New York’s largest private Medicare administrator is suing the Big Apple and its local union leaders for allegedly awarding a $34 billion “tainted” contract to an unqualified rival bidder.
Insurance giant Aetna’s bombshell lawsuit against New York City and the Municipal Labor Committee alleges that the bidding process was fixed to favor Alliance, a consortium that includes Emblem Health and Anthem/Blue Cross Blue Shield, to operate the Medicare Advantage Plus program, which administers health benefits to 250,000 retired city workers.
“OLR [the city’s Office of Labor Relations] has selected an inexperienced and unqualified bidder through a procurement process that violated New York Procurement law, lacked transparency, and violated principles of public trust and fairness for a procurement that could last up to a minimum of five or as many as eleven years and generate $34 billion dollars in claims revenue,” Aetna alleges in its suit filed in Manhattan Supreme Court earlier this month.
Aetna and Alliance were the two finalists that city officials and union leaders considered for the whopping contract, which is anticipated to save the Big Apple about $3 billion over five years, or roughly $600 million a year.
Aetna is asking the court to nix the contract, which takes effect Jan. 1.
Retired city workers are eligible for Medicare, the federally run program that provides health insurance for people who reach 65 — but their union contract also calls for the Big Apple to pick up the cost of their monthly premiums for Medicare Part B, which covers outpatient care as well as other supplemental services not covered by Medicare.
Aetna is arguing that it has more experience than Alliance in handling such matters. And even city officials have acknowledged that Aetna, the nation’s third largest health-insurance provider, was clearly the more experienced bidder in running Medicare Advantage programs across the country.
One of the criteria in the proposal was that bidders had to have provided service to a client with at least 50,000 subscribers.
Aetna currently runs New Jersey’s Medicare Advantage program for 196,577 retirees, the United Auto Workers Retiree Medical Benefits Trust with 140,305 members, the Ohio State Teachers Retirement System with 96,106), the Pennsylvania Employees Benefit Trust Fund with 75,369 members) and Verizon with 73,176 members, according to the lawsuit.
Aetna alleges that Alliance failed to meet even this “low bar.”
Alliance has noted that one of its partners, Indiana-based Anthem, ran the Medicare Advantage program for the Colorado Public Employees Retirement system with 50,000 members. But Aetna claims that Anthem’s contract only covered 43,000 retirees, which should disqualify the Alliance bid for the city work.
Other concerns raised in the lawsuit involved:
- Costs: Aetna claimed its prescription-drug plan was at least $30 less expensive per worker monthly than Alliance’s plan and offered free prescriptions for certain generic medications. It also said its plan premium was $366 lower per year for every worker than the advertised Alliance rate.
- Breach of confidentiality: The insurer said a city evaluator wrongly disclosed some of its cost proposals at a meeting with union members, which “tainted” the selection process by alerting rival Alliance to its figures.
- Arbitrator/familiarity: The city and labor unions turned to a state arbitrator to help resolve an impasse over the selection of a winning bidder — a decision that was not mentioned as part of the procurement process.
During the early evaluation process, city officials favored Aetna because of its experience running Medicare Advantage programs, the suit says. But union leaders preferred the Alliance because partners GHI/Emblem Health and Blue Cross had more of a history providing medical benefits to city workers, according to the papers.
The parties asked arbitrator Martin Scheinman — who recently ruled that religious exemptions can be granted from COVID vaccine requirements for public-school teachers — to be brought in to issue a recommendation on which final bidder the city and the unions should choose. At the time, Scheinman chaired a city panel to find health-care savings.
Scheinman chose Alliance, arguing that its “familiarity” with providing benefits to the city workforce trumped Aetna’s superior experience in running Medicare programs, the documents say.
His voice helped tip the award to the Alliance, the suit says.
But Aetna argues in the court documents that “the Solicitation and applicable procurement law did not provide for this action … and Arbitrator Scheinman’s recommendation was based on a new criterion mentioned nowhere in the procurement documents.”
Aetna also claims that Alliance reps were afforded the opportunity to discuss matters with Scheinman, while its people weren’t.
Aetna received the highest scores during the early phases of the evaluation process, the suit says.
Other sources familiar with the negotiations said it appeared that Alliance had an inside track because of its connections to labor leaders. Teamsters Local 237 President Gregory Floyd, for example, sits on the board of Alliance partner Emblem Health.
Some advocates for retirees joined Aetna in questioning the granting of the contract.
“There’s definitely some fishiness going on. This contract doesn’t make any sense,” said Marianne Pizzitola, president of the FDNY’s EMS Retirees Association and a rep for the New York City Organization of Public Service Retirees, whose groups are affected by the contract.
Pizzitola said retirees were “kept in the dark” on the deliberations and raised the appearance of a conflict with Teamsters’ head Floyd sitting on the board of the winning bidder.
“How is that not fishy?” she said.
Nicholas Paolucci, a rep with the city Law Department, told The Post in an e-mail, “The City is committed to selecting providers that are in the best interest of the City and it’s retirees. We’ll review the case.”
Meanwhile, union leaders in the Municipal Labor Council dismissed Aetna’s lawsuit as the desperate gambit of a sore loser.
“We got it done. It was fair and right to the point. I haven’t heard anything wrong with that particular contract, the way it was done. Everything was done to the T,” said Harry Nespoli, chairman of the Municipal Labor Council and president of the Sanitation workers’ union.
“To me it sounds like sour grapes. Aetna had their shot at it. It does save money for the city of New York. What’s wrong with that? I thought it was a spectacular deal. I still think it is,” he said.
Teamsters Local 237 President Floyd said his role sitting on the governing board of bidder Emblem Health didn’t pose a conflict. He voted to award to Emblem/Anthem-Blue Cross.
“It’s only a conflict if I was the only union leader voting or if I had the most influential vote. It wasn’t the case. I had one vote — that was it,” Floyd said.
“This a stupid lawsuit. Aenta put in a bid, and they lost the bid. They’re a sore loser.”
Noting that Aetna is one of the country’s largest private health-insurance companies, Floyd said, “How greedy can you get?”
Floyd said contracts expire and that there will be opportunities for future business — but he added that Aetna is burning its bridges.
“I have a long memory,” Floyd said.
He said Aetna currently administers prescription-drug benefits to his members, who work as security officers in schools, homeless shelters and NYCHA complexes.
In that case, Aetna replaced HIP/Emblem Health because the union didn’t like the latter’s performance, and Aetna is doing a “good job,” the Teamsters boss said.