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HUMANA HEALTH CARE PLANS vs. DEPARTMENT OF ADMINISTRATION, 87-005526BID (1987)

Court: Division of Administrative Hearings, Florida Number: 87-005526BID Visitors: 40
Judges: WILLIAM J. KENDRICK
Agency: Department of Management Services
Latest Update: Mar. 22, 1988
Summary: These proceedings arose following a request for proposals (RFP) issued by the Respondent, Department of Administration (Department), hereby the Department sought to contract for health maintenance organization (HMO) services for employees of the State of Florida. Based on the responses to its RFP, the Department proposed to award a contract to Health Options, Inc., d/b/a Health Options of South Florida (Health Options) and Heritage Health Plan of South Florida, Inc., (Heritage) for HMO services
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87-5526

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS


HUMANA HEALTH CARE PLAN, )

)

Petitioner, )

)

vs. )

) CASE NO. 87-5526BID

STATE OF FLORIDA, ) DEPARTMENT OF ADMINISTRATION, )

)

Respondent, )

and )

) HEALTH OPTIONS, INC., d/b/a ) HEALTH OPTIONS OF SOUTH ) FLORIDA, AND HERITAGE HEALTH ) PLAN OF SOUTH FLORIDA, INC., )

)

Intervenors. )

) GULFSTREAM HEALTH PLAN, )

)

Petitioner, )

)

vs. ) CASE NO. 87-5543BID

)

STATE OF FLORIDA, ) DEPARTMENT OF ADMINISTRATION, )

)

Respondent, )

and )

) HEALTH OPTIONS, INC., d/b/a ) HEALTH OPTIONS OF SOUTH ) FLORIDA, AND HERITAGE HEALTH ) PLAN OF SOUTH FLORIDA, INC., )

)

Intervenors. )

)


RECOMMENDED ORDER


Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, William J. Kendrick held a public hearing in the above-styled matter on January 20, 1988, in Tallahassee, Florida.

APPEARANCES


For Petitioner, John R. Marks, III, Esquire Humana Health Care: David Yon, Esquire

KATZ, KUTTER, HAIGLER, ALDERMAN, EATON & DAVIS, P.A.

800 Barnett Bank Building Tallahassee, Florida 32301


For Petitioner, Robert C. Bissell, Esquire Gulfstream Health 888 Executive Center Drive West Plan: Suite 200

St. Petersburg, Florida 33702


For Respondent, Andrea Bateman, Esquire Department of William A. Frieder, Esquire Administration: Department of Administration

432 Carlton Building Tallahassee, Florida 32399-1550


For Intervenor, Jann Johnson, Esquire Health Options AUSLEY, McMULLEN, MCGHEE, Inc., d/b/a CAROTHERS & PROCTOR

Health Options of 227 South Calhoun Street South Florida: Tallahassee, Florida 32301


For Intervenor, Lawrence L. Carnes, Esquire Heritage Health EPSTEIN, BECKER, BORSODY & GREEN Plan of South 515 East Park Avenue

Florida, Inc.: Tallahassee, Florida 32301


PRELIMINARY STATEMENT


These proceedings arose following a request for proposals (RFP) issued by the Respondent, Department of Administration (Department), hereby the Department sought to contract for health maintenance organization (HMO) services for employees of the State of Florida. Based on the responses to its RFP, the Department proposed to award a contract to Health Options, Inc., d/b/a Health Options of South Florida (Health Options) and Heritage Health Plan of South Florida, Inc., (Heritage) for HMO services for state employees residing in south Florida (Dade, Broward, and Palm Beach Counties). Petitioners, Humana Health Care Plan (Humana) and Gulfstream Health Plan (Gulfstream), protested the proposed award.


The parties presented 32 joint exhibits, which were marked as Hearing Officer's exhibits 1-21, 23-29, and 34-37, and received into evidence. Humana presented the testimony of Lloyd Rhodes; Wesley Burbank, accepted as an expert in actuarial underwriting science and the development, operation and administration of employee medical plans with special emphasis on health maintenance organizations; and, Robert Dobson, accepted as an expert in actuarial underwriting science and the development, operation and administration of employee medical plans with special emphasis on health maintenance organizations. Humana's exhibits 1, 2, and 4-7 were received into evidence.

Gulfstream presented the testimony of Dennis Nye, and its exhibit 1 was received into evidence. Heritage offered its exhibit 1, which was received into evidence.

The transcript of hearing was filed February 24, 1988, and the parties were granted leave, at their request, until March 9, 1988, to file proposed findings of fact. The parties proposed findings have been addressed in the appendix to this recommended order.


FINDINGS OF FACT


Background


  1. In April 1987, the Department of Administration (Department) submitted recommendations to the 1987 Florida Legislature which included proposed changes in the state employee group insurance program. Among the recommendations was a proposal that the Legislature authorize the Department competitively bid health maintenance organization participation in the state health program based on cost, rea, plan benefits, and accessibility. The stated object of the recommendation was to:


    ...encourage HMO's in a geographic location to structure their premiums to reflect actual cost experience and to provide the lowest possible Coat for the state and state employees, while at the same time changing the current concept of the state's contribution to HMOs...


  2. At the time of the Department's legislative recommendation, existing state law provided that persons eligible to participate in the state group health insurance plan (Plan) could exercise an option to elect membership in any qualified HMO engaged in providing basic health services in the area where the employee resided. In lieu of participating in the state Plan. Section 110.123(3)(d), Florida Statutes (1985), Rule 22K-1.401, Florida Administrative Code. A "qualified" HMO was defined as an entity qualified under the federal Public Health Service Act, 42 U.S.C. 300e-9, or which was certified under Part II of Chapter 641, Florida Statutes, had entered into a contract with the state, and had achieved a designated level of participation by state employees. Rule 22K-1.103(21), Florida Administrative Code.


  3. At the time of the Department's recommendation, it had 64 contracts with HMOs, covering employees in 40 counties. There were 74,000 employees covered by the Plan, and 38,000 enrolled in HMOs.


  4. The state contribution to each HMO on behalf of the employee was the same dollar amount as that made on behalf of employees participating in the Plan, even though the total premium charged by the HMO was usually less than the Plan. This practice resulted in the state receiving no economic benefit from employee's enrollment in HMOs, and a divergence in employee cost since HMO membership was not available to approximately one-fifth of state employees.


  5. The Department proposed, therefore, that if its recommendation was approved, effective January 1, 1988, it would require the same state and employee contribution for every employee, regardless of whether participation was in the state Plan or an HMO.


  6. As proposed, the Department projected that the state would realize a savings of $4,753,000 and that employees would realize a savings of $1,210,000. If realized, these savings would produce reduced monthly premiums which would benefit approximately 73 percent of approximately 110,000 employees enrolled in

    the state health program. The Department's Proposal would likewise reduce the number of HMOs it had to deal with in the administration of the state insurance program.


  7. Effective October 1, 1987, Section 110.123(3)(d), Florida Statutes, was amended to include the following provision:


    2. Effective January 1, 1988, the Department of Administration shall, by rule, contract with health maintenance organizations to participate in the state group health insurance plan through the competitive bid process based on cost, service area, plan benefits, and accessibility. Effective January 1, 1988, all employees Participating in the state group health insurance plan, irrespective of whether or not the member participates in a health maintenance organization, shall be subject to the same total premium,

    regardless of the state or employee share.


    The request for proposals


  8. Dennis Nye, then the Director of the Department's Office of State Employees Insurance, administrated the state health insurance program and was directly responsible for implementing the new legislation regarding contracts with HMOs. Nye determined to procure the contractual services through competitive sealed proposals under the provisions of Section 287.057, Florida Statutes.


  9. In developing the request for proposals, the Department gathered input from existing HMOs, as well as the union (ASCME). It then employed Frank B. Hall, an expert consultant in the field of insurance, to draft the RFP in accordance with the provisions or the new law,


  10. On July 31, 1987, the Department issued the RFP, denoted as "Bid No. 88-05," seeking proposals from qualified organization to provide HMO coverage for state employees. The RFP provided that a pre-submission conference would be held on August 12, 1987, that the deadline for receipt of proposals was August 28, 1987, that the anticipated date of award of the contract was September 14, 1987, and that the effective date of the contract would be January 1, 1988.


  11. The RFP was divided into twelve sections, numbered I through XII. Section I set forth the schedule of events discussed in paragraph 10, supra. Section II set forth the general purpose and objectives of the RFP. As stated the purpose of the RFP was to solicit proposals from HMOs in meeting the benefit objectives of the Department and in providing high quality benefits and service to state employees. It further provided that the Department was seeking HMO contract which met the following objectives:


    A proactive approach to cost containment, including an emphasis on aggressive claims management, utilization review and superior statistical reporting.

    Quality medical care which encourages health promotion, disease prevention, early diagnosis and treatment.


    Stability in the financial structure of offered health plans.


    Professional, high quality service in all administrative areas including claims processing, enrollment, membership services, grievances, and communications.


    Competitive premium rates which take into account the demographics and, if appropriate, the claims experience of state employees.


    Further stated objectives were as follows:


    Have each county or contiguous group of counties be considered one service area.


    Award no more than two contracts per service area; however, the awards will be based on the HMO's ability to respond to the needs of employees and on accessibility by employees.


    Have reciprocal agreements between locations, if an HMO has multiple service areas. For example, an employee covered in Miami with a covered dependent living in Gainesville, should be provided similar services.


    Enter into a two year, non-experience rated contract. A provision will

    be included tying renewal action at each of the two renewals to the Consumer Price Index (CPI) for Medical Care Services.

    This will become part of the contract.


    Section III stated that to be considered a "qualified" proposer, an organization must be licensed by the Department of Insurance, pursuant to Part II of Chapter 641, Florida Statutes, as a health care service contractor doing business as a health maintenance organization. That section also provided an administrative overview which addressed the completion and submittal of proposals. Section IV set forth the effective date and term of the contract, Section V set forth the services to be performed by the Department under the contract, Section VI set forth the minimum services that each proposer must provide in each service area, Section VII set forth the statistical reporting requirements that the proposer must meet during the term of any contract, and Section VIII set forth the administrative procedures and requirement for employee enrollment and premium payment.

    Section IX set forth the criteria for evaluation. That section provided:


    The proposals will be evaluated using the following criteria:


    1. Premium cost.


    2. Extensiveness of service area by County and/or contiguous counties. Note: The State's

      objective is to award no more than two contracts per service area; however, the awards will be based on the HMO's ability to respond to the needs of employees and on accessibility by employees.


    3. Plan Benefits as follows:

      1. Covered services

      2. Limitations and exclusions

      3. Co-payments, deductibles and co-insurance features

      4. Range of providers including specialists and number of hospitals.

      5. Out of service area coverage

      6. Grievance Procedures


    4. Acessibil1y as follows:

      1. Reciprocal agreements

      2. Provider locations

      3. Number of primary care physicians and specialists, in relation

        to membership


    5. Completeness of Proposals


    Notably, the RFP did not state the relative importance of price and the other evaluation criteria, as required by Section 287.012(11), Florida Statutes.


    Section X was a questionnaire with forty-nine questions for the proposers to answer, including question regarding the proposer's license status, corporate structure, reserving practices, reinsurance contracts, service area, employee membership and staff, listing of hospitals and other care facilities, listing of participating physicians, utilization review and other information regarding the proposer's case management, control mechanisms, and statistical reporting.

    Section XI dealt with cost proposals and provided a form for completion as to proposed premium rates. Section XII was designated as appendices and contained a sample of proposed enrollment form, sample of current HMO comparison brochure, census, and summary of current idemnity plan benefits.


