Center for Open Government: Appeals court says Molina consultant’s 'appearance of impropriety' is insufficient to order rebidding of MCO contracts

The Beshear administration’s mishandling of one of the largest contracts awarded by the state of Kentucky is back in the news.

From Deborah Yetter at the Courier Journal:

A three-judge panel has upheld the state's 2020 selection of five companies to manage care for most of the 1.6 million Kentuckians, including 600,000 children, who are covered by the government health plan for low-income and disabled individuals.

As a result, the five health insurance companies − known as managed care organizations, or MCOs − will retain contracts with the state while Anthem Blue Cross and Blue Shield will be excluded, according to the appeals court opinion released Friday.

Yetter isn’t the most objective source of information when covering the current administration. So, we read the opinion ourselves. Here’s what we found:

The state Court of Appeals overturned the Frankfort Circuit Court’s decision requiring the Beshear administration to re-bid the MCO contracts. According to the CJ’s article, the Franklin County circuit court found “multiple flaws ‘cast a cloud over the process's legitimacy.’ The appeals court disagreed, finding the alleged flaws were not sufficient grounds to throw out all the bids and order a new round of bidding.”

The MCO contracts were awarded in late-November 2019 by the outgoing Bevin administration, only to be cancelled and rebid two months after Andy Beshear was inaugurated. Through a series of open records requests, the Bluegrass Institute’s Center for Open Government discovered, among other things, the state’s Finance Cabinet 1) withheld important documents covered by Kentucky’s Open Records Act, 2) reluctantly acknowledged that several members of the contract-scoring committee failed to preserve documents and their notes from the scoring process, even though they were required to do so, and 3) didn’t find concern with a high-ranking member of the Beshear transition team joining Molina Healthcare’s bid as a consultant when Beshear’s CHFS re-bid the multi-billion dollar contracts.

The appeals court decision deemed the 2020 MCO procurement “valid” and remanded the matter to the circuit court to lift its temporary injunction. (p. 40)

Emily Parento’s “appearance of impropriety” was insufficient “to usurp the broad discretion afford the Commonwealth’s procurement decisions.” Franklin circuit court found that the scoring irregularities, in combination with the “appearance of impropriety” created by Parento’s work for Molina shortly after leaving Governor Beshear’s transition team, warranted invalidation of the 2020 RFP. (p. 25)

The appeals court disagreed, arguing that since the Kentucky Model Procurement Code (KRS 45a) doesn’t explicitly provide that an “appearance of impropriety” is a justification for nullifying an agency decision, the circuit court’s decision wasn’t “support(ed) in the law.”

The appeals court discussed how Parento bound herself to the Executive Branch Ethics Commission’s code of ethics (EBCE) when signing an non-disclosure agreement that allowed her — as a co-chair of the CHFS transition team — to review material from the 2019 bid submissions. Interestingly, a paragraph in the decision indicates Molina and Parento argued in a deposition that she wasn’t covered by the EBCE:

Court of Appeals decision p. 29

Why does it matter? Because the EBCE prohibits individuals bound by the code to accept “employment, compensation, or other economic benefit from any person or business that contracts or does business with … the state in matters which he or she was directly involved during the last thirty-six (36) months of his or her tenure.” (p.29)

At the time, gubernatorial transition team members were not covered by executive branch ethics regulations. However, Parento agreed to be bound by EBCE as a condition of the confidentiality agreement. Therefore, she shouldn’t have accepted the consulting role with Molina - or at least any role where she would realize “economic benefit.”

The appeals court ultimately dodged the issue, deciding instead that “the circuit court was without jurisdiction to determine whether Parento violated the EBCE.” (p.30)

The appeals court declined to rule on whether Parento violated the ethics code because other “administrative remedies” weren’t exhausted prior to the case being presented to Franklin Circuit Court. According to the decision, “if the EBCE is violated in relation to a contract with the Commonwealth, the secretary of the FAC may void the contract.” (p. 30-31)

The Appeals Court said the litigant raising the question - Anthem - should have pursued an ethics complaint through the Ethics Commission before bringing litigation. It wrote, “it is a settled rule that a party is required to exhaust administrative remedies as a jurisdictional prerequisite to seeking judicial relief[.] This allows the administrative body the opportunity to first build a factual record and render a final decision.” (p. 31)

This part of the decision — with citations to prior cases — ignores the fact that investigations by the Ethics Commission can take years to complete. The appeals court is basically saying Anthem should have taken the matter to the Commission, waited patiently for however long that process took to be resolved and then - if the Ethics Commission found Parento violated the EBCE - filed their lawsuit.

During that time, Anthem's customers would have been forced to choose another MCO. Given the certain loss of their members (and the nearly impossible task of getting them back if they prevailed) it’s understandable why Anthem might have believed a more immediate judicial remedy was their best option.

Nothing in the decision exonerates Parento’s role as a Molina consultant. As noted above, the appeals court didn’t consider whether Parento violated the EBCE. The decision made clear she bound herself to the ECBE through the confidentiality agreement she signed. Piecing parts of the decision together suggests her role with Molina might have crossed the lines drawn by the EBCE.

After the contracts were cancelled, she was retained by Molina and highlighted as part of their team in response to the reissued RFP. Assuming she’s been compensated for her work, hasn’t Parento realized an “economic benefit” on a matter she was involved with?

In August 2020, we revealed Parento’s services were retained by Molina only after Beshear was elected. In a July 2020 post we wrote:

If Parento's expertise created real value for Molina to position itself favorably to win the state's business wouldn't they have engaged her services for the first bid?

Or was she brought on - and highlighted in their proposal - more for her connections to a new administration than whatever value she will contribute to the delivery of Medicaid services to Kentuckians?

We wrapped up the July 2020 post with “taxpayers have witnessed so much of the latter in Frankfort that these questions must be asked.” We continue to stand by that statement.

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Billions of dollars, and more importantly, how hundreds of thousands of Kentuckians get their health care are at stake in this lawsuit, which should be getting more coverage by the Frankfort media. Transparency is critical to the proper and ethical functioning of government. Yet while Parento’s role in this controversy is featured in close to one-third of the pages of the appeals court decision, it merits only a single sentence in Yetter’s article.

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Also from that July 2020 post:

Campaign finance note: Kentucky Registry of Election Finance's online records show Parento and her husband have been generous contributors to Beshear through the years, contributing nearly $10,000 to his election efforts since 2014. Parento maxed out to Beshear's 2019 gubernatorial campaign with $2,000 contributions for both the primary and general election. David Parento contributed $3,500 for Beshear's 2019 race to unseat former Gov. Matt Bevin.