STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

AMERICAN BIODYNE, INC., )

)

Petitioner, )

)

vs. ) CASE NO. 94-6887BID

)

AGENCY FOR HEALTH CARE )

ADMINISTRATION, )

)

Respondent. )

)

RECOMMENDED ORDER

Final hearing was held in Tallahassee, Florida, on December 29, 1994, before Robert E. Meale, Hearing Officer of the Division of Administrative Hearings.

APPEARANCES

The parties were represented at the hearing as follows: For Petitioner: Seann M. Frazier

Mark A. Emanuele

Panza Maurer P.A.

3081 East Commercial Boulevard, Suite 200 Ft. Lauderdale, Florida 33308

For Respondent: Paul J. Martin

William H. Roberts Assistant Attorneys General

Office of the Attorney General PL-01, The Capitol

Tallahassee, Florida 32399-1050 STATEMENT OF THE ISSUE

The issue in this case is whether certain provisions of Request for Proposals 9501 should be amended or deleted due to fraud, arbitrariness, illegality, or dishonesty. Petitioner challenges Request for Proposals Sections

1. TTT; 1.4 (second paragraph); 2.3 D.a-h, E, and F; 2.5 A and B.3 and 4; 2.10 A; 4.17; 4.18; 5.1 D.5, E.1, F.1 (Optional Services), and F.4.a.3; and 6.3 B.3.c.

   
   

   PRELIMINARY STATEMENT

   
   

   On November 23, 1994, Respondent issued Request for Proposals 9501. On December 6, 1994, Petitioner filed a Formal Written Bid Protest and Petition for Formal Administrative Hearing.

   At the hearing, Petitioner called two witnesses and offered into evidence six exhibits. Respondent called two witnesses and offered no exhibits into evidence. The parties jointly offered into evidence one exhibit, which was admitted. Petitioner Exhibits 1 and 2 were admitted at the hearing. Petitioner Exhibit 3 was excluded and proffered. The hearing officer allowed Respondent additional time to file motions to strike all or part of Petitioner Exhibits 4 and 6. Following review of Respondent's motion to strike, these exhibits are admitted.

   
   

   Petitioner Exhibits 3, 5, and 6 and volume 4 of the transcript have been sealed to preserve confidential information of an offeror not a party to the case.

   
   

   The transcript was filed January 17, 1995. Rulings on timely filed proposed findings of fact are in the appendix.

   
   

   FINDINGS OF FACT

   
   

   1. In 1993, the US Health Care Financing Administration gave Respondent approval to design and implement a pilot program for the delivery of mental health services in part of Florida. The pilot program is limited to Medicaid Area 6, which consists of Hardee, Highlands, Hillsborough, Manatee, and Polk counties.

      
      

   2. The purpose of the pilot program is to change the way in which the State of Florida pays for mental health services under the Medicaid program. At present, the State makes "fee-for- service" payments based on predetermined fees for defined services. RFP, 1.1 KK. Under the new method, the State will make "capitation" payments consisting of a monthly fee paid in advance to the contractor for each enrolled Medicaid recipient, regardless whether the enrollee receives the services during the payment period. RFP, 1.1.H.

      
      

   3. On November 23, 1994, Respondent issued Request for Proposals 9501 (RFP). The purpose of RFP 9501 is to procure a contract with a "single, comprehensive mental health care provider on a prepaid, capitated basis, to provide mental health benefits to Medicaid recipients who are residents of Medicaid Area 6 . . .." RFP, 1.4.

      
      

   4. The second paragraph of RFP 1.4 identifies four goals of the procurement:

      
      

      1. that the procurement proceed in a timely manner, (2) that the . . . RFP . . . encourages free and open competition, (3) that the procurement effort and resulting new contract operations be completed in a timely manner without disruption of service

         to Medicaid clients, and (4) that the procure- ment result in a single contractor for Area 6 with sufficient resources to provide services to all AFDC related and SSI Without Medicare Medicaid eligibles in Area 6.

         
         

   5. Section 2.2 requires that the contractor provide "[i]npatient hospital care for psychiatric conditions,"

      "[o]utpatient hospital care for psychiatric conditions," "[p]sychiatric physician services," "[c]ommunity mental health care," "Mental Health Targeted Case Management," and "Mental Health Intensive Case Management."

      
      

   6. Section 2.3 defines the six categories of services identified in the preceding paragraph. Referring to "Community mental health care" as "Community Mental Health Services," Section 2.3 states:

      
      

      1. Community Mental Health Services Community Mental Health Services are rehabil- itative services which are psychiatric in nature, rendered or recommended by a psychia- trist; or medical in nature, rendered or

         recommended by a psychiatrist or other physician.

         Such services must be provided in accordance with the policy and service provision specified in the Community Mental Health Services Provider Handbook. The term "Community Mental Health Services" is not intended to suggest that the following services must be provided by state funded "Community Mental Health Centers" or to preclude state funded "Community Mental Health Centers" from providing these services:

         1. There are eight categories of mental health care services provided under community mental health:

            1. Treatment planning and review;

            2. Evaluation and testing services;

            3. Counseling, therapy and treatment services provided by a psychiatrist or physician;

            4. Counseling, therapy and treatment services provided by a direct service mental health care provider;

            5. Rehabilitative services;

            6. Children's mental health services;

            7. Specialized therapeutic foster care, Level 1 and 2; and

            8. Day treatment programs.

         2. Community mental health services for children in specialized therapeutic foster care and resi- dential treatment will be provided by HRS District

            6 Alcohol, Drug Abuse and Mental Health Program Office to the same degree as in the past.

         3. Services are limited to those covered services provided by or under the recommendation of a psychiatrist or physician and related to a plan of care provided or authorized by a psychiatrist or physician, as appropriate, based on the patient's diagnosis.