  12. In addition to the RFP, each proposer was provided a "State of Florida Request for Proposal Contractual Services Acknowledgment Form" to execute and file with its proposal. Pertinent to this case, the form, duly executed by the proposers in this case, set forth the following general conditions attendant to the procurement process:

    1. AWARDS: As the beat interest of the State may require, the right is reserved to reject any and all proposals or waive any minor irregularity or technicality in proposals received. Proposers are cautioned to make no assumptions unless their proposal has been evaluated as being responsive.


    2. DISPUTES. Any actual or prospective proposer who disputes the reasonableness, necessity or competitiveness of the term and conditions of the Request for Proposal, proposal selection or contract award, recommendation shall file such protest in accordance with Section 120.53(5), Florida Statutes and applicable agency rules. Failure to

      file a protest within the time prescribed in Section 120.53(5), Florida Statutes, shall constitute a waiver of proceedings under Chapter 120, Florida Statutes.


  13. The pre-bid conference was held on August 12, 1987. The minutes of the conference reflect, in response to a question as to whether price would be the primary criterion, that Nye responded:


    No, look at the criteria. We do not establish that anything is primary. We would weighs cost and benefits on an equal basis. One won't be weighted over the over.


    In response to another question as to whether some factors would be weighed higher, Nye responded:


    Benefits and cost will be weighted higher, after the bidding process you can look at them.


  14. Nye also informed the participants that the state would enter into a two year, non-experience rated contact, subject to renewal which would be tied to the Consumer Price Index for Medical Services. He explained that proposers should quote a specific rate for the first year of the contract, and a percentage increase or decrease for each of the following years. However, he noted that the state would evaluate cost solely on the basis of the premium for the first year. He indicated that two HMOs per service area would be awarded contracts based on the receipt of the highest number of points as a result of the bid evaluation, and not based upon the type of HMO, such as an individual practice association (IPA) or staff model. He further noted that service area was defined as any county or group of contiguous counties, and that it was the responsibility of the proposer to define its specific service area.


    The Proposers

  15. Twelve HMOs submitted proposals to the Department for the south Florida area (Dade, Broward, and Palm Beach Counties) in response to the RFP by the August 28, 1987, deadline, and several of those submitted more than one proposal. There was, however, no prohibition to the submittal of multiple proposals, and Nye specifically apprised prospective bidders that they had that option. Pertinent to this case, proposals were received from Health Options, Heritage, and Humana to serve Dade, Broward, and Palm Beach Counties, and a proposal from Gulfstream to serve Palm Beach County.


  16. By letter of November 15, 1987, the Department advised all proposers of its intention to award contracts for the south Florida area to Health Options and Heritage, and advised all proposers of their right to contest its decision pursuant to Setion 120.53(5), Florida Statutes, Humana and Gulfstream filed a timely notice of protest and formal notice of Protest, and their petitions were forwarded to the Division of Administrative Hearing for hearing. Health Options and Heritage, the apparent successful bidders, timely sought and were granted leave to intervene.


  17. Health Options is a for profit Subsidiary of Blue Cross and Blue Shield of Florida, and is licensed by the state as an individual practice association (IPA) model HMO. Health Options' proposal reflect that it offers HMO services in Dade, Broward, and Palm Beach Counties, and that its total membership consists of 23,074 members, of which 617 are state employees and dependents.


  18. Heritage is a subsidiary of Heritage Health Systems, Inc., a for profit Delaware Corporation, and is licensed by the state as an IPA model HMO. Heritage's proposal reflects that it offers HMO services in Dade, Broward, and Palm Beach Counties, and that its total membership consists of 12,500 members, of which 10 are state employees and dependents.


  19. Humana is a for profit subsidiary of Humana, Inc., and is licensed by the state as a combination (staff/group) model HMO. Humana's proposal reflects that it offers HMO services in Dade, Broward, and Palm Beach Counties, and that its total membership consists of 91,217 members, of which 3,273 are state employees and dependents.


  20. Gulfstream, at the time its proposal was filed, was a limited partnership whose general partner was Equicor Holding Company and whose limited partner was H.C.A. Care of Florida, Inc. The limited and general partner were wholly owned subsidiaries of Equicor, Equitable H.C.A. Corporation, which is owned by Hospital Corporation of America and the Equitable Life Assurance Society of the United States. On January 1, 1988, Gulfstream converted to corporate form, and is now known as Equicor Health Plan of Florida. Gulfstream is licensed by the State as an HMO, and offers services in Palm Beach County.

    Its proposal reflects that it has a total membership of 12,335 members, of which 933 are state employees and dependents.


  21. There was no issue raised and no proof offered to demonstrate that any of the proposers in this proceeding could not meet the criteria, objectives, and requirements of the RFP. There was also no showing that the selected proposers, Health Options and Heritage, could not adequately service the needs of state employees and dependents in the south Florida area. Consequently, the Department's decision to award only two HMO contracts for this service area was reasonable.

    The evaluation


  22. The proposals submitted by HMOs for the south Florida area were evaluated by three employees in the Department's Office of State Employees Insurance. The proof demonstrates that this selection team had sufficient experience and knowledge of HMO service requirements to effectively evaluate the proposals.


  23. After the proposals had been received, Nye had a meeting with the employees selected to evaluate the proposals. He explained to them how the evaluation form he had prepared should be completed to score the five criteria set forth in the RFP: premium costs, plan benefits, accessibility, extensiveness of service area, and completeness of proposal. The evaluators were instructed to score all criteria using a ten point system. These raw scores were then weighted as follows: premium costs 2.5 times, plan benefits

    2.5 times, accessibility 2 times, extensiveness of service area 1 time, and completeness of proposal 1 time. The results of the evaluation ranked the top four proposers as: Humana of Palm Beach (57.03 points), Heritage-High Plan (56.50 points), Network Health in Dade, Broward and Palm Beach (55.31 points), and Health Options of Dade and Broward-Low Option (54.92 points).


  24. After the first evaluation was completed, Nye recommended, based on the number of employees in the south Florida area and on the service areas of the top scoring HMOs, that contracts be awarded to the top four proposers. The Secretary of the Department rejected Nye's recommendation because of concern that the first evaluation was too subjective, and directed that Nye conduct a second evaluation based upon an objective scoring system which eliminated, to the greatest extent possible, subjectivity.


  25. Nye proceeded to develop a second evaluation form and scoring system which made a bore objective evaluation of the proposals. This evaluation, which is the subject of this proceeding, was based solely on the five criteria contained in the RFP, and these criteria were evaluated in the manner set forth below.


    Premium cost


  26. The cost proposal set forth in the RFP required each proposer to list separate costs in categories of "employee only" and "family" for active employees and retired employees under age sixty-five. It also required that separate rates be shown for shown for retirees on Medicare, retiree and spouse when both were on Medicare, and retiree and spouse when only one was on Medicare. Rates were to be applicable to the particular service area of the HMO, and were to be fixed for calendar year 1988. The instructions also provided that the total cost of the family plan shall not be greater than 2.5 times the total cost of the employee premium.


  27. To evaluate this criteria, the evaluators were provided a computer printout that depicted, from lowest to highest, the premiums proposed by the bidders. The evaluators were then able to identify a mean and establish a graduated scale, between zero and five points on the high side of the mean and

from five

to ten points on the low side

of the mean, to sign points to the coats

proposed. follows:

The active rates proposed by 1/

the parties to these proceedings were as


Employee only


Family


  1. Heritage (low): 66.46

    Dade, Broward, and Palm Beach

  2. Health Options (low)

Dade and Broward: 78.00

166.1


195.00


Palm Beach: 75.00

C. Humana,

Dade: 86.02

185.00


206.01


Broward: 83.01

199.22


Palm Beach: 77.44

D. Gulfstream,

Palm Beach: 78.92

185.86


197.28

28.

The individual employee score

and family score were then added and

divided by two, based on an assumed fifty distribution, to arrive at the number of "active" points. The three Medicare retiree groups were evaluated in the same manner. The total cost points were arrived at by giving each sponsor 90 percent of its active employee points and 10 percent of its Medicare points, premised on the assumption that 10 percent of covered employees are retired. As a result, the base points for premium costs were:

  1. Heritage (low): 9.35

    Combined (Dade, Broward and Palm Beach)

  2. Health Options (low) Dade and Broward 7.75

    Palm Beach: 9.1

    Combined (Dade, Broward and Palm Beach) 8.17

  3. Humana

    Dade: 5.72

    Broward: 6.26

    Palm Beach: 8.65

    Combined: 6.57

  4. Gulfstream

Palm Beach: 6.61


  1. Although the cost proposals were evaluated solely on the basis of the premium for 1988, the Department's action was reasonable. First, Nye announced at the pre-bid conference that proposals would be evaluated solely on that basis. Second, premium costs in succeeding years were limited to the lower of the cost proposed or the future and presently unknown Consumer Price Index for Medical Care Services. Accordingly, no meaningful evaluation could have resulted from a consideration of premium costs for succeeding years.


    Effectiveness of service area


  2. Extensiveness of service area was, pursuant to the RFP, evaluated on the basis of county or contiguous counties. At the pre-bid conference, proposers were told to designate their own service area.

  3. Heritage submitted one proposal, and designated its service area as Dade, Broward, and Palm Beach Counties. Its proposal was evaluated on a composite or combined basis. Health options submitted one proposal and designated its service area as Dade, Broward, and Palm Beach Counties, however its submittal contained two separate costs proposals: one for Dade and Broward Counties, and one for Palm Beach County. The Department evaluated Health Options' proposal as it related to Dade and Broward Counties, Palm Beach County, and on a combined basis (Dade, Broward and Palm Beach Counties). Humana substituted, three separate proposals, which designated three separate service areas: Dade, Broward, and Palm Beach Counties. The Department evaluated Humana's proposal for each county and on a combined basis. Gulfstream submitted one proposal, and designated its service area as Palm Beach County. The Department evaluated Gulfstream's proposal for Palm Beach County.


  4. Under the system developed by Nye, two points we awarded for each full county served, and one-half point for each partial county served. The parties to this proceeding received 2, 4, or 6 base points depending on whether their proposal was being evaluated on a one, two, or three county service area.


    Plan benefits


  5. Section VI of the RFP listed the minimum benefits that an HMO must provide, and it was requested to provide a complete list of all other services, if any, that it intended to provide for each service area. It was further stated that each proposer must specify co-insurance, deductible, co-payment and other features for all benefits and services for each service area, and list all limitations and exclusions for all benefits and services for each service area. The questionnaire (Section X) provided space for the proposer to list information concerning the number of hospitals in its delivery system; ambulatory care facilities and services; skilled and intermediate nursing care facilities; availability of services by psychologists, osteopathic physicians, chiropractic physicians, naturopathic physicians, nurse midwives, and podiatrists; programs for health status evaluations; screening and health promotion; limitations or conditions relative to organ transplants; composition specialty) and number of physician panel, and out of service area coverage. All of these categories were scored on the evaluation form prepared by Nye, and all were the subject of specific reference to the RFP requirements.


  6. The evaluation form provided for the evaluation of the benefit proposals and the award of points in the following categories:


    1. Covered services:

      1. For each service in addition to the minimum services required by the RFP 10 points were awarded.

      2. If ambulatory services were provided

        10 points were awarded, and if not provided 0 points were awarded. Additionally, 2 points were awarded for each service.

      3. If services were provided by psychologists, osteopathic physicians, chiropractic physicians, naturopathic physicians, nurse midwives or podiatrists, 5 points were awarded for each practice category.

      4. If services were provided for health status evaluation, screening, or health promotion, 5 points were awarded for

        each category.


    2. Limitations and exclusions:

      1. If services were provided for organ transplants, 10 points were awarded.

        For each limitation or exclusion 2 points were deducted.

      2. Each proposer received 10 base points from which was deducted 2 points far each additional limitation or exclusion from the base plan or to which

        2 points ware added for each limitation or exclusion that was less than the base plan.


