Judge rules for Aetna, against Blue Cross in State Health Plan dispute

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  • An administrative law judge has rejected Blue Cross and Blue Shield of North Carolina's attempt to throw out a contract making Aetna the third-party administrator of the State Health Plan.
  • ALJ Melissa Owens Lassiter determined that Blue Cross had failed to meet its burden that the State Health Plan made prejudicial errors in awarding the contract to Aetna.
  • Aetna is scheduled to take over the contract in 2025. Open enrollment for the State Health Plan starts in October.

An administrative law judge has upheld the decision to replace Blue Cross and Blue Shield of North Carolina with Aetna as third-party administrator of the State Health Plan for government workers and retirees.

Blue Cross had challenged the process used to grant the TPA contract to Aetna.

“Blue Cross failed to meet its burden,” ALJ Melissa Owens Lassiter wrote in a 72-page order issued Monday. “Even if Blue Cross had proved that the Plan erred with respect to guarantee scoring or the calculation of the overall scores, the error would be harmless because it would not change the fact that Aetna scored the highest overall.”

“Blue Cross did not demonstrate by a preponderance of the evidence that, but for the supposed errors by the Plan, Blue Cross would have or would likely have been awarded the TPA Contract,” Lassiter wrote. “Consequently, Blue Cross failed to demonstrate that any of the alleged errors by the Plan substantially prejudiced its rights and thus, did not met its burden under N.C. Gen. Stat. § 150B-23(a). Neither did Blue Cross challenge the terms of the [request for proposal] or identify any way in which the Plan exceeded its authority or jurisdiction, used improper procedure, acted erroneously, arbitrarily, or capriciously, or violated any statute or rule.”

“To the contrary, the preponderance of the evidence showed that the Plan conducted the procurement carefully and thoughtfully, fairly and in good faith, and that its decisions were properly within its discretion,” Lassiter added. “It also showed that the vendors’ proposals were evaluated and scored carefully, accurately, and fairly by the Plan and Segal as the Plan’s contractor, and that to the extent the Plan relied on Segal’s analyses and recommendations, that reliance was in good faith and properly within the Plan’s discretion.”

State Treasurer Dale Folwell oversees the State Health Plan. “From the beginning, it has been clear that the State Health Plan (Plan) performed a well-reasoned, high-integrity, and correct procurement process for third-party administrative services,” Folwell said in a prepared statement. “This process clearly revealed that Aetna’s bid was superior to Blue Cross NC’s, and the Plan’s Board of Trustees properly approved the contract’s award to Aetna.”

“Unfortunately, Blue Cross NC was a sore loser in thinking that it was entitled to nearly a half century monopoly on the State Health Plan’s business,” Folwell added. “They decided to try a ‘sue till you’re blue’ strategy, costing the state over $1 million in legal fees, for which taxpayers would welcome a reimbursement from Blue Cross NC. Thankfully, Judge Lassiter saw through their legal gymnastics.”

Folwell looks “forward to continuing to serve our 740,000 members with Aetna as a partner. It’s a long runway, but both Aetna and the State Health Plan are hard at work to ensure that the Plan’s members receive the care they need when the new contract begins on Jan. 1, 2025,” he said.

Open enrollment begins in October. Folwell’s office is “working hard to ensure” that process “goes well and the transition will be seamless for our members,” he said.

Blue Cross challenged the State Health Plan’s decision to award its third-party administrator contract to Aetna for 2025-27. BCBSNC had held the contract for more than 40 years.

Blue Cross’ contract bid was $45 million lower than Aetna’s over the course of the three-year contract, according to a BCBSNC news release. “Blue Cross NC’s proposal had the lowest administrative fees and tied for first on network pricing.”

The release also touted Blue Cross as providing the broadest network of health care providers. “Based on a preliminary review of publicly available information, Blue Cross NC’s statewide network of total provider locations appears to be 38% larger than Aetna’s.”

The legal complaint also emphasized the State Health Plan’s “oversimplified” bid process, with an “arbitrary scoring process,” according to the release. The State Health Plan had issued a request for proposals before making its decision.

“The RFP relied on yes/no questions on 310 highly complex technical requirements and prohibited Blue Cross NC from providing explanations of capabilities or helpful context,” Blue Cross argued.

“We are disappointed, but not surprised that these legal challenges were taken,” said State Treasurer Dale Folwell, whose office oversees the State Health Plan. “We are looking forward to vigorously defending the unanimous decision of the State Health Plan Board of Trustees  — consisting of members appointed by the Governor, President Pro-Tempore of the Senate, Speaker of the House, and the Treasurer — to accept the recommendation of the Plan’s professional staff. We continue to be intently focused on the needs of our members who teach, protect, and otherwise serve the people of North Carolina and taxpayers like them.”

Blue Cross NC took legal action a week after Folwell released information about the bidding process.

Sam Watts, the plan’s interim director, addressed the issue of yes/no questions in the scoring process.

“The (BCBSNC) version required our staff to spend days if not weeks reading paragraph after paragraph of explanations as to why something or why someone should get partial credit for what we’ve now converted to a yes or no question,” Watts said. “This is a bit of an oversimplification, but when I go to a used car lot and I’m looking at two different cars, I’m going to ask, does the heater work on this one and if it doesn’t, it’s a yes-no question and you can kind of nuance say well, it’ll work three years from now when we get a part ordered or, but does the heater work or not?”

Folwell said that increasing quality and access and lowering costs for health care are benefits the State Health Plan thinks it has with Aetna. 

“I’ll just remind you what is in the Bible, and that is when you win, you should be humble,” he said. “I think Aetna has been humble in its winning, and no one likes a sore loser.”

Folwell announced on Jan. 20 that the State Health Plan had rejected appeals of the Aetna contract decision.