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Magellan protests Maricopa contract award; files suit against winning bidder

April 4, 2013
by Dennis Grantham, Editor-in-Chief
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Stung by rejection of its bid, longtime contractor Magellan questions state's scoring system

Magellan Health Services, Inc. announced on April 3 that it has filed a formal protest regarding the State of Arizona's decision to award the Regional Behavioral Health Authority (RBHA) in Maricopa County to another vendor, Mercy Maricopa Integrated Care. The three-year RBHA contract, worth nearly $1 billion, is for the management of the publicly funded behavioral health system that delivers mental health, substance abuse and crisis services for approximately 720,000 eligible adults, youth, and children and includes an integrated behavioral and physical health care system for a small number of individuals with serious mental illness. Magellan's existing contract to manage behavioral health services began on September 1, 2007, and was previously extended through September 30, 2013.

Magellan's decision to file a protest comes after it evaluated the scoring of its bid. According to a source familiar with the proposal and award process, at least two of the bidders expressed surprise and concern about the objectivity of the contract award process.   

Magellan's protest includes the following claims: (i) one sponsor of the winning bidder is a provider of behavioral health services and, as a result, the winning bidder has serious conflicts of interest and was not legally permitted to bid on the Request for Proposal ("RFP"), (ii) the winning bidder did not properly meet the requirements of the RFP because it was not licensed by the State of Arizona as an HMO by the date specified by the state, (iii) the RFP was improperly amended to permit the winning bidder to qualify as an eligible bidder, (iv) there were numerous scoring errors and irregularities, and (v) there was an overall bias in favor of the winning bidder.

In addition to this protest, two Magellan subsidiaries -- Magellan Health Services of Arizona and Magellan Complete Care of Arizona -- filed a civil lawsuit in the Superior Court of Arizona for Maricopa County against Mercy Maricopa Integrated Care, Maricopa County Special Health Care District d/b/a Maricopa Integrated Health System ("MIHS"), and the CEO of MIHSThe lawsuit alleges that confidential and proprietary information disclosed by the Magellan to MIHS under confidentiality agreements was wrongfully used and disclosed in connection with MIHS' winning bid. Magellan's lawsuit seeks compensatory and punitive damages from MIHS as well as a permanent injunction that woudl prohibit MIHS from using or disclosing any of Magellan's confidential and proprietary information.

It is important to note that Magellan Health Services' full-year 2013 guidance to shareholders assumed that its Arizona subsidiary -- Magellan Complete Care of Arizona -- would win the new Maricopa County contract and thus retain the business that it has held since 2007, which reportedly accounted for about one-quarter of Magellan Health Services' 2012 revenue. The impact of losing on this contract on Magellan Health Services will be discussed during Magellan's first-quarter earnings call on April 30, 2013

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