    3. Co-payments, deductibles and co-insurance;

      1. For physician co-payment, 5 points were awarded for a $5 co-pay, and 1 point was added or subtract for each

        $1 the co-pay was below or over $5.

      2. For emergency room co-payment, 5 points were awarded for a $25 co-pay, and 1 point was added or subtracted for

        each $5 the co-pay was below or over $25.

      3. For inpatient hospital co-payment,

        10 points were awarded less 2 points for each $100 or 10 percent that the deductible or co-pay exceeded $0.

      4. For prescription drug co-payment, 3 points were awarded less l point for

        each $1 the co-pay exceeded $3.


    4. Range of providers and number of

      hospitals (1) For hospitals, 10 points were awarded for each full service hospital

      and 5 points for each other hospital.

      1. For skilled nursing services, 10 points were awarded if offered.

      2. For physician specialties, 1 point was awarded for each specialty

      represented on a proposer's physician panel.


    5. Out of service area coverage--

      Thirty points were awarded for a 30-day turnaround time for out-of-network claims, and 1 point was added or subtracted for each day more or less than 30 days.


  7. As a result of the scoring for plan benefits, Heritage was awarded 398 points; Health Options was awarded 308 points for Dade and Broward Counties, and

165 points for Palm Beach County; Humana was awarded 210.5 points for Dade County, 161.5 points for Broward County, and 184.5 points for Palm Beach County; and, Gulfstream was awarded 203 points for Palm Beach County. These points were

converted under a system similar to that used for the premium cost criteria by establishing a member of 5, and then adding or subtracting points based on the extent that an HMO deviated from the mean. In this manner, based all submittals, the base points for benefits awarded to the parties in this case were:


  1. Heritage (low), Combined:

  2. Health Options (low,

Dade and Broward:

7.19


5.57

Palm Beach:

2.98

Combined:

6.91

C. Humana,


Dade:

3.8

Broward:

2.92

Palm Beach:

3.34

Combined:

4.69

D. Gulfstream,


Palm Beach:


Accessibility

3.67

36. The accessibility criterion

was scored on the basis of 10 points each

for reciprocal agreements providing statewide and national services, 10 points for each County of the service. In which a hospital was located, 2 points for each specialty provider in each county, and 1 point for each provider physician and specialist. The raw score points for accessibility were then converted to the 10 point scale by again using the mean scoring system. In this manner, based on all submittals, the base points accessibility awarded to the parties in this case were as follows:


A. Heritage (low),


Combined:

6.8

B. Health Options (low),


Dade and Broward:

8.71

Palm Beach:

1.1

Combined:

9.61

C. Humana,


Dade:

4.16

Broward:

3.32

Palm Beach:

1.31

Combined:

8.79

D. Gulfstream


Palm Beach:

1.18


Completeness of proposal


  1. This criterion was not required by statute, but was added by Nye to ensure that the proposers provided all the information required by the RFP. Since the responses would form the basis of any contractual arrangement that might be made, it was thought that it was important that proposals be complete. The Department's inclusion of this criterion was reasonable.

  2. The completeness criterion was scored on the basis of 10 points if all questions were answered, with one point being deducted for each unanswered question. In this manner, the base points for completeness awarded to the parties in this case were as follows:


A.

Heritage (low)



Combined:


and Palm Beach:

7

B.

Health Options (low)



Dade and Broward

8


Palm Beach:

8


Combined:

8

C.

Humana



Dade:

9


Broward:

9


Palm Beach:

9


Combined:

9

D.

Gulfstream



Total points

Palm Beach

9

39. To

arrive at total points,

the base points were added to a weighted

score to derive a weighted total. In deriving the weighted score, the criteria were weighted as follows: premium costs at 3.5 times, plan benefits at 2.5 times, accessibility at 1 time, extensiveness of service area at 1 time, and completeness of proposal at 1 time.


  1. In evaluating proposals, the Department first evaluated bids solely against other bids for the same service area. In this manner, Gulfstream's bid was first evaluated against only those other bids that proposed to provide services in that county. Gulfstream ranked fourth out of the five bidders in Palm Beach County, and thirteenth overall.


    Base

    HMO Points


    Weights

    Total

    Points


    Rank

    Heritage (low): 36.34

    34.16

    70.5

    1

    Combined (low) 38.69

    30.79

    69.48

    2

    Av Med

    38.95

    24875

    63.825

    3

    Health Options -

    Dade & Broward (low) 34.03


    27.73


    61.76


    4

    Heritage (high):

    34.17

    25.925

    60.095

    5

    Humana - Combined:

    35.05

    23.46

    58.51

    6

    Gulfstream

    22.46

    22.03

    44.49

    13

  2. The points and ranking assigned by the Department to the top six proposers and to Gulfstream were as follows:


    Health Options -


    Palm Beach:


    Notably, the weights altered the relative positions of each of the top six proposers. 2/


  3. Based on the results of its evaluation, Department proposed to contract with Heritage (low) and Options (combined-low).

    Departure from the RFP


  4. While the Department's evaluation appears to be objective and in conformance with the RFP criteria, it fails to comport with the weighting factors announced at the pre-bid conference. At the pre-bid conference, Nye announced that cost and benefits would be weighted equally. In its final evaluation, the Department weighted cost at 3.5 and benefits at 2.5. The remaining criteria, accessibility, extensiveness of service area and completeness of proposal, were weighted at 1 each.


  5. The Department's failure to accord equal weight to cost and benefits was arbitrary and capricious. Such failure was a material departure from the RFP, as supplemented by the pre-bid conference, and adversely impacted the bid procurement process.


  6. The proof demonstrated that the Department's RFP stipulated that proposals would be evaluated using the criterion of premium cost, extensiveness of service area, plan benefits, accessibility, and completeness of proposal. This comported in all material respects with Section 110.123(3)(d), Florida Statutes.


  7. The RFP defined the criterion of plan benefits and accessibility as:


    1. Plan Benefits as follows:

      1. Covered services

      2. Limitations and exclusions

      3. Co-payments, deductibles and co-insurance features

      4. Range of providers including specialists and number of hospitals

      5. Out of service area coverage

      6. Grievance procedures


    2. Accessibility as follows:

      1. Reciprocal agreements

      2. provider locations

      3. Number of primary care physicians and specialists, in relation to membership.


  8. Plan benefits and accessibility under Section 110.123(3)(d), Florida Statutes, and the RFP were distinct criteria upon which proposers formulated their responses. They were also distinct criteria when the Department told proposers that cost and benefits would be weighted equally, were distinct criteria when evaluated by the Department, and had a distinct impact upon the ranking of proposers. Under the circumstances, the Department's failure to accord them equal weight was arbitrary and capricious.


  9. Rather than acknowledge the disparity that existed between cost and benefits, the Department contended at hearing that accessibility was a part of benefit, and therefore cost and benefits were weighted equally. The Department's contention, and was not persuasive and is rejected as not credible.

    Humana's cost/benefit analysis


  10. At hearing, Humana introduced evidence upon which it sought to demonstrate that, if benefits and cost were weighted equally, its cost to benefits ratio would be comparable to or better than the successful proposers. Two analyses were presented. First Humana's actuarial expert, Wesley Burbank, adjusted the different benefit patterns of Heritage and Health Options up to the Humana benefit level and adjusted their price accordingly to actuarial information filed with the Department of Insurance. In this manner, Mr. Burbank sought to place the proposers on the same co-payment/benefit level to compare premium costs. Under this methodology, Humana's premium cost was the second lowest for the south Florida service area. The second analysis performed by

    Mr. Burbank adjusted Humana's benefit pattern down to the benefit/co-payment levels of Heritage and Health Options, and adjusted Humana's premium cost down accordingly based on Humana's filed actuarials. In this matter, Mr. Burbank again sought to place the proposers on the same co-payment/benefit level to compare premium costs. Under this methodology, Humana's premium cost was comparable to or lower than the second lowest bidder.


  11. Mr. Burbank's analyses are not persuasive to demonstrate that Humana was the Second lowest proposer in this case, or that its cost/benefits were the second lowest. Mr. Burbank did not reevaluate the bids based on the five criteria contained in the RFP, nor did he include in his cost/benefit analysis all of the criteria utilized by the Department to evaluate benefits.


  12. Mr. Burbank's analysis were, however, persuasive in demonstrating the extricable link that exists between premium cost and benefits, and that any failure to accord them equal weight results in an unreasoned result.


    Conclusion


  13. In the formulation of their submittals, the proposers to this RFP were entitled to rely and did rely on the Department's announcement that premium costs and benefits would be weighted equally and that they would be weighted higher the other criteria. While nothing untoward was demonstrated regarding the objective scoring methodology adopted by the Department or its mathematical computations, it is conclude that the Department's failure to weight premium cost and plan benefits on an equal basis was arbitrary and capricious.


    CONCLUSIONS OF LAW


  14. The Division of Administrative Hearings has jurisdiction over the parties to, and the subject matter of, these proceedings.


  15. Effective October 1, 1987, Section 110.123(3)(d), Florida Statutes, was amended to include the following provision:


    2. Effective January 1, 1988, the Department of Administration shall, by rule, contract with health maintenance organization to participate in the state group health insurance Plan through the Competitive bid Process based on cost, service area, plan benefits, and accessibility Effective January 1, 1988, all employees partici- pating in the state group health

    insurance plan, irrespective of whether or not the member participates in a health maintenance organization, shall be subject to the same total Premium,

    regardless of the state or employee share


  16. Pertinent to this case, Section 287.057, Florida Statutes, provides:


    1. Unless otherwise authorized by law, all contracts for contractual services shall be awarded by competitive sealed bidding.


    2. When an agency determines in writing that the use of competitive sealed bidding is not practicable contractual services shall be procured by competitive sealed proposals. A request for proposals which includes a statement of the services sought and all contractual terms and conditions applicable to the procurement of contractual services, including the criteria, which shall include, but need not be limited to, price, to be used in determining acceptability of the proposal shall be issued. If the agency contemplates renewal of the contract, it shall be so stated in the request for proposals. The proposals shall include the price for each year to which the contract may be renewed. Evaluation of proposals shall include consideration of the total cost for each year as quoted by the proposer. To assure full understanding of and responsiveness to the solicitation requirements, discussions may be conducted with qualified offers. The offers shall be accorded fair and equal treatment prior to the submittal date specified in the request for proposals with respect to any opportunity for discussion and revision of proposals. The award shall be made to the responsible offer whose proposal is determined in writing to be the most advantageous to the state, taking into consideration the price and the other criteria set forth in the request for proposals. The contract file shall contain the basis on which the award is made.


    (16) A selection team of at least three employees who have experience and knowledge in the program areas and service requirements for which

    contractual services are sought shall be appointed by the agency head to aid in the selection of contractors for contracts of more than the threshold amount Provided in s. 287.017 for CATEGORY FOUR.


  17. The term "request for proposals" is defined by Section 287.012(11), Florida Statutes, as follows:


    "Requests for proposals" means a written solicitation for sealed proposals with the title, date, and hour of the public opening designated. The request for proposals is used when the agency is incapable of specifically defining the scope of work for which the commodity, group of commodities, or contractual service is required and when the agency is requesting that a qualified offeror propose a commodity, group of commodities, or contractual service to meet the specifications of the solicitation document. A request for proposal includes, but is not limited to, general information, applicable laws and rules, functional or general specifications, statement of work, proposal instructions, and evaluation criteria. Requests for proposals shall state the relative importance of price and any other evaluation criteria. (Emphasis added)


  18. No issue was raised and no proof was offered in these proceedings as to whether the Department made a determination in writing, pursuant to Section 287.057(3), Florida Statutes, that the use of competitive sealed bidding was not practicable. Accordingly, the presumption is that the Department acted lawfully, and complied with the provisions of Setion 287.057(3). See: Atlantic Coast Line R. Co. v. Mack, 57 So.2d 447 (Fla. 1952).