            
            

      2. Targeted Case Management

         The contractor shall adhere to the requirements of the Medicaid Case Management Services Provider Handbook, but will not be required to seek certifications from the HRS Districts' Alcohol,

         Drug Abuse and Mental Health Program Office in regard to clients, agency designation, or mental health care case manager qualifications. Case manager training materials will be made available

         through the agency for reproduction by the contractor.

         
         

      3. Intensive Case Management

      This is a new mandatory service which is intended to provide intensive, team case management to highly recidivistic persons who have severe and persistent mental illness.

      
      

   7. Section 2.5 requires that the contractor "adhere to the following minimum staffing, availability, and access standards":

      
      

      1. The contractor shall provide access to medically necessary mental health care (with the exceptions noted in section 2.4 B.)

         1. The contractor shall make available and accessible facilities, service locations, and service sites and personnel sufficient to provide the covered services (specifically, non-hospital outpatient, emergency and assessment services) throughout the geographic area, within thirty minutes typical travel time by public or private transportation of all enrolled recipients. (The typical travel time standard does not apply to waiting time for public transportation--it applies only to actual time in transit.)

         2. The contractor must allow enrollees to choose one of the capitated services, as provided in Section 5.1 F.1., when the plan offers another service, not reimbursed under the contract, as a downward substitution.

         3. The maximum amount of time between an enrollee's request for mental health services

            and the first point of service shall be as follows:

            1. For emergency mental health services as

               defined in section 1.1 BB., service shall be immediate.

            2. For persons initially perceived to need emergency mental health services, but upon assess- ment do not meet the criteria for emergency care, they are deemed to require crisis support and services must be provided within twenty-three hours.

            3. For routine outpatient intake, assessment shall be offered within seven calendar days. Follow-up service shall be offered within fourteen calendar days after assessment.

      2. Minimum staffing standards shall be as follows, and failure to adhere to these staffing standards,

      or the staffing standards indicated in the winning proposal, whichever are greater, may result in termination of the contract (if the contractor's "staff" person does not fill one of the "key staff" positions listed on page 81, the staff persons may be a subcontractor.):

      * * *

      1. The contractor's outpatient staff shall include at least one FTE direct service mental health care provider per 1,500 prepaid members. The Agency expects the contractor's staffing pattern for direct service providers to reflect

         the ethnic and racial composition of the community.

         1. The contractor's array of direct service mental health care providers for adults and children must include providers that are licensed or eligible for licensure, and demonstrate two years of clinical experience in the following specialty areas:

            1. Adoption,

            2. Separation and loss,

            3. Victims and perpetrators of sexual abuse,

            4. Victims and perpetrators of physical abuse,

            5. Court ordered evaluations, and

            6. Expert witness testimony.

               Mental health care case managers shall not be counted as direct service mental health care providers.

         2. The contractor shall provide Spanish speaking and Spanish literate direct service providers at each service location at which there are Spanish speaking enrollees.

         3. The contractor shall provide staff approp- riately trained and experienced to provide psychological testing.

         4. The contractor shall provide staff approp- riately trained and experienced to provide rehabilitation and support services to persons with severe and persistent mental illness.

      2. For all persons meeting the criteria for case management as specified in the Medicaid Case Management Provider Handbook, the contractor shall adhere to the staffing ratio of at least 1 FTE mental health care case manager per 20 children, and at least 1 FTE mental health care case manager per 40 adults. Direct service mental health care providers shall not be counted as mental health care case managers.

      * * *

      
      

   8. Section 2.10 provides, in part:

      
      

      The contractor shall be responsible for the coordination and management of mental health care and continuity of care for all enrolled Medicaid recipients through the following minimum functions:

      A. Minimizing disruption to the enrollee as a result of any change in service providers or mental health care case manager occurring as a result of the awarding of this contract.

      
      

   9. An offeror may not propose rates exceeding Medicaid's upper payment limit, which "is that amount which would have been paid, on an aggregate basis, by Medicaid under fee-for-service for the same services to a demographically

      similar population of recipients." 4.11. Section 1.1 TTT defines "Upper Payment Limit" similarly: "The maximum amount Medicaid will pay on a capitated basis for any group of services, based upon fee-for- service Medicaid expenditures for those same services."

      
      

   10. Section 4.11 sets the range of payment rates at 92-98 percent of the upper payment limit. Each offeror is required to propose a specific payment percentage within the range.

       
       

   11. Section 4.17 allows offerors to propose a risk corridor of up to 16 percentage points plus and minus the proposed range. The corridor must be equal above and below the capitation rate. The RFP illustrates the risk corridor by applying an 8 point corridor to a 95 percent capitation rate. In this case, the contractor absorbs any plan costs up to 4 percent over the actual payments made to the plan by Respondent or retains any excess plan payments up to 4 percent over the actual costs. Beyond the corridor, the contractor and Respondent share equally in the costs or savings, subject to Respondent's upper payment limit.

