The Kern County Board of Supervisors settled a long-simmering dispute over who should manage health care benefits for more than 5,000 county employees Tuesday by dumping the current provider and going with three out-of-state businesses instead.
The vote was 3-2.
Supervisors Mick Gleason, Leticia Perez and Zack Scrivner said they believed the fact that 50 percent of Managed Care Systems is owned by the Dignity Health hospital system gave citizens and county employees the perception that the contract presented conflict-of-interest problems.
County staff and consultants have said that although there is no proof that MCS has used its control over the county health care system to send more or better business to the hospitals owned by its corporate parent, the potential for that kind of action exists. Dignity Health owns Mercy, Mercy Southwest and Bakersfield Memorial hospitals.
"Because Dignity Health has a 50 percent ownership in MCS, it is in MCS' interest to direct as much revenue as possible to Dignity-affiliated hospitals," Chief Deputy County Counsel Karen Barnes told supervisors in March. "The existence of this incentive runs counter to the county's interest, which is to keep costs as low as possible."
Supervisors Mike Maggard and David Couch defended MCS.
Couch made a motion to throw out the competitive bidding process and start all over again after grilling county staffers about mistakes they made in reporting the cost of awarding portions of the "third party administrator" contract to three out-of-state companies: Zenith American, Clinix Healthcare and Burns Consulting.
But the three supervisors who voted to hire the new providers said they had to act in a way that removes all perceptions that the county is fostering a conflict of interest.
Perez thanked MCS for the great service it has provided but said the county had to take the high road in what has been an acrimonious battle for a contract worth upwards of $11.9 million.
"The most important role we can play is to be the arbiter of fairness," Perez said.
Gleason commended Couch for digging into problems with reports presented to supervisors in March that indicated the county would save more money on the out-of-state contracts -- when compared to MCS -- than it actually will.
But Gleason said ethical people don't always need laws to tell them what the right, ethical thing to do is.
"In order to keep the trust of our employees and the public," he said, there must be no perception of a conflict of interest.
Concerns from supervisors and county workers that Clinix, Zenith and Burns would offer less robust, more fragmented customer service to county employees were resolved with promises that the three companies would establish a single office in Bakersfield with a single phone number and a single website for employees to access.
The companies also promised to consider hiring any MCS employees displaced by the local company because of the loss of the county contract.
Attorneys for Dignity argued hotly that there is no conflict of interest under the law.
The Bakersfield company fails none of the criteria used in state law to determine whether a conflict of interest exists that would preclude a company from bidding on or receiving the county contract, said James Poth, an attorney with the Jones Day firm representing Dignity.
MCS does not have an investment in Dignity, he said. Dignity does not have more than 50 percent voting power in MCS -- it has just 50 percent. MCS does not get any income from Dignity Health, and no one at MCS takes direction from Dignity, Poth said, ticking off a long list of legal hurdles the MCS/Dignity relationship clears.
Opponents of MCS said those legal arguments apply only to award of the contract, not the problems that arise with the operation of that contract.
"Everything he was talking about was whether a bidder would be disqualified from bidding," said attorney Bob Joyce, who represents a doctor who is affiliated with Dignity competitor San Joaquin Community Hospital. "Can you give the contract to MCS? Without a doubt. The question is, should you? What is in the best interest in the county and the taxpayers?"
Poth rejected that argument and said if there is no conflict of interest in getting the contract, there can be no conflict of interest in operating the contract.
After the meeting he said supervisors who voted for the staff recommendation were responding to a perceived problem.
But Scrivner said he felt compelled to make sure that people are certain there isn't a conflict of interest.
"This is not a legal decision. This is a policy decision," he said.