  19. The request for proposals issued by the Department included the evaluation criteria mandated by 110.123(3)(d)2, Florida Statutes, of cost, service area, plan benefits and accessibility. Although the RFP added the additional criterion of "completeness of proposal," such addition is considered to be reasonable and not statutorily prohibited. The RFP did not, however, state the "relative importance of price and any other evaluation criteria," as mandated by Section 287.012(11). The only reference to this requirement was made response to questions at the pre-bid conference. At that time, the Department's spokesman stated that cost and benefits would be weighted on an equal basis, and higher than the other criteria. This was not true in the final evaluation, since cost was weighted at 3.5 and benefits at 2.5. Notably, proposers could not have ascertained the relative weights of each of the criteria prior to submission of proposals because they had not been determined prior to that time. This omission by the Department was material since competing HMOs were unable to determine the relative importance of each of the criteria and take such information into consideration when formulating their

    response, and since it reserved to the Department unbridled discretion to establish the relative weights of each criteria after the proposals had been submitted.


  20. In reaching the conclusion that the Department's failure to comply with the provisions of section 287.012(11) was fundamental error, I am persuaded by the reasoning in City of Miami Beach v. Klinger, 179 So.2d 874 (Fla. 1st DCA 1965). In that case, the city published an invitation for sealed bids for the "dockage concession of for hire charter fishing boats and for a five year period." Under the city's charter, sealed bids were required in this instance. One bidder submitted two responses, one of which was a bid with a substantial increase in revenue to the city but based on the city granting him an additional five-year option. The city accepted the bidder's proposal, and entered into a lease with him for a period of five years with a five year option, notwithstanding the fact that the invitation to bid was limited to five years. In affirming the decree of the trial court, which had declared, upon a suit filed by an unsuccessful bidder, the agreement in violation of the city's charter and null and void, the court adopted the language of the Supreme Court of Florida in Wester v. Belote, 103 Fla. 976, 138 So. 721, 724, as follows:


    Laws of this kind requiring contracts to be let to the lowest bidder are based upon public economy, are of great importance to the taxpayers, and ought not to be frittered away by exceptions.

    * * *

    In so far as they thus serve the object of protecting the public against collusive contracts and prevent favoritism toward contractors by public officials and tend to secure fair competition upon equal terms to all bidders, they remove temptation on the part of public officers to seek private gain at the taxpayers' expense, are

    of highly remedial character, and should receive a construction always which

    will fully effectuate and advance their true intent and purpose and which will avoid the likelihood of same being circumvented, evaded, or defeated.

    Accordingly, it has been generally recognized and held by the courts that it is the duty of public officers charged with the responsibility of letting contracts under the statute to adopt, in advance of calling for bids, reasonably definite plans or specifications, as a basis on which bids may be received. Such officers, in view of such requirements, are without power

    to reserve in the plans or specifications, so prepared in advance of the letting

    the power to make exceptions, releases, and modifications in the contract after

    it is let, which will afford opportunities for favoritisms, whether any favoritism

    is actually practices or not. Neither can they include other reservations which by their necessary effect will render it impossible to make an exact comparison

    of bids....


  21. The Department's contention that petitioners waived their right to challenge the Department's failure to comply with Section 287.012(11), or that this deficiency should be ignored at this stage of the bid process, is unpersuasive, notwithstanding the provisions of Section 120.53(5), Florida Statutes.


  22. The contractual acknowledgement form required proposers who disputed the "reasonableness of the terms and conditions of the Request for Proposal, proposed selection or contract award recommendation" to file such protest in accordance with Section 120.53(5), Florida Statutes. The form also advised proposers, pursuant to section 120.53(5)(a)2, that:


    Failure to file a protest within the time prescribed in Section 120.53(5), Florida Statutes, shall constitute a waiver of proceedings under Chapter 120, Florida Statutes.


  23. Pertinent to this case, Section 120.53(5)(b), Florida Statutes, provides:


    Any person who is affected adversely by the agency's decision or intended decision shall file with the agency a notice of protest in writing within 72 hours after the posting of the bid tabulation or after receipt of the notice of the agency's decision or intended decision and shall file a formal written protest within 10 days after the date he filed the notice of protest or failure to file a formal written protest shall constitute a waiver of proceedings under Chapter 120. The formal written protest shall state with particularity the facts and law upon which the protest is based.


  24. As pointed out by the Department, the courts have construed this provision to require that a bidder protest certain deficiencies in an RFP within the prescribed time after issuances. Capeletti Brothers, Inc. v. Department of Transportation, 499 So.2d 855 (Fla. 1st DCA 1986). The purpose of the bid solicitation protest provision is:


    ...to allow an agency, in order to save expense to the bidders and to assure fair competition among them, to correct or clarify plans and specifications prior to accepting bids.

    Id. at 857.


  25. While Capeletti does mandate that a failure to timely protest the plans or specifications in an RFP constitutes a waiver of chapter 120 proceedings, it does not address the issue of an agency's failure to comply with the statutory law governing acquisition of public contracts. On this point, Wester v. Belote, supra, and City of Miami Beach v. Klinger, supra, are more persuasive. The Department also notes that the formal written protests filed by petitioners did not specifically state that they protested the Department's failure to "state the relative importance of price and any other evaluation criteria." Again, Wester v. Belote, supra, and City of Miami Beach v. Klinger, supra, are persuasive.


  26. In the administrative forum, the Department appears as a party litigant to defend its policy choice. It is, however, also the responsible agency that will ultimately enter a final order which explicates that choice.


  27. Had there been no protest, the Department's award would have become final, and probably beyond its ability to correct errors in the bidding process. However, where, as here, a failure to comply with the public bid laws is disclosed prior to final agency action, the Department should not blind itself to such failure.


  28. The Department also contends that Gulfstream lacks standing to protest the award, since its ranking was so far removed from the top two proposers. Whether Gulfstream has standing is a relatively moot point since Humana has demonstrated standing. See: Preston Carroll Co. v. Florida Keys Aqueduct Authority, 400 So.2d 524 (Fla. 3rd DCA 1981). However, it is concluded that Gulfstream has standing to challenge the Department's failure to accord equal weight to cost and benefits, and that such failure was arbitrary and capricious.


  29. Petitioners claim that they should not be excluded from a contract award because neither the RFP nor the 1987 legislation required that such an award be limited to two or any other number of HMOs. While the RFP did provide the flexibility to award more than two contracts in any service area if special circumstances existed, such special circumstances were not demonstrated in this case, i.e., there was no showing that the selected HMOs could not adequately satisfy the needs of the state employees in the south Florida area. While the statute did not specify a number, it did specify that the Department contract through the competitive bid process. If the contracts are not limited in number, there is no competitive bidding process. Accordingly, it is concluded the Department acted reasonably in limiting the award to two HMOs.


  30. The petitioners further questioned the qualification of the three- employee team who evaluated the bids in this case, and claimed that their lack of experience and knowledge in the health care services field should disqualify them as not meeting the requirements of Section 287.057(16), Florida Statutes. As heretofore found, the employees utilized by the Department met the minimum statutory requirements.


  31. The petitioners further contend that the Department should be required to offer at least one staff model HMO in any service area. The federal requirement, as set forth in 42 U.S.C. 300e-9, and regulations there under, 42

    C.F.R. 110.801, 805, are not applicable to state government. Further, there was no showing that the IPA model HMOs could not adequately meet the needs of state employees. Accordingly, the parties' contention is without merit.

  32. Finally, the petitioners contend that the Department's evaluation of the proposals was arbitrary and capricious. As previously found, the evaluation of all the criteria was reasonable and a valid exercise of the agency discretion except the manner in which it weighed the benefits. It was found that the Department's failure to accord cost of benefits equal weight was unfair, arbitrary and capricious.


  33. In light of the Department's failure to comply with the public bid law, Section 287.012(11), Florida Statutes, stating the "relative importance of price and any cost evaluation criteria" in the RFP, and in light of the finding that its failure to accord equal weight to costs and benefits when it scored the proposals was arbitrary and capricious, the agency should invoke its right to reject all proposals, as provided in paragraph 7 of the general conditions in the Request for Proposal Contractual Acknowledgement Form.


RECOMMENDATION

Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Department enter a final order rejecting all proposals

submitted for the South Florida service area.


DONE AND ORDERED in Tallahassee, Leon County, Florida, this 22nd day of March, 1988.


WILLIAM J. KENDRICK

Hearing Officer

Division of Administrative Hearings The Oakland Building

2009 Apalachee Parkway

Tallahassee, Florida 32399-1050

(904) 488-9675


Filed with the Clerk of the Division of Administrative Hearings this 22nd day of March, 1988.


ENDNOTES


1/ Separate bids in each county were permitted. If different rates were provided, a value to the reate was assigned relative to the employee population of the county, with Dade being the highest with approximately 10,000 employees. Then the combined bid was evaluated.


2/ Mr. Nye testified that the weighing utilized did not affect the ranking of the bids proposed by the parties to this action and only affected the ranking of one bidder, Av-Med. The proof is contrary to Mr. Nye's testimony. Regardless, the proposers were sill entitled to have the premium costs and benefits weighted equally and higher that the other criteria.

APPENDIX TO RECOMMENDED ORDER, CASE NOS. 87-5526BID, 87-5543BID


Humana's proposed findings of fact are addressed as follows:


1 & 2. Addressed in paragraphs 10 and 11.

3-5. Addressed in paragraphs 16, 24, and 25.

6. Rejected as subordinate and not necessary to result reached.

7-9. Addressed in paragraph 19. To the extent the proposed facts are at variance with the response to the RFP they are rejected as not relevant.

10-13. Addressed in paragraphs 21 and 33-36. To the extent the proposed facts are at variance with the response to the RFP they are rejected as not relevant.

14. Rejected as not relevant.

15-17. Addressed in paragraphs 11 and 21, and paragraph 16 (renumbered as

68) conclusion of law.

18. Not relevant.

19 & 20. Addressed in paragraph 21.

21 & 22. Addressed in paragraph 13.

  1. Addressed in paragraph 42.

  2. Addressed in paragraphs 11 and 21, and paragraph 16 (renumbered as 68) conclusion of law.

25 & 26. To the extent pertinent, addressed in paragraph 15.

27-34. To the extent pertinent, addressed in paragraphs 11 and 21, and paragraph 16 (renumbered as 68) conclusion of law.

  1. Addressed in paragraphs 11, 13 and 36.

  2. Addressed in paragraph 23.

  3. Addressed in paragraphs 25, 26 and 42.

38-47. To the extent pertinent, addressed in paragraphs 48-50.

48 & 49. To the extent pertinent, addressed in paragraph

21. Otherwise rejected as not relevant.

50. Rejected as not relevant. See paragraph 18 (renumbered as 70) conclusion of law.

Gulfstream's proposed findings of fact are addressed as follows: 1(A) Rejected as contrary to the proof.

1(B) Rejected as contrary to the proof.

1(C) Rejected as contrary to the proof. 1(D) Not relevant.

1(E) Not relevant.

1(F) Not relevant.

2(A) Addressed in paragraphs 42-47. 2(B) Addressed in paragraph 22.

2(C) Not relevant.

2(D) Addressed in paragraph 37.

2(E) Not relevant. The propsals were not shown to the same.


The Department's proposed findings of fact are addressed as follows:


  1. Addressed in paragraph 16.

  2. Addressed in paragraph 20.

  3. Addressed in paragraph 19.

  4. Addressed in paragraph 18.

  5. Addressed in paragraph 17. 6-8. Rejected as subordinate.

9-13. Addressed in paragraphs 1-7.

14-18. To the extent pertinent, addressed in paragraphs 8 and 9.

  1. Addressed in paragraph 10.

    19 & 20. (Sic). Addressed in paragraphs 11 and 14.

