Lawsuits, challenges and debates: Where California's controversial Medicaid contract process stands

California's first-ever Medicaid managed contract procurements are a major shakeup in the state's Medi-Cal system, which has over 12 million enrollees, or a third of California's population. 

Millions of residents will switch plans as a result of the changes, and a lengthy road of appeals and legal battles could lay ahead. 

California selected the intended recipients of the Medicaid managed contract procurement process Aug. 25. Here's what you need to know about who won and lost in the bidding battle, and what comes next in the appeals process. 

1. California's first-ever Medicaid managed contract procurement process was designed to promote health equity

The California Department of Health Care Services first issued a request for proposals from managed care organizations on Feb. 9, saying the process would "redefine" how care is delivered to Medi-Cal beneficiaries. 

The new contracts require plans to address social determinants of health, including food insecurity and housing. The contracts also include value-based payments, tying payments to quality metrics. 

The plans are also required to allocate between 5 and 7.5 percent of their profits to community investment. 

In an Aug. 25 news release, California Department of Health Care Services Director Michelle Baas called the contract awards a "defining moment for Medi-Cal and its millions of members." 

2. The contracts are part of the state's wider value-based Medicaid reforms 

California is implementing several efforts to improve Medi-Cal, including CalAIM, an initiative to improve outcomes and reduce health disparities, address social determinants of health and keep people continuously enrolled in Medicaid. 

"We know that 80 percent of a person's ability to be healthy is predicated on social conditions or social determinants of health, and 20 percent is just the nuts and bolts of medical services," Kelly Bruno-Nelson, executive director of Medi-Cal and CalAIM at CalOptima, told Becker's in June.

"CalAIM recognizes that nuance and says, we shouldn't be separating these two buckets, we should be bringing these two buckets together," Ms. Bruno-Nelson said. 

The reforms have raised some concerns among providers, who say these reforms aren't reaching the patients who need them most and don't go far enough to reimburse providers. 

So far, 97,200 patients out of 14.7 million Medi-Cal recipients are enrolled in the CalAIM program, Kaiser Health News reported Oct. 10. 

3. Molina Healthcare won big in the decisions, while Kaiser Permanente didn't have to bid 

The state chose to award the contracts to three managed care providers: Molina Healthcare, Anthem Blue Cross Partnership Plan and Centene subsidiary Health Net. Molina won its largest ever Medicaid deal, scoring contracts in some of the state's largest counties. It will add 1.4 million enrollees, the Los Angeles Business Journal reported, mostly at Health Net's expense.  

These contracts cover 23 counties. The state also entered a controversial direct contract with Kaiser Permanente in 32 counties. The direct contract allowed the payer-provider to skip the bidding process. 

California Gov. Gavin Newsom approved the contract with Kaiser Permanente June 30. The contract was developed in secret with the governor's office and allows Kaiser to pick its Medicaid enrollees. 

4. Up to 2 million people could switch plans

The state's Department of Health Care Services estimates around 2.3 million Medi-Cal members will likely change managed care organizations.

The department said its priority is to ensure a smooth transition for members who will switch contracts. In an FAQ document, the department said members have continuity of care rights that will be "fully protected and enforced during the transition."  

Additionally, the department says it does not expect any disruption of pharmacy benefits. 

In a Sept. 6 letter to the Department of Health Care Services, dozens of providers in San Diego county expressed concern about Community Health Group — the only locally-based Medi-Cal plan in the area — losing out on contracts in the county, urging the department to reinstate the plan.. 

"The lives of San Diego residents — especially its most vulnerable, marginalized, and high-need populations — are at stake," the providers wrote. 

5. A legal battle is looming 

Payers that lost out on contracts — including Aetna, Blue Shield of California Promise Health Plan, Community Health Group Partnership and Health Net Community Solutions — are challenging the state's decisions, according to documents from the Health Care Services department. 

Providers had until Oct. 7 to submit written responses and rebuttals to the appeal process. 

Payers slammed their rivals in appeal documents, Kaiser Health News reported Sept. 26. Health Net, which lost several contracts to Molina, said the payer's application contained "false, inaccurate and misleading information" in its appeal. 

Insurers who don't win out in the appeal process are likely to sue. Community Health Group's COO, Joseph Garcia, told Kaiser Health News Sept. 26 it will sue if it loses its appeal. 

Blue Shield of California, which lost contracts in all 13 counties in which it bid, filed a lawsuit against the state Oct. 7, alleging it had violated public records laws by not turning over documents related to the contracts.

"We have waited in good faith and the Department of Health Care Services is refusing to provide the public information we are requesting or to provide a reasonable amount of time for the appeal process," Kristen Cerf, president and CEO of Blue Shield of California Promise Health Plan, said in a news release.

A spokesperson for the Department of Health Care Services told Becker's Oct. 7 that the department has no comment on pending or potential litigation. 

"DHCS remains committed to a robust procurement process to select awardees that demonstrate the capacity and capability to deliver on DHCS' stated goals and priorities, including transparency, high-quality care, access, behavioral health services, children services, coordinated/integrated care, increased health equity, and accountability," the spokesperson said. 

The Health Services Department intends for the contracts to take effect in January 2024. 


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