As we reported last week, the Kentucky Appeals Court overturned a decision by the Franklin Circuit Court that would have required the Cabinet for Health and Family Services (CHFS) to rebid the multi-billion dollar managed care organization (MCO) contracts awarded by the Beshear administration in 2020.

The circuit court’s decision was based on a “cumulative effect” of procedural errors by the Finance Cabinet “coupled with the ‘appearance of impropriety’ created by (Emily) Parento’s work for Molina.” (p.15)

The appeals court disagreed, saying an “appearance of impropriety” isn’t mentioned in Kentucky’s model procurement code (KRS 45a) as a justification to nullify the broad authority granted to the Finance Cabinet when awarding contracts.

It’s helpful to revisit Parento’s actions to understand the “appearance of impropriety” at the center of the controversy:

• November 2019: Parento was named co-chair of the Beshear-Coleman CHFS transition team. Parento signs a non-disclosure agreement allowing CHFS staff to share information about the MCO contracts awarded by the outgoing Bevin administration. The NDA includes a provision requiring Parento to adhere to the executive branch code of ethics.

• December 2019: The Beshear administration cancels the Bevin-awarded MCO contracts.

• January 2020: The Beshear administration re-issues an RFP for MCO proposals.

• February 2020: Molina Healthcare submits their bid and identifies Parento as part of their team.

• May 2020: The Beshear administration awards contracts to five MCO vendors, including Molina Healthcare.

• August 2020: The Center for Open Government revealed Parento wasn’t part of the Molina team in their 2019 bid proposal. Her services were retained only after Beshear was elected and she served as his CHFS transition team co-chair.

The appeals court decision rested, in part, on the question of whether Parento violated the executive branch code of ethics (EBCE). It then sidestepped the question by saying Anthem (an unsuccessful bidder for the MCO contracts) didn’t “exhaust administrative remedies” before raising the issue before the circuit court.

In so many words, the court said Anthem should have brought a complaint to the Executive Branch Ethics Commission against Parento and waited for the Commission’s investigation to be completed before filing their lawsuit. (p.30)

At the same time, the appeals court’s discussion of the case background included the following sentence:

While Anthem was exhausting administrative remedies, Molina entered into an agreement to acquire Passport (Health Plan’s) MCO assets. (p.12)

The appeals court said “it is a settled rule that a party is required to exhaust administrative remedies as a jurisdictional prerequisite to seeking judicial relief.” (p.31)

The appeals court appears to acknowledge Anthem was “exhausting administrative remedies,”which is possibly referring to the bid protest the company filed with the Finance Cabinet. Their protest raised the issue of Parento’s involvement with Molina.

However, since the company didn’t also pursue an ethics investigation, the court punted on the possibility that Parento violated the EBCE?

It remains to be seen if this case will be appealed to the Supreme Court. If it is, we’ll be curious to see how that court answers the question of whether Anthem “exhausted (the) administrative remedies” available to them.

The answer from the appeals court seems to be both yes and no.

The appeals court may be right that an “appearance of impropriety” isn’t sufficient to compel the Finance Cabinet to rebid the contracts — which, at the end of the day, was the thrust of the circuit court’s order.

The Beshear administration could salvage some ethical face by maintaining the status quo — with all MCO vendors retaining their current agreements — until they can prepare and put out a new solicitation for bids.

An “appearance of impropriety” may not be a legal standard. But it should be the ethical one.