  2. (Sic). To the extent pertinent, addressed in paragraph 13. 21-24. Addressed in paragraph 12.

  1. Addressed on paragraphs 10 and 14.

  2. Addressed on paragraph 13.

27 & 28. Addressed on paragraph 15. 29-31. Addressed on paragraph 22.

32-38. Addressed in paragraphs 22-25.

  1. Subordinate.

  2. To the extent pertinent, addressed in paragraph 37.

  3. Addressed in paragraph 25.

  4. Subordinate.

43-46. Addressed in paragraphs 42-47.

48 & 49. Addressed in paragraphs 40 and 41.

  1. Subordinate.

  2. Addressed in paragraph 15.

52 & 53. Addressed in paragraphs 27 and 28.

54-57. To the extent pertinent, addressed in paragraphs 11 and 21, and in paragraph 18 (renumbered as 70) conclusions of law.

58. Addressed in paragraph 16.

59-65. Addressed in paragraphs 26-29.

66 & 67. Addressed in paragraphs 30-32. 68-83. Addressed in paragraphs 33-35. 84-89. Addressed in paragraph 36.

90 & 91. Addressed in paragraphs 37 and 38.

92 & 93. Addressed in paragraph 11.

94-97. Rejected as subordinate or not relevant.

98 & 99. Rejected as conclusions of law.

Health Option's proposed findings of fact are addressed as follows: 1-3. To the extent pertinent, addressed in paragraphs 1-7.

4 & 5. Addressed in paragraphs 8-11.

6-8. To the extent pertinent, addressed in paragraphs 13-15.

9. Addressed in paragraph 16.

10-19. Addressed in paragraphs 22-41.

20-22. Addressed in paragraphs 48-50.


Heritage's proposed findings of fact are addressed as follows:


  1. Addressed in paragraph 7.

  2. Addressed in paragraph 10.

  3. Addressed in paragraphs 11 and 14.

  4. Addressed in paragraphs 11 and 14.

  5. Addressed in paragraphs 8 and 9.

6 & 7. Addressed in paragraphs 3-6.

8. Subordinate.

9 & 10. Addressed in paragraphs 13-15.

11 & 12 Addressed in paragraph 16.

  1. Addressed in paragraph 11.

  2. Addressed in paragraphs 22-25.

15-21. Addressed in paragraphs 25-41.

COPIES FURNISHED:


Andrea Bateman, Esquire Assistant General Counsel Department of Administration

435 Carlton Building Tallahassee, Florida 32399-1550


John R. Marks, III, Esquire Katz, Kutter, Haigler,

Alderman, Eaton & Davis, P.A.

315 South Calhoun Street 800 Barnett Bank Building Tallahassee, Florida 32301


Jann Johnson, Esquire

Robert N. Clarke, Jr., Esquire Ausley, McMullen, McGhee,

Carothers & Proctor Post Office Box 391

Tallahassee, Florida 323015


Robert C. Bissell, Esquire Director of Legal Affairs Gulfstream Health Plan

4623 Forrest Hill Boulevard, Ste. 103 West Palm Beach, Florida 33415


Larry Carnes, Esquire Epstein, Becker, Borsody

& Green

515 East Park Avenue Tallahassee, Florida 32301


Adis Villa, Secretary

435 Carlton Building Tallahassee, Florida 32399-1550


Augustus D. Aikens, Jr. General Counsel

435 Carlton Building Tallahassee, Florida 32399-1550

=================================================================

AGENCY FINAL ORDER

=================================================================


STATE OF FLORIDA DEPARTMENT OF ADMINISTRATION


HUMANA HEALTH CARE PLAN,


Petitioner,


vs. CASE NO. 87-5526BID


STATE OF FLORIDA,

DEPARTMENT OF ADMINISTRATION,


Respondent,

and


HEALTH OPTIONS, INC., d/b/a HEALTH OPTIONS OF SOUTH FLORIDA, and HERITAGE HEALTH PLAN OF SOUTH FLORIDA, INC.


Intervenors.

/ GULFSTREAM HEALTH PLAN,


Petitioner,


vs. CASE NO. 87-5543BID


STATE OF FLORIDA,

DEPARTMENT OF ADMINISTRATION,


Respondent,

and


HEALTH OPTIONS, INC., d/b/a HEALTH OPTIONS OF SOUTH FLORIDA, and HERITAGE HEALTH PLAN OF SOUTH FLORIDA, INC.,


Intervenors.

/


FINAL ORDER


As a result of a notice of intention issued by Department of Administration (hereinate, DOA or the Depatment) to award contracts to two companies to provide health maintenance organization (HMO) medical services in the South Florida HMO service area, the Department received two formal protests and two petitions for intervention to its intended action.

Pursuant to the Request for Proposal No. 88-05, issued on July 31, 1987, DOA sought proposals for the provision of HMO services in the South Florida service area. Formal Notice of Intention to award contracts to Health Options, Inc., d/b/a Health Options of South Florida (hereinafter, Health Options) and to Heritage Health Plan of South Florida, Inc., (hereinafter, Heritage) was issued on November 15, 1987. Formal bid protests were filed by Humana Health Care Plan (hereinafter, Humana) and by Gulfstream Health Plan (hereinafter, Gulfstream) challenging the proposed award of the contracts to Health Options and to Heritage. Both Health Options and Heritage filed petitions to intervene in this proceeding and were subsequently permitted to do so.


The case was assigned to the Division of Administrative Hearings which designated William J. Kendrick, Hearing Officer, to conduct formal hearings. After due notice, hearings were conducted in Tallahassee, Florida on January 20, 1988.


APPEARANCES


For Petitioner, John R. Marks, III, Esquire Humana Health David Yon, Esquire

Care Plan: KATZ, KUTTER, HAIGLER, ALDERMAN,

EATON & DAVIS, P.A.

800 Barnett Bank Building Tallahassee, Florida 32301


For Petitioner, Robert C. Bissell , Esquire Gulfstream Suite 200

Health Plan: 888 Executive Center Drive West

St. Petersburg, Florida 33702


For Respondent, Andrea Bateman, Esquire Department of William A. Frieder, Esquire Administration: Department of Administration

432 Carlton Building Tallahassee, Florida 32399-1550


For Intervenor, Jann Johnson, Esquire Health Options, AUSLEY, McMULLEN, McGHEE Inc.: CAROTHERS & PROCTOR

227 South Calhoun Street Tallahassee, Florida 32301


For Intervenor, Lawrence L. Carnes, Esquire Heritage Health EPSTEIN, BECKER, BORSODY Plan of South & GREEN

Florida, Inc.: 515 East Park Avenue

Tallahassee, Florida 32301


Gulfstream objects to the design of the RFP, the method of evaluation, and the limitation of two contracts per service area. Humana contends that its proposal complied with the RFP requirements and that the limitation of two contracts per service area is unfair.


The parties presented 32 joint exhibits, which were marked as Exhibits 1- 21, 23-29, and 34-37, and received into evidence. Humana presented the testimony of 2 witnesses who were both experts in actuarial underwriting science and the development, operation and administration of employee medical plans with

special emphasis on HMOs. Humana's Exhibits 1, 2, and 4-7 were received into evidence. Gulfstream presented the testimony of Dennis Nye, and its Exhibit 1 was received into evidence. Heritage offered its Exhibit 1, which was received into evidence.


The transcript of hearing was filed February 24, 1988, and the parties were granted leave, at their request, until March 9, 1988, to file proposed findings of fact. A Recommended Order was issued on March 22, 1988, in which the Hearing Officer found certain deficiencies in the RFP and in the evaluation process, and recommended that DOA issue a final order rejecting all proposals submitted for the South Florida service area.


As permitted by statute, Health Options and Heritage filed exceptions to the Recommended Order in which each argued against the conclusion in that Order and in support of the Department's position. Humana and Gulfstream did not file exceptions. The Department also filed exceptions to the Recommended Order which will be considered later in this order.


After deliberations on the entire record, the Recommended Order and the Intervenors' exceptions thereto, the Department now enters its final order.


FINDINGS OF FACT BACKGROUND

  1. In April, 1987, DOA submitted recommendations to the Florida Legislature which included proposed changes in the state employees' group insurance program. Among the recommendations was a proposal that would require the Department to competitively bid HMO contracts in the state health program on the basis of cost, service area, plan benefits, and accessibility. The stated objective of the recommendation was to:


    encourage HMOs in a geographic location to structure their premiums to reflect actual cost experience and to provide the lowest possible cost for the state and state employees, while at the same time

    changing the current concept of the state's contributions to HMOs..."


  2. At the time of the DOA legislative recommendation, existing state law provided that persons eligible to participate in the state group health insurance program had the option to elect membership in any qualified HMO engaged in providing basic health services in the HMO service area where the employee resided in lieu of participating in the state self-insurance plan. Section 110.123(3)(d), Florida Statutes, Rule 22K-1.1003(21), F.A.C. A "qualified" HMO was defined as an entity qualified under the federal Public Health Service Act, 42 U.S.C. 300e-9, or certified under Part II of Chapter 641, Florida Statutes, which had entered into a contract with the State, and had achieved a designated level of participation by state employees. Rule 22K- 1.1003(21), F.A.C.

  3. Effective October 1, 1987, Chapter 87-156, Laws of Florida (now codified as Section 110.123(3)(d), Fla. Stat.) was amended to add the following:


    (3) STATE GROUP INSURANCE PROGRAM. --

    * * *

    (d)

    * * *

    2. Effective January 1, 1988, the Department of Administration shall, by rule, contract with health maintenance organizations to participate in the state group health insurance plan through the competitive bid process based on cost, service area, plan benefits, and accessibility. Effective January 1, 1988, all employees participating in the state group health insurance plan, irrespective of whether or not the member participates in a health maintenance organization, shall be subject to the same total premium, regardless of the state or employee's share.


    THE REQUEST FOR PROPOSALS


  4. Dennis Nye, then the DOA Director of the Office of State Employees Insurance and administrator of the state health insurance program, was directly responsible for implementing the new legislation regarding the HMO contracts. He initially determined that procurement of HMO contractual services was governed by Section 287.057, Florida Statutes.


  5. The Request For Proposals For Health Maintenance Organization Coverage was issued on July 31, 1987, as "Bid No. 88-05." It scheduled a presubmission conference on August 12, 1987, and established the deadline for receipt of proposals of August 28, 1987, with a contemplated date of award of contract on September 14, 1987, and an effective contract date of January 1, 1988.


  6. The Department clearly set forth the general purpose of the RFP in Section II as requiring each proposal to meet the benefit objectives and to provide high quality benefits and services to state employees. More specific objectives were as follows:


    A proactive approach to cost containment, including an emphasis on aggressive claims management, utilization review and superior statistical reporting


    Quality medical care which encourages health promotion, disease prevention, early diagnosis and treatment.


    Stability in the financial structure of offered health plans.

    Professional, high quality service in all administrative areas including claims processing, enrollment, membership services, grievances, and communications.


    Competitive premium rates which take into account the demographics and, if appropriate, the claims experience of State employees.


    DOA stated other objectives to be as follows:


    Have each county or contiguous group of counties be considered one service area.


    Award no more than two contracts per service area; however, the awards will be based on the HMO's ability to respond to the needs of employees and on accessibility by employees.


    Have reciprocal agreements between locations, if an HMO has multiple service areas. For example, an employee covered in Miami with a covered dependent living in Gainesville, should be provided similar services.


    Enter into a two year, non-experience rated contract. A provision will be included tying renewal action at each of the two renewals to the Consumer Price Index (CPI) for Medical Care Services. This will become part of the contract.


  7. Section III of the RFP stated that to be considered as a "qualified" HMO, the proposer must be licensed by the Department of Insurance pursuant to Part II of Chapter 641, Florida Statutes.