       In no event, however, shall the contractor be entitled to payment from Respondent for "start- up" or "phase-down" costs.

       
       

   12. Section 4.18 addresses subcontractors:

       
       

       The contractor is fully responsible for all work performed under the contract resulting from the RFP. The contractor may, with the consent of the agency, enter into written subcontract(s) for performance of certain of its functions under the contract. The contractor must have subcontracts with all

       administrative and service providers who are not salaried employees of the plan prior to the commencement of services under this contract. The contractor shall abide by the requirements of Section 1128A(b) of the Social Security Act prohibiting HMOs and other such providers from making payments directly or indirectly to a physician or other provider

       as an inducement to reduce or limit services provided to Medicaid enrollees.

       The contractor must submit signed subcontracts, for a complete provider network in order to obtain agency approval for operation in an area, within sixty days of the execution of this contract, for each proposed subcontracted service provider.

       Any additional subcontracts must be submitted

       to the agency twenty days prior to the subcontract effective date. Subcontracts must be approved in writing by the agency's Technical Project Manager prior to the effective date of any subcontract.

       No subcontract which the contractor enters into with respect to performance under the contract resulting from the RFP shall in any way relieve

       the contractor of any responsibility for performance of its duties. Amendments to subcontracts must be approved by the agency before taking effect. The contractor shall notify the agency in writing prior to termination of approved subcontracts.

       The contractor will agree to make payment to all subcontractors within 35 days of receipt of all invoices properly documented and submitted by the subcontractor to the plan.

       All subcontracts executed by the contractor under the resulting contract must meet the following requirements and be approved by the agency in advance of implementation. All subcontracts must adhere to the following requirements:

       1. Be in writing.

       2. Specify the functions of the subcontractor.

       3. Identify the population covered by the subcontract.

       4. Specify the amount, duration and scope of services to be provided by the subcontractor, including a requirement that the subcontractor continue to provide services through any post- insolvency period.

       5. Provide that the agency and DHHS may evaluate through inspection or other means the quality, appropriateness, and timeliness of services performed.

       6. Specify that the subcontractor has read and agreed to the subcontract and the service provision requirements under section 2 of RFP,

          for services to be provided under the subcontract, and to the contractor's admission and retention criteria for the services the subcontractor will provide as indicated in the subcontractor's response to section 5.1 F3.b,(5).

       7. Provide for inspections of any record pertinent to the contract by the agency and DHHS.

       8. Specify procedures and criteria for extension and renegotiation.

       9. Provide for prompt submission of information needed to make payment.

       10. Require an adequate record system be maintained for recording services, charges, dates and all other commonly accepted information elements for services rendered to recipients under the contract.

       11. Require that financial, administrative and medical records be maintained for a period of not less than five years from the close of the contract and retained further if the records are under review or audit until the review or audit is complete. Prior approval for the disposition of records must be requested and approved by the contractor if the subcontract is continuous.

       12. Require safeguarding of information about recipients according to 42 CFR, Part 431, Subpart F.

       13. Require an exculpatory clause, which survives the termination of the subcontract including breach of subcontract due to insolvency, that assures that recipients or the agency may not be held liable for any debts of the subcontractor.

       14. Provide for the monitoring of services rendered to recipients sponsored by the contractor.

       15. Specify the procedures, criteria and requirements for termination of the subcontract.

       16. Provide for the participation in any internal and external quality assurance, utilization review, peer review, and grievance procedures established by the contractor.

       17. Make full disclosure of the method and amount of compensation or other consideration to be received from the contractor.

       18. Provide for submission of all reports and clinical information required by the contractor.

       19. Make provisions for a waiver of terms of the subcontract, if appropriate.

       20. Contain no provision which provides incentive, monetary or otherwise, for the withholding of medically necessary care.

       21. Require adherence to the Medicaid policies expressed in applicable Medicaid provider handbooks.

       22. Require that the subcontractor secure and maintain during the life of the subcontract worker's compensation insurance for all of its employees connected with the work under this contract unless such employees are covered by the protection afforded by the provider. Such insurance shall comply with Florida's Workers' Compensation Law; and

       23. Contain a clause indemnifying, defending and holding the Agency and the plan members harmless from costs or expense, including court costs and reasonable attorney fees to the extent proximately caused by an negligent act or other wrongful conduct arising from the subcontract agreement. This clause must survive the termination of the subcontract, including breach due to insolvency.

       The contractor shall give the agency immediate notification in writing by certified mail of any action or suit filed and prompt notice of any claim made against the contractor by any subcontractor or vendor which in the opinion of the contractor may result in litigation related in any way to the contract with the agency. In the event of the filing of a petition in bankruptcy by or against

       a principal subcontractor or the insolvency of

       said subcontractor, the contractor shall immediately advise the agency. The contractor shall assure that all tasks related to the subcontract are performed in accordance with the terms of the contract. The contractor shall identify any aspect of service

       that may be further subcontracted by the subcon- tractor. Subcontractors shall not be considered agents of the agency.

       
       

   13. For evaluation purposes, the RFP divides proposals into two parts: technical and rate, including any rate corridor. The six categories under the technical part, with point values in parentheses, are: Management Summary (0 points), Organization and Corporate Capabilities (100 points), Proposed Staffing Pattern and Licensure of Staff and Facilities (250 points), Operational

       Functions (400 points), Mental Health Care Service Delivery (400 points), and Transition Workplan (100 points). RFP, 6.1.

