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Weinstein v. County of Los Angeles

California Court of Appeals, Second District, First Division

June 17, 2015

MICHAEL WEINSTEIN et al., Plaintiffs and Respondents,
v.
COUNTY of LOS ANGELES et al., Defendants and Appellants.

APPEAL from a judgment of the Superior Court of Los Angeles County, No. BS138053 Joanne B. O’Donnell, Judge.

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COUNSEL

Ford, Walker, Haggerty & Behar, Renee E. Jensen; Greines, Martin, Stein & Richland, Timothy T. Coates and Barbara W. Ravitz for Defendants and Appellants.

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Strumwasser & Woocher, Gregory G. Luke, Beverly Grossman Palmer; AIDS Healthcare Foundation, Thomas Meyers and Samantha Azulay for Plaintiffs and Respondents.

OPINION

JOHNSON, J.

In February 2012, the County of Los Angeles (County) approved a no-bid contract with Ramsell Public Health Rx, LLC (Ramsell) for pharmacy administrator services to assist the County in implementing provisions of the Patient Protection and Affordable Care Act (ACA) (Pub.L. No. 111-148 (Mar. 23, 2010) 124 Stat. 119). After AIDS Healthcare Foundation (AHF) challenged the award of the contract, the trial court invalidated the contract in June 2012. Days later, the County approved another no-bid contract with Ramsell substantially identical to the first contract, but which had a one-year term. AHF challenged the second contract.

The trial court found that an exception in the County Code permitting no-bid contracts where the contract was for personal services of an “extraordinary and technical nature” and where the services were temporary did not apply because the County had not demonstrated any specialized skills were required to administer the pharmacy benefits under the contract; rather, rudimentary computer and organizational skills were sufficient.

On appeal, the County argues that the trial court failed to accord sufficient deference to the County’s conclusion that the exception applied; the contract was exempt from competitive bidding because it was a personal services contract that (1) could not be performed by County employees in the time available; (2) involved services of an extraordinary professional or technical nature, and (3) remedied an emergency situation that required quick action. Finally, the County asserts that voiding the Ramsell contract on the very last day of its term made a mockery of the equitable nature of the mandate remedy. We agree with the County that the trial court failed to accord sufficient deference to the County’s evaluation of its needs for the services of a pharmacy administrator who could provide the necessary data management and provision of pharmaceuticals to address its needs in implementing provisions of the ACA, and reverse with directions that the trial court enter judgment in the County’s favor.

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FACTUAL BACKGROUND AND PROCEDURAL HISTORY

1. The Parties

AHF is a California nonprofit corporation and participant in the state’s Medi-Cal program. AHF provides medicine and advocacy to persons with HIV/AIDS regardless of ability to pay. AHF operates 11 health care centers and pharmacies throughout California primarily serving low-income patients. AHF operates Positive Healthcare, a primary care case management program for Medi-Cal patients with AIDS under a contract with the Los Angeles County Department of Health Services (DHS). AHF is qualified to provide the same pharmacy network administrative services as contemplated on the Ramsell contracts. Michael Weinstein (Weinstein) is the president of AHF.

Ramsell is a California limited liability company located in Oakland, California. Ramsell is an administrator that provides and manages 340B pharmacy programs, [1] provides pharmacy claims processing and adjudication, negotiates and manages contracts between itself and its network pharmacies, provides 340B program administrative services and provides for other related pharmacy benefit administrative services.

The DHS is the County agency responsible for providing certain health services to residents in Los Angeles County and operates hospitals throughout the County.

2. Governing Legal Principles.

Los Angeles County Code chapter 2.121, “Contracting With Private Businesses, ” provides that it applies to contracts “with private businesses to perform personal services which are currently performed by county employees, or which could be performed by county employees through the recruitment of additional county personnel.” (L.A. County Code, § 2.121.250, subd. (A).) Competitive bidding is designed to “invit[e] competition, to guard against favoritism, improvidence, extravagance, fraud, and corruption, and to secure the best work or supplies at the lowest price practicable.” (Domar Electric, Inc. v. City of Los Angeles (1994) 9 Cal.4th 161, 173 [36 Cal.Rptr.2d 521, 885 P.2d934].)