    Each proposer was required to submit the following:


    1. Form PUR 7033, properly completed and signed.


    2. The completed Questionnaires Requirements Section (Please answer questions in the same order as they appear in that Section; do not reformat).


    3. The completed Cost Proposal forms (Please use the enclosed form on page 43 and 44; do not reformat).


    4. The completed Statement of Compliance on page 47.


    5. Documentation in support of the above.

      Section III further provided in part as follows:


      Proposals are to be submitted only on the forms and formats provided in this RFP. All exhibits requested must be submitted with your proposal along with answers to all questions contained in this RFP.


  8. Section IV of the RFP provided that each contract would be for a 24 month term, beginning January 1, 1988. The Department reserved the right to renew the contracts on the same terms and conditions of the initial contract for two additional one-year periods.


  9. Section VI of the RFP, concerning "Required Benefits and Services," listed the minimum benefits that must be provided, and also required that a complete list of all other intended services for each service area be provided.


  10. Section IX specified the following criteria for evacuation of the proposals:


    1. Premium Cost


    2. Extensiveness of Service Areas by County and/or contiguous Counties. Note:

      The State's objective is to award no more than two contracts per services (sic) area; however, the awards will be based on the HMO's ability to respond to the needs of employees and on accessibility by employees.


    3. Plan Benefits as follows:

      1. Covered services

      2. Limitations and exclusions

      3. Co-payments, deductibles and co-insurance features

      4. Range of providers including specialists and number of hospitals

      5. Out of service area coverage

      6. Grievance procedures


    4. Acessibility as follows:

      1. Reciprocal agreements

      2. Provider locations

      3. Number of primary care physicians and specialists, in relation to membership


    5. Completeness of proposals


  11. The RFP did not provide information on DOA's evaluation of the legislatively required criteria concerning the importance of price and other evaluation criteria. The Department weighed cost equal to benefits plus accessibility and determined accessibility was a part of the plan benefits.

  12. Section X was a questionnaire with forty-nine questions for the proposers to answer including questions regarding the proposer's license status, corporate structure, reserving practices, reinsurance contracts, service area, employee membership and staff, hospitals and other care facilities, participating physicians, utilization review, and other information regarding the proposer's case management, control mechanisms, statistical reporting, and the like. Each proposer was directed to submit audited financial statements for the last two fiscal years, together with financial statements for the first quarter of 1987.


  13. Section XI dealt with cost proposals and provided a form for completion as to proposed premium rates.


  14. In an undated addendum to the RFP, the Department added Question 50 to the RFP to provide information for use in a brochure which would allow state employees to compare the benefits offered by the various HMOs.


  15. In the pre-submission conference held on August 12, 1987, and attended by representatives of the HMOs, the participants were informed by Mr. Nye that the two criteria of cost and benefits would be weighted on an equal basis. He also advised that the State would enter into a two year, non-experience rated contract, subject to renewal which would tie rate increases to the Consumer Price Index for Medical Care Services. Proposers were told to quote a specific rate for the first year of the contract, and a percentage increase or decrease for each of the following three years. However, he noted that the State would evaluate cost solely on the basis of the premium for the first year. He indicated that two HMOs per service area would be awarded contracts based on the highest number of points received in the bid evaluation process, and not based upon the type of HMO, such as an individual practice association (IPA) or staff model. Then asked whether some factors would be weighted higher than others, Mr. Nye responded that benefits and cost would be weighted higher.


THE PROPOSERS


15. Twelve HMOs submitted proposals to the Department for the South Florida area (Dade, Broward, and Palm Beach Counties) in response to the RFP by the deadline, and several of those submitted more than one proposal. There was, however, no prohibition on submitting multiple proposals, and prospective bidders were told that they had that option. In this proceeding, proposals were received from Health Options, Heritage, and Humana to serve Dade, Broward, and Palm Beach Counties, and a proposal from Gulfstream to serve Palm Beach County.


  1. Health Options is a for profit subsidiary of Blue Cross and Blue Shield of Florida, and is an individual practice association (IPA) model HMO. Health Options offers HMO services in Dade, Broward, and Palm Beach Counties. It has a total membership of 23,074 members, of which 517 are state employees and dependents.


  2. Heritage is a subsidiary of Heritage Health System, Inc., for profit Delaware Corporation, and is an IPA model HMO. Heritage offers HMO services in Dade, Broward, and Palm Beach Counties, and has a total membership of 12,500 members, including 10 state employees and dependents.


  3. Humana is a for profit subsidiary of Humana, Inc., and is a combination staff/IPA model HMO. Humana offers HMO services in Dade, Broward, and Palm Beach Counties, and has a total membership of 91,217 members, including 3,273 state employees and dependents.

  4. Gulfstream, at the time its proposal was filed, was a limited partnership whose general partner was Equicor Holding Company and whose limited partner was H.C.A. Care of Florida, Inc. The limited and general partners were wholly owned subsidiaries of Equicor, Equitable H.C.A. Corporation, which is owned by Hospital Corporation of America and the Equitable Life Assurance Society of the United States. On January 1, 1988, Gulfstream converted to corporate form, and is now known as Equicor Health Plan of Florida. Gulfstream offers services in Palm Beach County and has a total membership of 12,335 members, including 933 state employees and dependents.


    THE EVALUATION PROCESS


  5. The evaluation of the proposals submitted by HMOs throughout the state for the seven service areas was initially accomplished by employee evaluation teams made up of employees in Dennis Nye's office. He was assisted in his selection by Marie Walker, a benefits analyst in his office. Dennis Nye and Ms. Walker decided which employees could best evaluate the proposals based on the criteria established in the law, including familiarity with benefits and the request for proposal process. The employees selected for these duties had varying degrees of knowledge concerning health plan benefits, HMOs, and bid evaluations.


  6. After the initial evaluation was completed, the Department determined that inconsistent methods had been used to score the proposals and further directed Dennis Nye to continue the evaluation process based upon an objective scoring system which limited subjectivity to the maximum extent possible. As Secretary, I was concerned with the financial soundness of each bidder and instructed Dennis Nye to keep that aspect in mind when making his final recommendation.


  7. The second or "final evaluation" of the proposals was solely based on the five criteria contained in the RFP, i.e., premium cost, extensiveness of service area, plan benefits, accessibility, and completeness of proposals. In his memorandum of October 6, 1987, Mr. Nye initially recommended that contracts be awarded in the Jacksonville, Pensacola, and Gainesville Service Areas to the two HMOs in each area that had received the top rankings. 1/ However, in the South Florida Service Area, he recommended awarding four contracts based on the need to provide one staff model and one IPA model HMO in each county in the service area.


  8. It was Mr. Nye's belief that federal law required that one HMO of each type be offered in each service area, if available. I was concerned about this issue and asked DOA's General Counsel, Augustus Aikens, to review it. He informed me that the federal requirement was not applicable because a state was not included within the definition of "employer" under the applicable federal law. On the bass of this legal advice, directed Mr. Nye to review his previous recommendations as they related to the need to retain one IPA model and one staff model HMO in each service area. In his memorandum of October 26, 1987, Mr. Nye recommended that contracts be awarded to Health Options and to Heritage on the bases that they were "the lowest, best bids for (the) service area." In his memorandum of October 30, 1987, he again recommended that contracts be awarded to Health Options and Heritage.


  9. Throughout the entire bidding process, it was my desire to avoid awarding a contract to an HMO which was not in compliance with state law or the rules of the Department of Insurance. I had written to the Department of

    Insurance seeking its assistance to determine the ability of each bidder to comply with the state law and to meet the needs of the state employees. By letter of October 23, 1987, the Department of Insurance informed DOA that it had approved the rates of Health Options and Heritage.


    EVALUATION OF THE PROPOSALS


    Premium Costs


  10. The Department specifically designed the RFP to require each proposer to list separate costs in categories of "employee only" and "family" for active employees and retired employees under sixty-five. Required rates for Medicare recipients were to be shown separately listing rates for retirees, retiree and spouse (both on Medicare), and retiree and spouse (one with Medicare, with or without other eligible dependents). A fixed premium cost was required for calendar year 1988 and a percentage of that rate was to be shown for the successive three years. Rates for those last three years were to be "established as a percentage of the first year's premiums" with the maximum increase "limited to the increase, if any, in the overall medical portion of the Consumer Price index." (RFP, Section XI)


  11. The rates bid by each HMO were as follows: 2/



    A.


    Heritage (low bid):

    Employee Only


    Family


    Dade, Broward,

    66.46

    166.15


    and Palm Beach



    B.

    Health Options (low

    bid)



    Dade and Broward:

    78.00

    195.00


    Palm Beach:

    75.00

    185.00

    C.

    Humana,




    Dade:

    85.02

    206.01


    Broward:

    83.01

    199.22


    Palm Beach:

    77.44

    185.86

    D.

    Gulfstream,




    Palm Beach:

    78.92

    197.28


    (The instructions provided that the total cost of the "family plan" shall not be greater than 2.5 times the total cost of the "employee only" plan.)


  12. DOA evaluators computed a "mean" premium cost by adding the premiums for all bidders, dividing by three, and comparing each premium to the "mean," which was then given five points. A premium above the mean gave a bidder less than five points while a premium below the mean gave the bidder more than five points.

    The same method was used for the "employee only" plan, the "family" plan and the three Medicare retiree groups. Based on the Department's estimate that active employees constituted 90 percent and retirees 10 percent of an HMO membership, the final point calculations were:


    A. Heritage (low bid):


    Combined (Dade,

    Broward and Palm Beach)

    9.35

    B. Health Options (low bid)


    Dade and Broward:

    7.75

    Palm Beach:

    9.1

    Combined (Dade, Broward


    and Palm Beach)

    8.17

    C. Humana


    Dade:

    5.72

    Broward:

    6.26

    Palm Beach:

    8.65

    Combined:

    6.57

    D. Gulfstream


    Palm Beach:

    6.61


    The Hearing Officer evaluated the above process and found that the Department's action was reasonable even though "the cost proposals were evaluated solely on the basis of premium for 1988." He based his conclusion on:


    First, Nye announced at the pre-bid conference that proposals would be evaluated solely on that basis. Second, premium costs in succeeding years were limited to the lower of the cost proposed or the future and presently unknown Consumer Price index for Medical Care Services. Accordingly, no meaningful evaluation could have resulted from a consideration of premium costs for succeeding years. (R.O., page 17)


    Extensiveness of Service Area


  13. At the pre-submission conference, proposers were told that they should designate their service areas and that bids would be awarded on the basis of the entire service area. DOA's evaluators awarded two points for each full county and one-half point for each partial county and proposers received 2, 4, or 6 base points depending on whether their proposal was being evaluated on one, two, or three county service area.


  14. Heritage submitted one proposal, and designated its service area as Dade, Broward, and Palm Beach Counties. Its proposal was evaluated on a composite or combined basis. Health Options submitted one proposal and designated its service area as Dade, Broward, and Palm Beach Counties. Its proposal contained two separate premium costs: one for Dade and Broward Counties, and one for Palm Beach County. The Department evaluated Health Options' proposal as it related to the individual counties of Dade, Broward, and Palm Beach County, and on a combined basis (Dade, Broward, and Palm Beach Counties). Humana submitted three separate proposals, which designated three separate service areas: Dade, Broward, and Palm Beach Counties. The Department evaluated Humana's proposal for each county and on a combined basis. Gulfstream

    submitted one proposal, and designated its service area as Palm Beach County. The Department evaluated Gulfstream's proposal for Palm Beach County.