       
       

   14. Section 5.1.C describes the 100-point Organization and Corporate Capabilities as follows:

       
       

       The proposer shall provide in this tab a descrip- tion of its organizational and corporate capabi- lities. The purpose of this section is to provide the agency with a basis for determining the contractor's, and its subcontractors', financial and technical capability for undertaking a project of this size. For the purpose of this tab, the term proposer shall refer to both the contractor and its major subcontractors. It does not refer to the plan's "parent company" unless specifically indicated.

       
       

   15. Section 5.1 D states the elements of the 250-point Proposed Staffing Pattern and Licensure of Staff and Facilities. Section 5.1 D.3 requires the offeror to disclose "actual and proposed" FTE professionals, including psychiatrists, case managers, psychologists, nurses, and social workers. Section 5.1D.4 requires the offeror to explain how the plan will allocate staff to meet various demands, such as for adoption, sexual and physical abuse counseling, and psychological testing of children.

       
       

   16. Section 5.1 D.5 requires the proposal to:

       
       

       Describe how the plan will ensure that it has the staff resources appropriately trained and

       experienced to provide rehabilitative and support services to low income adults with severe and persistent mental illness and, under separate heading, to children with severe and persistent mental illness. Denote the number and percent

       of total FTEs which will be filled by persons with this type of experience and who will be providing these types of services. Explain the contractor's rationale for the staffing levels indicated and provide a brief, one or

       two line, description of the training and exper- ience of such persons who will provide these services under the plan.

       
       

   17. Section 5.1.E describes the elements of the 400-point Operational Functions, in part, as follows:

       
       

       Within this tab, the proposer shall explicitly address its operational capacity to serve Medicaid recipients, and its previous history serving the Medicaid and other low income populations.

       Separately, the proposer shall address the member services the plan will offer, grievance procedures, quality assurance procedures, the contractor's proposed reporting systems, and the contractor's proposed handling of subcontracts.

       1. Service Area of Proposed Plan 42 CFR 434.36

          1. Describe, for each county, how the proposer will meet throughout the lifetime of the contract the 30 minute typical travel time requirement specified in section 2.5 A.1.

          2. Describe, for each county, how the proposer will meet throughout the lifetime of the contract the 30 minute typical travel time requirement for child psychiatrists specified in Section 2.5 B.2.

          3. Describe, for each county, how the proposer will meet throughout the lifetime of the contract the 30 minute typical travel time requirement for adult psychiatrists specified in Section 2.5 B.1.

       * * *

       
       

   18. Section 5.1.F describes the 400-point Mental Health Care Service Delivery category. Section 5.1 F states, in relevant part:

       
       

       This section shall include a detailed discussion of the proposer's approach to providing mental health care. The proposer must be able to document a demonstrated ability to provide a comprehensive range of appropriate services for

       both children and adults who experience impairments ranging from mild to severe and persistent mental illness.

       
       

       Plans must provide services up to the limits specified by the RFP. They are encouraged to exceed these limits. However, in no instance

       may any service's limitations be more restrictive than those specified in the Florida Medicaid fee- for-service program. The plan cannot require payments from recipients for any mandatory services provided under this contract.

       1. Summary of Services

          * * *

          The following is a summary list of the services which may be provided . . .

          * * * Optional Services

          1. Crisis Stabilization Unit

       * * *

       z. Other Services (List)

       * * *

       1. Care Coordination 42 CFR 434.52; 10C-7.0524(16), F.A.C.

          1. Attach the plan's written protocol describing the plan's care coordination system, which should include the plan's approach to care coordination, utilization review, and assuring continuity of care, such as, verifying medical necessity, service planning, channeling

       to appropriate levels of treatment, and develop-

       ment of treatment alternatives when effective, less intensive services are unavailable. The protocol should also address the following questions:

       * * *

       3. Indicate how the contractor will establish services in such a way as to minimize disruption of services, particularly to high risk populations currently served by the department, for children and, separately, for adults.

       * * *

       
       

   19. Section 6.3 describes the criteria for evaluating proposals. For Proposed Staffing Pattern and Licensure of Staff and Facilities, the evaluation criteria include, at 6.3 B.3.c:

       
       

       The ability of the proposer to ensure it has,

       and will continue to have, the resources necessary to provide mental health rehabilitation and support to children who are in the care and custody of the state or who have special needs, such as children who have been adopted or have been physically or sexually abused.

       
       

   20. About a year ago, Respondent issued RFP 9405, which also sought to procure mental health services on a capitated basis for Medicaid Area 6. Respondent received four proposals, which contained numerous deficiencies. Respondent later withdrew RFP 9405 for revisions to encourage more competition.

       
       

   21. Concerns over competition involve the role of Community Mental Health Centers (CMHC) in the procurement. CMHCs are publicly funded, not-for-profit entities that traditionally have provided five types of services: emergency, outpatient, day/night, inpatient, and prevention education. CMHCs now also operate crisis stabilization units and supply case management services, as well as specialized children's services, services for aged persons with severe and persistent mental illness, and services for persons with alcohol or drug dependencies.

       
       

   22. The RFP calls for a wide range of mental health care services, only part of which are community mental health services or other services presently provided by CMHCs. However, CMHCs constitute the only available network of existing providers of community mental health services to Medicaid clients in Medicaid Area 6. Medicaid payments account for about 30 percent of the revenue of Area 6 CMHCs.

