Single Source Procurement: Insurance Eligibility Verification and Program Integrity Services

Pursuant to New York State Finance Law § 163.10(b), The New York State Department of Health is presenting the following summary of relevant circumstances, and material and substantial reasons why a competitive procurement was not feasible.

The New York State Department of Health (DOH), Office of Health Insurance Programs (OHIP), Division of Eligibility and Marketplace Integration (DEMI) received approval for an exemption from posting in the Contract Reporter to extend their current contract C026961 with Westport Healthcare Management, Inc. dba Pacific Health Policy Group (PHPG), for one additional year of service. The contract provides for eligibility verification and program integrity services. The planned contract amendment will extend C026961's current contract term from 3/15/2011 through 9/14/2016 to 3/15/2011 through 9/14/2017 at no additional increase to the contract value.

Originally, DOH contracted with PHPG through a Request for Proposals (RFP), to secure eligibility verification and program integrity services to assist DOH in conducting a variety of state required and federally mandated eligibility reviews. The federal reviews included in the original contract were those required under the Medicaid Eligibility Quality Control (MEQC) and Payment Error Rate Measurement (PERM) programs.

The MEQC program is a long standing federal requirement. It was created many decades ago to reduce erroneous expenditures by monitoring the appropriateness of eligibility determinations. In accordance with the original regulations, states conducted a rigorous evaluation process, commonly referred to as traditional MEQC, for the thousands of Medicaid cases that were randomly selected across all districts each year. However, since the late 1990s, New York, like many other states, sought and received federal approval to conduct targeted MEQC reviews on an annual basis in lieu of traditional MEQC. This targeted review approach allows states the opportunity to review specific eligibility areas that may be prone to errors without the risk of any financial penalties or disallowances. Furthermore, it is a much more effective means of improving program administration.

In comparison, the federal PERM program is a relatively new requirement that was implemented by the Centers for Medicare and Medicaid Services (CMS) in late 2006. PERM was created in response to the Improper Payments Information Act of 2002 (IPIA) and corresponding regulations were promulgated for Medicaid and the Children's Health Insurance Program (CHIP) at 42 CFR Part 431, Subpart Q. PERM consists of three review components, which are fee-for-service claims, managed care claims and eligibility. PERM operates on a rotational basis where every state is assigned to one of the three cycle groups. Each cycle group begins a new review process once every third federal fiscal year.

After the RFP was issued and the contract awarded, the federal Affordable Care Act (ACA) was enacted and required states to implement substantial changes to the way eligibility is determined for Medicaid and CHIP. In light of those changes, CMS notified the states that it was temporarily implementing a pilot review program, and putting the MEQC program and eligibility component of PERM on hold during the October 1, 2013 through September 30, 2016 period. In July 2014, a contract amendment was made to contract C026961 effective October 1, 2013 as a result of CMS' changes. Components to this contract amendment are outlined below:

  • Even though the pilot review program involves work activities and deliverables similar to targeted MEQC and the eligibility component for PERM, the payment schedules in the original contract did not allow for the contractor to be paid for pilot review work. Therefore, the necessary modifications to the payment schedules were made to account for CMS' structural modifications (i.e., the temporary hold on MEQC and the eligibility component of PERM, as well as the provisional implementation of the pilot); and
  • Subsequently, approximately $1 million remained available for other reviews. Therefore, this amendment also allowed for 10 State-initiated review projects (i.e., Other Eligibility Reviews). Conducting State-initiated reviews that are smaller, but similar to the targeted MEQC reviews, allows the Department to continue to assess the appropriateness of Medicaid and CHIP determinations, particularly those made in potentially error prone and/or high risk areas.

On October 7, 2015, CMS issued SHO letter # 15-004, Affordable Act #35, which notified states that CMS was extending the temporary hold on MEQC and the eligibility component of PERM for an additional year (through September 30, 2017) and adding a fifth round of reviews to the pilot to explore other options and obtain more information before issuing new proposed regulations for comment. CMS is planning to hire a federal contractor to conduct the fifth round of reviews for a small group of states, including New York, to test the feasibility of implementing such a strategy nationwide when PERM resumes. Even though DOH does not anticipate that assistance from a state contractor will be needed for the newly required fifth round, it still needs assistance conducting the remaining seven Other Eligibility Reviews that were allowed under the contract amendment discussed above. Therefore, DOH is requesting a one year extension to contract C026961.

An RFP was issued on July 15, 2010 to secure eligibility verification and program integrity services to assist DOH in conducting a variety of state required and federally mandated eligibility reviews. On May 2, 2011, the Office of the State Comptroller (OSC) approved Contract C026961 with PHPG for a contract term of March 15, 2011 through September 14, 2016. The contract was amended in 2014 to adopt the program changes required by CMS, as outlined in Section A. That amendment revised some of the payment schedules, but it did not add any time or money to the overall contract.

DOH has chosen PHPG as the vendor for the single source contract amendment for a variety of reasons. A majority of the review work required by the contract has been successfully completed by PHPG in the past. Conducting the remaining Other Eligibility Reviews will provide DOH with valuable information as CMS continues to consider various options for revising the MEQC and PERM programs.

PHPG has the proper experience and staff to continue providing these critical services under C026961 for an additional year. As a result, a one year, no increase to the contact value (sufficient unspent funding remain for all associated cost for the extension) extension will be more cost effective than separately re-procuring the review work allowed by the remaining portion of the contract.

PHPG was originally contracted through the RFP process to ensure best value. The administrative fees of the incumbent contractor will remain unchanged during the extension period and is therefore determined to be reasonable.

Upon amendment expiration, DOH currently plans to competitively select a vendor through an RFP, subject to the need based on the new/revised approach CMS eventually proposes with regard to MEQC and PERM. Issuing an RFP prior to this one year contract amendment would be unfeasible, due to the wide variety of potential changes in requirements that CMS may or may not implement related to the existing and pilot programs outlined above.

Procurement / Program Name Insurance Eligibility Verification and Program Integrity Services
Contractor Name(s) Westport Healthcare Management, Inc. dba Pacific Health Policy Group
Contract Period September 15, 2016 – September 14, 2017
Contract Number(s) C026961