    The Hearing Officer found that the above evaluation procedure "was reasonable and a valid exercise of the agency's discretion." (R.O., page 35)


    ACCESSIBILITY


  15. The Department evaluated accessibility criterion on the basis of ten points each for reciprocal agreements provided statewide and national services, ten points for each county of the service area in which a hospital was located, two points for each specialty provider in each county, and one point for each provider physician and specialist. These raw scores were then evaluated further to obtain a "mean" score for each proposer as follows


    A. Heritage (low bid),


    Combined:


    5.8

    B. Health Options (low

    bid),


    Dade and Broward:


    8.71

    Palm Beach:


    1.1

    Combined:


    9.51

    C. Humana,



    Dade:


    4.16

    Broward:


    3.32

    Palm Beach:


    1.31

    Combined:


    8.79

    D. Gulfstream



    Palm Beach:


    1.18


    The Hearing Officer found that the above evaluation procedure "was reasonable and a valid exercise of the agency's discretion." (R.O., page 36)


    COMPLETENESS OF PROPOSALS


  16. The original statutory criteria contained in Chapter 87-156, Laws of Florida, included the areas of "cost, service area, plan benefits, and accessibility." To these criteria, DOA added the fifth criterion of completeness of proposals."


    The Hearing Officer ruled that "(t)he Department's inclusion of this criterion was reasonable." (R.O., page 22)


    TOTAL POINTS


  17. Total points were calculated by adding the base points to a weighted score. In deriving the weighted score, the criteria were weighted as follows: premium costs at 3.5 times, plan benefits at 2.5 times, accessibility at 1 time, extensiveness of service area at 1 time, and completeness of proposal at 1 time.


  18. In evaluating the proposals, the Department first evaluated bids solely against other bids for the same service area. For example, Gulfstream's bid was first evaluated against only those other bids that proposed to provide services in that county. In this manner, Gulfstream ranked fourth out of the five bidders in Palm Beach County, and thirteenth overall.

  19. The points and ranking assigned by the Department to the top six proposers and to Gulfstream were as follows:



    HMO


    Base

    Points


    Weights

    Total

    Points


    Rank

    Heritage

    (low bid):

    35.34

    34.15

    70.5

    1

    Health Options





    Combined (low bid)

    38.59

    30.79

    59.48

    2

    Av Med

    38.95

    24.875

    63.825

    3

    Health Options





    Dade & Broward





    (low bid)

    34.03

    27.73

    51.76

    4

    Heritage (high bid)

    34.17

    25.925

    60.095

    5

    Humana Combined:

    35.05

    23.46

    58.51

    6

    Gulfstream





    Palm Beach:

    22.46

    22.03

    44.49

    13


    A review of this table shows that the weights altered the relative positions of each of the top six proposers. Mr. Nye testified that the weighting utilized did not affect the ranking of the bids of the proposers and only affected the ranking of one bidder, AV-Med. As the Hearing Officer concluded, the proof was contrary to Mr. Nye's testimony. His finding on this point is supported by competent substantial evidence and is hereby adopted.


  20. Based on the results of its evaluation the Department proposed to award the contracts to Heritage (low) and to Health Options (combined-low).


    HUMANA'S COST/BENEFIT ANALYSIS


  21. Humana introduced expert testimony to demonstrate that, benefits and cost were weighted equally, its cost-to-benefits ratio would be comparable to or better than the successful proposers. Two analyses were presented. One actuarial expert adjusted the different benefit patterns of Heritage and Health Options up to the Human a benefit level and adjusted their price according to actuarial information filed with the Department of Insurance. The testimony sought to place the proposers on the same co-payment/benefit level to compare premium costs. The result was that Humana's premium cost was the second lowest for the South Florida Service Area. The second analysis adjusted Humana's benefit pattern down to the benefit/co-payment levels of Heritage and Health Options, and adjusted Humana's premium cost down accordingly based on Humana's filed actuarials. This testimony sought to place the proposers on the same co- payment/benefit level to compare premium costs, and Humana' premium cost was comparable to or lower than the second lowest bidder.


  22. The Hearing Officer found that the analyses by the expert witness were not persuasive in demonstrating that Humana was the second lowest proposer in this case, or that its cost/benefits were the second lowest. (R.O., page 26) For example, the fitness did not evaluate the bids based on the five criteria contained in the RFP, nor did he include in the cost/benefit analysis all of the criteria utilized by the Department to evaluate benefits. The findings of the Hearing Officer on this point are supported by competent substantial evidence and are therefore adopted.

    Plan Benefits


  23. The criteria for the evaluation of all proposals was set out in Section IX of the RFP as follows:


    1. Covered services;

    2. Limitations and exclusions;

    3. Co-payments, deductibles and co-insurance features;

    4. Range of providers including specialists and number of hospitals

    5. Out of service area coverage

    6. Grievance procedures


  24. Three sections in the RFP requested information which was relevant to the plan benefits. Section VI listed the required minimum benefits and requested a complete list of all other services. Each provider was directed to specify co-insurance, deductible, co-payment and other features for all benefits and services for each service area, and to list all limitations and exclusions for all benefits and services for each service area. Section X was a questionnaire which required each propose to list information concerning hospital, ambulatory care facilities services, available physician specialties, programs for health status evaluation, screening and health promotion, limitations or restrictions relative to organ transplants, range of providers and number of hospitals, availability of skilled nursing benefits, a list of the proposer's physician panel, and out-of-service area coverage.


  25. Under the Department's Scoring system, each propose received the following scores:


    A. Heritage

    398

    B. Health Options


    Dade & Broward

    308

    Palm Beach

    165

    C. Humana


    Dade

    210.5

    Broward

    161.5

    Palm Beach

    184.5

    D. Gulfstream


    Palm Beach

    203


    Using a similar method to calculate a "mean" score as was needed in the premium cost criteria, the base points were as follows:


    A. Heritage (low bid),


    Combined:

    7.19

    B. Health Options (low),


    Dade and Broward:

    5.57

    Palm Beach:

    2.28

    Combined:

    5.91

    C. Humana,


    Dade:

    3.38

    Broward:

    2.92

    Palm Beach:

    3.34

    Combined:

    4.59

    D. Gulfstream,


    Palm Beach:

    3.57

    Limitation to Two Successful Bidders


  26. Humana and Gulfstream argued that they should not be excluded from being awarded a contract because there was no foundation which required the limitation of the contracts to two or to any number of HMOs. The Department had considered awarding contracts to more than two proposers but rejected doing so because such action best effectuated the general objectives of the RFP, including that of promoting competitive rates.


  27. The Hearing Officer agreed with the Department and correctly found that "there was no showing that the selected HMOs could not adequately satisfy the needs of the state employees." (R.O., page 35). He concluded:


    "While the statute did not specify a number, it did specify that the Department contract through the competitive bid process. If the contracts are not limited in number, there is no competitive bidding process. Accordingly, it is concluded the Department acted reasonably in limiting the award to two HMOs." (R.O., page 35)


    Employee Evaluation Teams


  28. Yet another contention of the Petitioners was that the DOA employee evaluation teams lacked the experience and knowledge in the health care services field and should have been disqualified as not meeting the requirements of Section 287.057(16), Fla. Stat., which states as follows


    "A selection team of at least three employees who have experience and knowledge in the program areas and service requirements for which contractual serviced are sought shall be appointed by the agency head to aid in the selection of contractors for contracts of more than the threshold amount provided in s. 287.017 for CATEGORY FOUR."


    After full consideration of the above provision, the Hearing Officer agreed with the Department and found that the employees met the minimum statutory criteria (R.O., page 35) and had sufficient experience and knowledge in the area to properly evaluate the proposals (R.O., pages 13, 14).


    Departure From RFP


  29. At the pre-submission conference, Mr. Nye announced that cost and benefits would be weighted equally. In its final evaluation, the Department weighted cost at 3.5 and benefits at 2.5. The remaining criteria, accessibility, extensiveness of service area, and completeness of proposal , were weighted at I each. The Hearing Officer found that the Department's final evaluation failed to conform to the weighting factors announced at the pre- submission conference.

45. He further stated that:


43. The Department's failure to accord equal weight to cost and benefits was arbitrary and capricious. Such failure was a material departure from the RFP, as supplemented by the pre-bid conference, and adversely impacted the bid procurement process.

...

  1. Plan benefits and accessibility under Section 110.123(3)(d), Florida Statutes, and the RFP were distinct criteria upon which proposers formulated their responses. They were also distinct criteria when the Department told proposers that cost and benefits would be weighted equally, were distinct criteria when evaluated by the Departmen, and had a distinct impact upon the ranking of proposers. Under the circumstances, the Department's failure to accord them equal weight was arbitrary and capricious.


  2. Rather than acknowledge the disparity that existed between cost and benefits, the Department contended at hearing that accessibility was a part of benefits, and therefore cost and benefits were weighted equally. The Department's contention, and proof, was not persuasive and is rejected as not credible. (R.O., pages 24, 25)


  1. The Department finds that the above findings of fact are supported by competent, substantial evidence and adopts them in this final order.


    INTERVENORS' EXCEPTIONS TO RECOMMENDED ORDER


    Exceptions of Heritage


  2. Heritage filed six exceptions to the Recommended Order and each exception will be considered separately.


    Exception Number 1:


    Heritage argued that the Hearing Officer erred when he found that the Department's failure to accord equal weight to cost and benefits was arbitrary and capricious.


    While the Department agrees with the cases cited by Heritage which hold that administrative agencies have broad discretion in evaluating contracts for personal services such as health services, the Department is aware of its statutory responsibility to adhere to the bidding requirements of Section 287.057, Fla. Stat., and does not believe that it has the discretion to enter into contracts absent the competitive process. As to the testimony of Mr.

    Burbank, the Hearing Officer, as the trier of fact, was in the best position to assess his credibility and determine the weight to be accorded to his testimony. Koltay vs. Department of General Services, 374 So.2d 1386 (Fla. 2nd DCA 1979).

    The Department is unable to reject the Hearing Officer's findings in an area clearly within his responsibility. Exception Number 1 is rejected.


    Exception Number 2:


    Heritage next argues that the Hearing Officer erred in applying the arbitrary and capricious standard to the Department's actions relating to the weights given to various factors.


    The evidence shows that at the presubmission conference, Mr. Nye informed all proposers that the weights to be assigned to premium costs and to plan benefits would be equal. That information was clearly erroneous because, in the actual evaluations, the evaluators used a different weighting system, one that gave premium costs 40 percent greater weight than plan benefits. It is not the weights given to each category that makes the Department's actions arbitrary and capricious but its failure to adhere to and apply its announced weighting factors. On this basis, Exception Number 2 is rejected.


    Exception Number 3:


    Heritage urges that the Hearing Officer erred in concluding that the Department's failure to comply with the provisions of Section 287.012(11), Fla. Stat., was fundamental error.


    The above statute by its terms provides that "(r)equests for proposals shall state the relative importance of price and any other evaluation criteria." (emphasis added). According to the common usage of the term "shall", this language is mandatory (Fla. Tallow Corporation vs. Bryan, 237 So.2d 308 (Fla.

    4th DCA 1970); S.R. vs. State, 345 So.2d 1018 (Fla. 1977) and requires that the weight of the criteria must be included in the RFP. Therefore, Exception Number

    3 is rejected.


    Exception Number 4:


    Heritage argues that the Hearing Officer erred in granting standing to Gulfstream. In Preston Carroll vs. Fla. Keys Aqueduct Authority, 400 So.2d 524 (Fla. 3rd DCA 1981), an unsuccessful bidder who was third low bidder, attempted to overturn the award of the contract to the low bidder. The district court held that while a second low bidder to the award of a contract had the necessary "substantial interest" to contest the award. However, a third low bidder was unable to demonstrate that it was "substantially affected" and therefore lacked standing to protest the award of the contract to another bidder. Under the holding in this case, the Department concludes that Gulfstream did not have standing in this case since it ranked 13th in the ranking of low bidders.

    According, Exception Number 4 is accepted and included in the Conclusions of Law of this Order.