       
       

   23. In late 1992, six CMHCs in Area 6 formed Florida Behavioral Health, Inc. in response to competition from one or more other provider networks, such as Charter. The competitive network of six CMHCs consisted of Manatee Glens Corp., Mental Health Care, Inc., Northside Mental Health Hospital, Peace River Center for Personal Development, Inc., Winter Haven Hospital, and Mental Health Services. Although the six CMHCs are not all of the CMHCs in Area 6, they provide nearly all of the community mental health services to Medicaid clients in Area 6.

       
       

   24. By early 1993, Florida Behavioral Health, Inc. formed Florida Health Partnership with Options Mental Health, Inc., which is a managed-care provider owned by First Hospital Corporation--a behavioral health management company.

       With the assistance of Florida Health Partnership, Options Mental Health, Inc. submitted a proposal in response to RFP 9405.

       
       

   25. An oral or written agreement between Florida Behavioral Health, Inc. and Options Mental Health, Inc. prohibited the six CMHCs from assisting any entity but Options Mental Health, Inc. in responding to RFP 9405. This agreement continues to prohibit the six CMHCs from assisting any entity but Options Mental Health, Inc. in responding to the RFP.

       
       

   26. The six CMHCs have shared with Options Mental Health, Inc. cost and utilization information. The importance of the unpublished cost information is unclear, and Petitioner has not yet made a public records request to obtain this information. The same is true of unpublished utilization information, which includes information on waiting lists for community mental health services. Any delay in providing community mental health services would have a bearing on the projected demand and thus the cost of a capitated plan.

       
       

   27. After withdrawing RFP 9405, Respondent revisited the requirement that offerors propose an existing network of providers. In an effort to encourage competition, Respondent deleted a requirement in RFP 9405 that proposals contain existing provider networks. Respondent substituted a requirement that proposals describe provider networks generally, without necessarily including names of subcontractors.

       
       

   28. Petitioner did not prove any fraudulent, illegal, arbitrary, or dishonest act by Respondent. The main thrust of Petitioner's case is that the effect of the RFP is illegal or arbitrary. Petitioner asserts that the RFP requires a sole source provider or, at minimum, precludes free and open competition.

       
       

   29. Petitioner argues that the RFP illegally and arbitrarily favors offerors of CMHCs, in partnership with CMHCs, or with subcontracts with CMHCs. Through testimony and argument, Petitioner asserts that various provisions of the RFP either exacerbate or fail to ameliorate the advantages enjoyed by CMHCs, especially due to RFP requirements of implementation of the new provider network in 60 days and with minimal disruption to Medicaid clients.

       
       

   30. RFP 1.4(2) encourages open and free competition. RFP 2.3 D disclaims any intent that only CMHCs may supply community mental health services.

       
       

   31. Petitioner's chief witness, Dr. Ronald Mihalick, testified that RFP

       2.3 D favors CMHCs because state regulations have designated them the sole provider of community mental health services and government grants have funded their capital expenditures.

       
       

   32. Neither Dr. Mihalick, Petitioner's other witness, nor Petitioner's counsel has suggested a practical means by which to eliminate this advantage of CMHCs, which cannot, by executive or legislative fiat, be stripped of their buildings, equipment, or experienced staffs, nor of the advantages that may accrue to them by virtue of such assets. It would be counterproductive to eliminate CMHCs from direct or indirect participation in the subject procurement. Nor is Respondent required, if it were legally able, to assign to CMHCs the status of universal providers in order to eliminate illegality or arbitrariness from the RFP.

       
       

   33. The RFP seeks a broad range of mental health services, of which a substantial part are community mental health services. RFP 2.3 D represents a

       simple description of community mental health services and expressly negates the inference that only CMHCs may provide such services.

       
       

   34. RFP 2.3 E and F describes two of the five categories of mental health services: targeted case management and intensive case management, respectively. Intensive case management is a new service, and nothing suggests that Area 6 CMHCs have any direct experience that would give them an advantage in providing this new service,

       
       

   35. Targeted case management is an existing service provided by CMHCs. There is some doubt whether the RFP provides detailed cost information, including information about targeted case management. However, Petitioner has never made a public records request for such information from any of the CMHCs or Respondent. In any event, Petitioner has hardly presented sufficient evidence regarding targeted case management that the inclusion of such a service in the RFP is arbitrary or illegal.

       
       

   36. RFP 2.5 prescribes standards for minimum staffing, availability, and access. The minimum staffing standards do not require that existing service providers supply the specified services. For instance, "direct service mental health care providers" must be "licensed or eligible for licensure," as provided in RFP 2.5 B.3.a. Petitioner's objection is that the RFP expresses staffing standards in accordance with Medicaid guidelines, under which the CMHCs are already operating. This objection is puzzling because the procurement is for Medicaid services. In any event, the presence of such a provision does not render the RFP illegal or arbitrary for the reasons already stated.

       
       

   37. RFP 2.5 B.4 requires staffing ratios of one fulltime equivalency (FTE) per 20 mental health care case managers for children and one FTE per 40 mental health care case managers for adults. Again, though, the RFP does not require that such case managers must be currently employed by a CMHC or even currently providing such services.

