Baltimore health care company, killing efforts by the agency's chief executive officer to rush the deal through.

The 5-1 vote followed a report in The Sun that an outside auditor had found a series of irregularities in the awarding of the current contract with the health care company, Statutory Benefits Management Corp.

"There's been a black cloud over this contract," said board member Daniel E. McKew. "It seems to me the prudent thing to do would be to remove it and put some integrity back into the agency."

Paul M. Rose, the insurance fund's chief executive, and his staff had sought to get the contract for SBMC extended through June 2000. The current contract does not expire until June 1999.

The vote apparently brings to an end a long and contentious internal battle over the lucrative contract to manage the medical and rehabilitative care provided to workers in Maryland who are injured on the job. The Injured Workers' Insurance Fund, a state agency run by a governor-appointed board, provides workers' compensation insurance coverage to thousands of businesses and competes directly with private insurance companies.

Under the contract, Statutory Benefits Management Corp. handles the claims of injured workers from the time the injuries are first reported. The company oversees and manages the medical and rehabilitative care needed to get the worker back on the job.

The Sun reported Monday that the state agency had considered a plan to purchase Statutory Benefits Management Corp. but that the proposal was dropped after attempts to hire a financial consultant to assess the company's value fell through.

In its vote yesterday, the agency's board ordered Rose to solicit proposals for an entirely new contract. While SBMC was invited to submit a new proposal, a company executive said such action was doubtful.

McKew, who joined the board after the current $21 million contract had been awarded two years ago, offered the motion to put the managed care contract out to bid.

The motion was seconded by Louise T. Keelty, who urged the agency's staff to "cross every t and dot every i" in the bid process.

Board member Stephanie L. Fink noted that Statutory Benefits Management Corp. would be allowed to bid on the new contract with all other bidders.

Theo C. Rodgers cast the lone dissenting vote against McKew's motion to put the contract out to bid.

After the board meeting, which included a closed executive session, Rose said he expected that a formal "Request for Proposals" would be available about Jan. 1.

Rose said he had "no problems" with the board's action.

"It's a normal process. We bring proposals to the board, and they vote them up or down. I have absolutely no problem with their decision," he said.

The contract with Statutory Benefits Management Corp. was awarded in June 1996 after Rose threw out bids that had been submitted by about a dozen companies. Instead, he negotiated an exclusive contract with SBMC, telling the board it had been customized to meet the agency's needs.

In a June 6, 1996, memo, Rose disclosed to the board that SBMC, at his invitation, had "conducted an exhaustive discovery of IWIF's programs, systems and technology" and had prepared "a fully integrated plan design that would meet our needs."

The memo stated that it was only after SBMC had prepared that customized plan that other competing companies were invited to submit proposals. But Rose told the board that once the competing firms submitted their proposals, he and his staff determined that none of them was adequate.

Further review of the bids would have been "useless and a waste of time for all concerned," Rose told the board, adding that he was compelled to take immediate action to put the company's plan in operation.

A subsequent report by the outside auditing firm concluded that justification for awarding the contract to Statutory Benefits Management Corp. was "deficient, almost nonexistent."

"It is not clear why awarding a contract became a matter of urgency less than two weeks after the closing date for the receipt of the proposals," the audit report stated.

In response to The Sun's article, Rose issued a statement bTC yesterday noting that the Injured Workers' Insurance Fund, which is funded through premiums paid by its policyholders, is not subject to the same bidding and procurement procedures required for most state agencies. He said the agency's procedures include the right to alter or suspend an ongoing procurement.

"Without such discretion in our procurement process, we would find it difficult to compete effectively," the statement said.

In reaction to the board's vote, Louis J. Nicholas, chief executive officer of SBMC and head of its parent corporation, said: "It's just too bad. I think we did a tremendous job for them."

Asked if his firm would bid again for the contract, Nicholas said, "I doubt it." He added that his company would continue to focus on its core business of managing health care plans across the country.

"The IWIF contract was a very, very small part of our business," Nicholas said.

At the board meeting, Rose gave a brief presentation in support of the contract extension.

"Basically, we have seen some reduction in costs. It's difficult to determine just who is responsible," he said.

Rose and a staff member said that extending the contract would give the agency enough time to do a study to determine whether Statutory Benefits Management Corp. was responsible for the improvements.

Before SBMC, the state agency had a contract with Intracorp of Philadelphia, a subsidiary of insurer Cigna Corp. But as the Intracorp contract was due to expire, Rose told the board that he was not satisfied with the company's performance.

Pub Date: 11/25/98

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.