    Exception Number 5:


    Heritage argues that the Hearing Officer erred in concluding that Humana had standing to protest the Department's failure to state the relative importance of price and any other evaluation criteria in the RFP because Humana did not raise this point as an issue in its formal protest. If Humana did not have standing, then it was improperly permitted to protest the award of one of the contracts to Heritage.

    A review of Humana's protest shows that in Item 9, it argued that:


    "That the rejection of Humana's response to RFP #88-05, HMO coverage for State employees in Clay, Dade, Broward and Palm Beach Counties was not in accordance with all applicable rules, regulations, procedures, precedents and bid criteria."


    The rules of the Division of Administrative Hearings (Rule 22I-6.004(3), F.A.C.) provide for the minimum filing requirements in initial pleadings and state as follows:


    "(3) All petitions should contain:

    1. The name and address of each agency affected and each agency's file or identification number, if known;

    2. The name and address of the petitioner or petitioners, and an explanation of how his/her substantial interests will be affected by the agency determinations;

    3. A statement of when and how petitioner received notice of the agency decision or intent to render a decision;

    4. A statement of all disputed issues of material fact. If there are none, the petition must so indicate;

    5. A concise statement of the ultimate facts alleged, as well as the rules and statutes which entitle the petitioner to relief;

    6. A demand for relief to which the petitioner deems himself entitled; and

    7. Other information which the petitioner contends is material." (emphasis added)


    The requirements of this rule are directory only and not mandatory and are not designed to deny petitioners a hearing in which their "substantial interests" are affected. Section 120.57, Fla. Stat., see Seminole County Board of County Commissioners vs. Long, 422 So.2d 938, 940 (Fla. 5th DCA 1982).


    The initial protest of Humana complied with the minimum filing requirements of Rule 22I-6.004(3), F.A.C., above, and was sufficient to place Heritage on notice of deficiencies alleged to be in the RFP. Exception Number 5 is rejected.


    Exception Number 6:


    Heritage argues that "(t)he Hearing Officer erred in concluding that the Department should invoke its right to reject all proposals."


    Contrary to Heritage's argument, the Department did not communicate how the criteria would be weighed in accordance with Section 287.012(11), Fla. Stat. It is not possible to cure the deficiency in the RFP by recalculating the proposals. The deficiency can be corrected by re-bidding for proposals for HMO medical services. On this basis, Exception Number 6 is rejected.

    HEALTH OPTIONS' EXCEPTION TO RECOMMENDED ORDER


  3. Health Options as one of the successful bidders filed an exception to the Hearing Officer's finding which stated that DOA had failed to state the relative importance of price and other criteria in the RFP. It argued that this issue was not presented by Humana or Gulfstream in the formal protests and thus could not be considered in the Recommended Order. Therefore, Health Options urged that the Department's award of the two HMO contracts was proper and should be upheld.


    As previously stated, Humana's protest argued that the rejection of its bid "was not in accordance with all applicable rules, regulations, procedures, precedents, and bid criteria." (Item 9 of Protest).


    Humana's protest complied with the minimum filing requirements of the Department of Administrative Hearings (Rule 22I-6.004(3), F.A.C.) which provide that petitions should contain:


    1. A statement of all disputed issues of material fact. If there are none, the petition must so indicate;

    2. A concise statement of the ultimate facts alleged, as well as the rules and statutes which entitle the petitioner to relief;

    3. A demand for relief to which the petitioner deems himself entitled;


    While Gulfstream's formal protest did not state that its protest was founded on the Department's failure to state the relative importance of price and other evaluation criteria in the RFP, all that was necessary for the Hearing Officer to rule on this issue was for one of the petitioner's to raise the issue in its initial protest. Since the issue was raised by Humana, the Exception of Health Options is rejected.


    DEPARTMENT'S EXCEPTIONS TO RECOMMENDED ORDER


    The Department also filed timely exceptions to the Recommended Order.

    After reviewing those exceptions, I find that to the extent they are not adopted and accepted herein, they are inappropriate findings of fact and have not been considered further in this Order.


    CONCLUSIONS OF LAW

  4. Section 287.057(3), Fla. Stat., states in part as follows: "then an agency determines in writing that

    the use of competitive sealed bidding is not practicable, contractual services shall be procured by competitive sealed proposals."


    While the Department did not make a written determination, failure to do so does not invalidate the competitive process under these circumstances. All of the proposers knew when they received the RFP's that no written determination was included or they could have discovered that fact by the exercise of due diligence. None of the proposers made inquiry within the 72 hours protest

    period required under Section 120.53(5)(b), Fla. Stat., and any protest as to the failure to make a written documentation is therefore waived. The omission by the Department is not a deficiency that would benefit any protestor due to lack of timely protest and does not affect the validity of the RFP.


  5. The request for proposals issued by the Department included the four evaluation criteria mandated by Section 110.123(3)(d)2, Florida Statutes, above, of "costs, service area, plan benefits, and accessibility." The Department added a fifth criterion, that of "completeness of proposal." This inclusion was within the statutory discretion of the Department and was reasonable in this proceeding.


  6. The Petitioners have urged that DOA is required to offer at least one staff model HMO in any service area pursuant to federal law as set forth in 42

    U.S.C. 300 e-g and regulations thereunder. The Department finds that argument to be without merit because the federal requirement is not applicable to state governments and hereby rejects it.


  7. The Department has argued that Gulfstream lacks standing to protest the award since it was ranked thirteenth in the list of proposers. In Preston Carrol Co., Inc., v. Fla. Keys Aquaduct Authority, 400 So.2d 524 (Fla. 3rd DCA 1981), the Court found that a bidder who ranked third lowest in the bid ranking did not "demonstrate that it was substantially affected (by the bid process); it therefore lacked standing to protest the award of the contract to another" (citations omitted). Under this holding, the Department concludes that Gulfstream is without standing in this proceeding. It may, however, submit a new proposal to provide HMO medical services in the South Florida service area at such time as the Department rebids for those services.


  8. As previously stated, the Hearing Officer found that the Department had stated that cost and benefits would be weighted on an equal basis, and higher than the other criteria. In the final evaluation, this was not done since cost was weighted at 3.5 and benefits at 2.5. The omission of correct information on the relative weights of cost and benefits:


    "... was material since competing HMOs were unable to determine the relative importance of each of the criteria and take such information into consideration when formulating their response, and since it reserved to the Department unbridled discretion to establish the relative weights of each criteria after the proposals had been submitted."


  9. The term "request for proposals" is defined in Section 287.012(11), Fla. Stat., in part as follows:


    "Request for proposals" means a written solicitation for sealed proposals with the title, date, and hour of the public opening designated. The request for proposals is used when the agency is incapable of specifically defining the scope of work for which the commodity, group of commodities, or contractual service is required and when the agency is requesting that a qualified offeror

    propose a commodity, group of commodities, or contractural service to meet the specifications of the solicitation document. A request for proposals includes, but is not limited to, general information, applicable laws and rules functional or general specifications, statement of work, proposal instructions, and evaluation criteria.

    Requests for proposals shall state the relative importance of price and any other evaluation criteria. (emphasis added)


    Under the above section, the RFP was required to state the relative importance of price and any other evaluation criteria. The Department fabled to put that information in the RFP. Further, Dennis Nye did not proceed in accordance with the information concerning the weighting of the criteria provided proposers at the pre-bid conference.


  10. In view of the above conclusions, the interests of the State and its employees are best served by rejecting all past proposals for HMO services in the South Florida service area and considering new proposals. The Department will take the necessary steps to issue a new RFP which complies in all particulars with the statutory criteria.


WHEREFORE, based upon the foregoing findings of fact and the rulings of the Department with respect to the Hearing Officer's Recommended Order, and the Intervenors and the Department's Exceptions thereto, it is


ORDERED AND DIRECTED that the Recommended Order is hereby adopted by the Department except as to the extent rejected herein. It is further


ORDERED AND DIRECTED that Intervenors' Exceptions to the Recommended Order be and the same are hereby denied except as to Heritage's Exception Number 4 which is accepted, and denied as to the rejection of all bids. Exceptions filed by the Department which have not been adopted and accepted herein are rejected as inappropriate and have not been considered further. It is further


ORDERED AND DIRECTED that the petitions of Humana Health Care Plan and Gulfstream Health Plan for the Department of Administration to reject all proposals submitted for the provision of HMO medical services in the South Florida service area be and the same are hereby GRANTED. It is further


ORDERED AND DIRECTED that the readvertisement for new proposals be initiated by the Department immediately and be concluded as early as is appropriate.


DONE AND ORDERED this 28th day of April, 1988, in Tallahassee Florida.


ADIS K. VILA, SECRETARY

Department of Administration

435 Carlton Building Tallahassee, Florida 32399-1550 (904) 488-4116

Certificate of Clerk:


Filed in the official records of the Department of Administration this 28th of April, 1988.


ENDNOTES


1/ In the Orlando Service Area, Mr. Nye recommended awarding contracts to the three HMOs ranked highest. In the Tampa Bay Service Areas, he recommended awarding four contracts to the HMOs and in the Leon County Service Area, he recommended awarding three contracts to the HMOs.


2/ Separate bids in each county were permitted. If different rates were provided, a value to the rate was assigned relative to the employee population of the county, with Dade being the highest with approximately 10,000 employees. Then the combined bid was evaluated.


COPIES FURNISHED:


John R. Marks, III, Esquire Katz, Kutter, Haigler, Alderman,

Eaton and Davis, P.A.

315 South Calhoun Street 800 Barnett Bank Building Tallahassee, Florida 32301


Jann Johnson, Esquire

Robert N. Clarke, Jr., Esquire Ausley, McMullen, McGhee,

Carothers & Proctor Post Office Box 391

Tallahassee, Florida 32302


Robert C. Bisseli, Esquire Director of Legal Affairs Gulfstream Health Plan

4623 Forest Hill Boulevard, Suite 103 West Palm Beach, Florida 33415


Larry Carnes, Esquire Epstein, Becker and Green

515 Park Avenue Tallahassee, Florida 32301

Andrea R. Bateman, Esquire Senior Attorney

Department of Administration

435 Carlton Building Tallahassee, Florida 32399-1550


William J. Kendrick, Hearing Officer Division of Administrative Hearings The Oakland Building

2009 Apalachee Parkway

Tallahassee, Florida 32399-1550


NOTICE OF RIGHT TO JUDICIAL REVIEW


A PARTY WHO IS ADVERSELY AFFECTED BY THIS FINAL ORDER IS ENTITLED TO JUDICIAL REVIEW PURSUANT TO SECTION 120.68, FLORIDA STATUTES. REVIEW PROCEEDINGS ARE GOVERNED BY THE FLORIDA RULES OF APPELLATE PROCEDURE. SUCH PROCEEDINGS ARE COMMENCED BY FILING ONE COPY OF A NOTICE OF APPEAL WITH THE AGENCY CLERK OF THE DEPARTMENT OF ADMINISTRATION, AND A SECOND COPY, ACCOMPANIED BY FILING FEES PRESCRIBED BY LAW, WITH THE DISTRICT COURT OF APPEAL, FIRST DISTRICT, OR WITH THE DISTRICT COURT OF APPEAL IN THE APPELLATE DISTRICT WHERE THE PARTY RESIDES. THE NOTICE OF APPEAL MUST BE FILED WITHIN 30 DAYS OF RENDITION OF THE ORDER TO BE REVIEWED.


Docket for Case No: 87-005526BID
Issue Date Proceedings
Mar. 22, 1988 Recommended Order (hearing held , 2013). CASE CLOSED.

Orders for Case No: 87-005526BID
Issue Date Document Summary
Apr. 28, 1988 Agency Final Order
Mar. 22, 1988 Recommended Order Agency's failure to comply with law requiring that it state the relative importance of the criteria in its Request For Proposal departed from the essentials of law.
Source:  Florida - Division of Administrative Hearings

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