       
       

   38. Petitioner legitimately objects to specifications expressed in terms of FTEs when applied to non-administrative services. The use of FTEs applies to fulltime employees, not to individual therapists who may see Medicaid clients on an occasional basis. The requirement that non-administrative services be expressed in FTEs unduly emphasizes process over product or outcome and is inconsistent with the spirit of the RFP.

       
       

   39. However, the use of FTEs in RFP 2.5 B.4 does not rise to the level of arbitrariness or illegality. As Respondent's chief witness, Marilyn Reeves, testified, an offeror may convert individual therapists to FTEs, even though the contractor may bear the risk of a faulty conversion formula.

       
       

   40. RFP 2.10 requires that the contractor implement the new capitated plan with minimal disruption to Medicaid clients, whose mental conditions may worsen from such disruption. Petitioner does not challenge this sensible provision. Petitioner instead argues that other pro-CMHC provisions preclude the implementation of a new plan with minimal disruption. Petitioner has failed to prove that the pro-CMHC provisions, except for 4.18 as discussed below, necessitate more than minimal disruption during the transition.

       
       

   41. RFP 4.17 provides that Respondent shall not pay the contractor's start-up or phase-down costs. Petitioner's objection is that government grants have paid for the capital expenditures of the CMHCs. For the reasons discussed

       in connection with RFP 2.3 D, Petitioner has failed to prove how this provision is arbitrary or illegal.

       
       

   42. RFP 5.1 D assigns 250 points for the proposed staffing pattern and requires the offeror to disclose "actual and proposed" FTE professionals, such as psychiatrists, case managers, and social workers. An offeror that has already identified its personnel may be able to provide a more detailed description and earn more points than another offeror that has yet to find its subcontractors. Likewise, RFP 5.1 D.5 requires a discussion of FTEs, although an offeror with as yet unidentified subcontractors probably can satisfy this section with a more generic discussion and not lose points. In any event, to the extent that the specification in terms of FTEs favors CMHCs, such a provision is not so onerous or unnecessary as to be arbitrary or illegal, as discussed in connection with 2.5 B.4.

       
       

   43. RFP 5.1 E assigns 400 points for operational functions and requires the offeror to "explicitly address its operational capacity to serve Medicaid recipients, and its previous history serving the Medicaid and other low income populations." Unlike RFP 5.1 C, which requires a proposal to address the contractor and its "major subcontractors," 5.1 E does not mention subcontractors, so this provision favors CMHCs even less than the other provisions of 5 and 6. Perhaps for this reason, neither Petitioner's witnesses nor Petitioner's proposed recommended order addressed RFP 5.1 E.

       
       

   44. RFP 5.1 F requires an offeror to provide a "detailed discussion," in which it shall "document a demonstrated ability to provide a comprehensive range of appropriate services . . .." An offeror with as yet unidentified subcontractors will likely be unable to supply nearly as much detail as an offeror with subcontractors already in place, but this provision would, if challenged, not be deemed arbitrary or illegal.

       
       

   45. However, Petitioner challenges only RFP 5.1 F.1 (Optional Services) and 5.1 F.4.a.3. Section 5.1 F.4.a.3 reiterates the requirement that the new capitated plan be implemented so as to "minimize disruption of services." As noted above, Petitioner of course does not object to this requirement, but uses it to show how other provisions are arbitrary or illegal.

       
       

   46. Petitioner objects to the portion of 5.1 F.1 identifying crisis stabilization units as an Optional Service. Although only CMHCs are licensed to operate crisis stabilization units, the same services are available from other sources, although often not as economically. Moreover, the crisis stabilization unit is only an Optional Service, which Respondent mentioned only for illustrative purposes. The last-cited option, "Other Services (List)," encourages offerors to devise creative options that may not involve such traditional providers as crisis stabilization units.

       
       

   47. RFP 6.3 B.3.c requires the offeror to ensure that "it has, and will continue to have, the resources necessary to provide mental health rehabilitation and support . . .." Satisfaction of the criteria of 6.3 B, like

       5.1 C, D, and F, is easier for CMHCs and harder for contractors with as yet unidentified subcontractors. However, the advantage conferred upon CMHCs is not so great as to render 6.3 B arbitrary or illegal.

       
       

   48. To varying degrees, RFP 5.1 D.5, E.1, and F.1 (Optional Services) and

       6.3 B.3.c prefer CMHCs or offerors affiliated with CMHCs. These provisions potentially conflict with the RFP provisions encouraging free and open competition and prohibiting more than minimal disruptions in service. The

       potential conflicts are partially attenuated by the ability of an offeror, prior to submitting a proposal, to identify subcontractors that may provide similar services to non-Medicaid clients or provide similar services to Medicaid clients in other areas of Florida or other states.

       
       

   49. RFP 5.1 D.5, E.1, and F.1 (Optional Services) and 6.3B impose qualitative standards upon the contractor and any subcontractors, whose employees have direct contact with the Medicaid clients. Non-CMHC offerors may nonetheless be able to identify, at the proposal stage, their subcontractors so as to earn the maximum points in these categories. For instance, offerors may find non-CMHC subcontractors providing community mental health services to non- Medicaid clients or to Medicaid clients elsewhere in Florida or the United States.

       
       

   50. With greater difficulty, non-CMHC offerors with as yet unidentified subcontractors may be able to project, at the proposal stage, features of their subcontractors. They may not be able to score as well as CMHCs and other offerors with already identified networks of community mental health service providers. However, to the extent that non-CMHCs are disadvantaged by these provisions, Petitioner has not shown that the inclusion of these provisions is arbitrary or illegal. These provisions ensure the delivery of quality mental health services. As likely as not, Petitioner has included these provisions after careful consideration of the benefits of further competitiveness and the costs of further limitations upon the participation of CMHCs.

       
       

   51. The final provision challenged by Petitioner is RFP 4.18, which acknowledges that the contractor may not itself provide the mental health services, but may contract with subcontractors for the provision of these services. Requiring that the contractor have subcontracts prior to the commencement of services under the new capitated plan, Section 4.18 adds that the contractor must submit for Respondent's written approval:

       
       

       signed subcontracts, for a complete provider network in order to obtain agency approval for operation in an area, within sixty days of the execution of this contract, for each proposed subcontracted service provider.

       
       

   52. Petitioner's challenge to RFP 2.3 D, E, and F; 2.5 A and B.3 and 4; and 4.17 fails because these provisions confer upon CMHCs an insignificant advantage, an advantage upon that could not be removed without eliminating CMHCs from the procurement, or an advantage while specifying an important substantive requirement.

       
       

   53. Petitioner's challenge to RFP 5.1 D.5, 5.1 E.1, 5.1F.1, and 6.3 B.3.c fails because these provisions, even if conferring significant advantages upon CMHCs, impose important qualitative requirements upon the delivery of mental health services to Medicaid clients.

       
       

   54. However, RFP 4.18 is different from these other provisions. It does not involve the actual delivery of mental health services to Medicaid clients. Section 4.18 dictates only how long after signing the contract with Respondent the contractor has to implement the new capitation contract. The advantage conferred by 4.18 upon CMHCs is neither trivial nor necessary. The federal waiver runs two years from the actual start-up date of the new capitation plan. Obviously, an inordinate delay in implementation might suggest that the

       contractor is unable to do the job, but nothing in the record suggests that 60 days marks the beginning of an inordinate delay.

       
       

   55. Respondent understandably wants to get the pilot project started quickly, presumably in anticipation of important cost savings. But these considerations do not rise to the importance of other provisions involving the actual delivery of mental health services to Medicaid clients.

       
       

   56. Non-CMHCs, especially offerors with as yet unidentified subcontractors, face a considerable task in plan implementation. For this procurement, only one offeror will have the assistance of the CMHCs, which gives that offeror a clear advantage in at least the community mental health and targeted case management categories. There is no good reason to increase this advantage by imposing an unrealistically short implementation timeframe on contractors. On the other hand, there are two reasons why the 60-day implementation timeframe is arbitrary and illegal: it conflicts with RFP provisions encouraging open competition and it conflicts with RFP provisions prohibiting more than a minimal disruption to clients.

       
       

   57. The new capitation plan represents a marked departure from past practice. The successful contractor is assuming considerable financial risks when it sets its fees and risk corridor, if any. This risk is spread over a wide geographic area containing some of Florida's most densely populated areas. Anticipated cost savings to the State may result in narrowed profit margins before the contractor can safely realize savings from reductions in the cost of mental health services provided to Medicaid clients. The success of the capitation plan is jeopardized if the contractor underestimates the revenue needed for the successful operation of the plan.

       
       

   58. The offeror without subcontractors at the time of submitting a proposal needs time to enlist the cooperation of CMHCs or other subcontractors. A witness of Respondent described a possible scenario in which CMHCs declined to cooperate with the contractor and were forced to terminate employees. Although these employees would be available to the contractor, they would not likely be available in a 60-day timeframe.

       
       

   59. A multitude of tasks confront the non-CMHC contractor, especially if the contractor does not have a subcontractor network in place when submitting the proposal. Not surprisingly, Respondent's witnesses did not offer a spirited defense of the 60-day implementation timeframe, as is partly illustrated by the following testimony of Respondent's chief witness:

       
       

       Q: Is there a reason that the language on Page 61 says "must have signed subcontract within 60 days?"

       A: No. What it is trying to get at there is that if you are going to start being operational within 60 days, you got to

       know that you got to get those subcontracts approved by us prior to being able to do that.

       
       

   60. Respondent's witness readily testified that the deadline would not be enforced, if the enforcement jeopardized the welfare of the Medicaid clients. Of course, given the vulnerability of the clients, Respondent would not require the implementation of an unfinished plan at the end of the contractual implementation timeframe, regardless of the duration of the implementation timeframe.

   61. But a rational deadline for implementation would not so readily invite discussions of waivers and extensions. The presence of an impractical deadline misleads offerors. Some offerors may obtain an unfair advantage by structuring their proposals without regard to the implementation timeframe, secure in the knowledge that it will not be enforced. Other offerors may limit Optional Services or avoid more creative delivery or administrative programs in order to ensure that their plans can be implemented within the arbitrarily short implementation timeframe.

       
       

   62. To eliminate arbitrary and illegal conflicts with other RFP provisions encouraging open competition and prohibiting more than minimal disruptions in service, the implementation timeframe of 60 days must be extended to at least

       120 days.

       
       

       CONCLUSIONS OF LAW

       
       

   63. The Division of Administrative Hearings has jurisdiction over the subject matter and the parties. Section 120.57(1), Florida Statutes. (All references to Sections are to Florida Statutes.)

       
       

   64. Section 120.53(5) provides the procedure that governs protests of requests for proposals and bid solicitations. Substantively, "the hearing officer's sole responsibility is to ascertain whether the agency acted fraudulently, arbitrarily, illegally, or dishonestly." Department of Transportation v. Groves-Watkins Constructors, 530 So. 2d 912, 914 (Fla. 1988).

       
       

   65. Petitioner has failed to prove that the preparation of the RFP, or the RFP itself, was arbitrary, illegal, dishonest, or fraudulent, except for the 60- day implementation timeframe. The implementation timeframe is arbitrary and illegal in the advantage that it confers upon CMHCs, in conflict with RFP provisions encouraging competition and prohibiting more than a minimal disruption in services. In the absence of material changes to other parts of the RFP, the arbitrariness and illegality of the implementation timeframe can only be eliminated by extending the implementation timeframe another 60 days, for a total of 120 days from the date of the execution of the contract between Respondent and the contractor.

RECOMMENDATION

Based on the foregoing, it is hereby

RECOMMENDED that the Agency for Health Care Administration enter a final order amending RFP 4.18 by inserting "120" days for "60" days in the second paragraph and making any necessary conforming changes elsewhere in the RFP, and, after making these changes, proceed with the subject procurement.

ENTERED on January 31, 1995, in Tallahassee, Florida.

ROBERT E. MEALE

Hearing Officer

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings on January 31, 1995.

APPENDIX

Rulings on Petitioner's Proposed Findings

1-4: (except that "poisonous" in paragraph 2 is rejected as melodramatic and unsupported by the appropriate weight of the evidence): adopted or adopted in substance.

5: rejected as unsupported by the appropriate weight of the evidence, except for 4.18.

6-7: adopted or adopted in substance, except that Petitioner did not challenge 5.1 E at the hearing or in the proposed recommended order.

8: rejected as irrelevant.

9-13: adopted or adopted in substance.

14: rejected as unsupported by the appropriate weight of the evidence. Petitioner did not prove that the actual information shared by the CMHCs was crucial--only that certain information could theoretically be crucial.

15: adopted or adopted in substance, although other CMHCs operate in Area 6, but do not possess much share of the community mental health services market.

16-17: rejected as irrelevant.

18: adopted or adopted in substance, except for the last sentence, which is rejected as unsupported by the appropriate weight of the evidence (except for 4.18).

19-20: adopted or adopted in substance. 21: rejected as repetitious.

22: adopted.

23-25: adopted or adopted in substance, except for last sentence of paragraph 25, which is rejected as unsupported by the appropriate weight of the evidence.

26-27: adopted or adopted in substance.

28: rejected as unsupported by the appropriate weight of the evidence. 29-33: adopted or adopted in substance, except for last sentence of

paragraph 33, which is rejected as unsupported by the appropriate weight of the evidence.

34: adopted or adopted in substance.

35-36: rejected as unsupported by the appropriate weight of the evidence. 37-38: adopted or adopted in substance, although this was hypothetical

testimony of one of Respondent's witness, not a formal statement of Respondent's "position."

39 (first sentence): rejected as unsupported by the appropriate weight of the evidence.

39 (second sentence): adopted.

40-44 (second sentence): adopted or adopted in substance.

44 (third sentence): rejected as recitation of evidence. 45: adopted.

46-47: adopted or adopted in substance.

48: rejected as unsupported by the appropriate weight of the evidence. 49: rejected as irrelevant and, except for 4.18, unsupported by the

appropriate weight of the evidence. Rulings on Respondent's Proposed Findings

1-5: adopted or adopted in substance.

6: adopted or adopted in substance, except for 4.18. 7: adopted or adopted in substance.

8: adopted or adopted in substance, at least to the extent that Petitioner failed to prove the contrary.

9 (except last sentence): adopted or adopted in substance.

9 (last sentence): rejected as speculative.

10-16: adopted or adopted in substance, although the extent of Petitioner's ability to respond satisfactorily is questionable, as is the rationale for the use of FTEs for non-administrative positions. Additionally, all proposed findings that RFP provisions do not place non-CMHCs at a disadvantage, when such proposed findings conflict with findings in the recommended order, are rejected as unsupported by the appropriate weight of the evidence.

COPIES FURNISHED:

Douglas M. Cook, Director

Agency for Health Care Administration 2727 Mahan Drive

Tallahassee, FL 32308

Harold D. Lewis, General Counsel Agency for Health Care Administration The Atrium, Suite 301

325 John Knox Road Tallahassee, FL 32303

Sam Power, Agency Clerk

Agency for Health Care Administration The Atrium, Suite 301

325 John Knox Road Tallahassee, FL 32303

Seann M. Frazier Mark A. Emanuele Panza Maurer P.A.

3081 East Commercial Blvd. Suite 200

Ft. Lauderdale, FL 33308

Paul J. Martin William H. Roberts

Assistant Attorneys General Office of the Attorney General PL-01, The Capitol Tallahassee, FL 32399-1050

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions to this Recommended Order. All agencies allow each party at least 10 days in which to submit written exceptions. Some agencies allow a larger period within which to submit written exceptions. You should contact the agency that will issue the final order in this case concerning agency rules on the deadline for filing exceptions to this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the final order in this case.

Docket for Case No: 94-006887BID

Orders for Case No: 94-006887BID