As a rule, such contracts are awarded by competitive sealed bidding “unless it is determined in writing by the department recommending the

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award of a contract that this method is not practicable.” (L.A. County Code, § 2.121.320, subd. (A).) If the use of competitive sealed bidding is not practicable, “a contract may be awarded by competitive negotiation.” (L.A. County Code, § 2.121.330, subd. (A).) “A contract may be made by noncompetitive negotiation only when competition is not feasible, as determined in writing prior to award by the department recommending the award of the contract.” (L.A. County Code, § 2.121.350.)

There are two notable exceptions to the competitive bidding requirements of Los Angeles County Code chapter 2.121. Relevant here, Los Angeles County Code chapter 2.121 does not apply in the first instance where, among other things, (1) “[t]he service cannot be performed adequately or competently or satisfactorily by civil service employees and it is impossible to recruit such personnel to perform such service for the period of time such service is needed by the county”; or (2) “[t]he service is of an extraordinary professional or technical nature and the services are of a temporary nature.” (L.A. County Code, § 2.121.250, subd. B.2., 3.)

3. The Affordable Care Act and Transition of Patients from Ryan White to Low Income Health Plan Based Drug Programs

On March 23, 2010, the federal government passed the Patient Protection and Affordable Care Act (42 U.S.C. § 300gg et seq.) that anticipated the extension of Medicaid coverage in 2014 to over one million previously uninsured California citizens. Under the ACA, beneficiaries needed to be transferred from the Ryan White Comprehensive AIDS Resources Emergency Act of 1990 (42 U.S.C. § 300gg-12 et seq.) (Ryan White), which had provided pharmaceuticals, to the Low Income Health Plan (LIHP). The County’s LIHP is known as “Healthy Way LA.” Healthy Way LA provided for the creation of a pharmacy network to expand pharmacy access to patients with HIV/AIDS and to streamline billing and federal reimbursement for healthcare providers who became part of the network.

In November 2010, in anticipation of the changes made by the ACA, the State Department of Health Care Services implemented a new state Medicaid program known as the “Bridge to Reform.” The Bridge to Reform employed a new Medicaid section 1115 Waiver[2] to help the state meet the challenges of enrolling the significant number of patients who were newly eligible under the ACA. In particular, the Bridge to Reform provided for the creation of pharmacy networks that would expand pharmacy access to HIV/AIDS patients. At the time, over 15, 000 persons received benefits under Ryan White,

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while an additional 5, 000 persons would be eligible for benefits under the LIHP program. The Bridge to Reform was expected to end on December 31, 2013.

On July 22, 2011, the federal government notified California that the transition of such patients would begin October 1, 2011 (later extended to July 1, 2012).

(A) Ramsell I

In January 2012, DHS submitted a transition plan report to the County Board of Supervisors (Board) in which it notified the Board that it was negotiating an agreement with a pharmacy administrator to provide pharmacy network services to HIV/AIDS patients in accordance with the Bridge to Reform.

On February 7, 2012, DHS recommended to the Board that it approve a sole-source, $75 million 340B program contract for pharmacy administrator services with Ramsell to administer the pharmacy network. The DHS also recommended that the County award the contract without engaging in a competitive bidding process. DHS asserted that it did not have time for a standard RFP (request for proposals) process and that it was only aware of two entities offering the necessary pharmacy administrative services, and of the two, one’s business model was not compatible with DHS.

On March 15, 2012, the County entered into the Ramsell I contract, which had a three-year term, with automatic renewal for successive one-year terms. (Ramsell I.)

After AHF challenged the Ramsell I contract on the grounds it violated Los Angeles County Code chapter 2.121, on June 6, 2012, the Los Angeles County Superior Court agreed and granted plaintiffs’ application for writ of mandate voiding the Ramsell I Contract.

(B) Ramsell II[3]

On June 15, 2012, the County published a notice under the Meyers-Milias-Brown Act that it would ask the Board at its regularly scheduled June 19,

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2012 meeting to authorize the award and execution of another $75 million no-bid contract to Ramsell to provide the same services specified in the Ramsell I contract. (Ramsell II.) The Ramsell II contract was identical to the first Ramsell contract except for its duration. The Ramsell II contract would run on a month-to-month basis for up to 12 months. The County argued that because the Ramsell II contract was temporary, it qualified for an exception to competitive bidding requirements of Los Angeles County Code section 2.121.250, subdivision B.3.

The Ramsell II contract’s salient provisions set forth that Ramsell is an administrator and provides and manages 340B pharmacy programs, provides pharmacy claims processing and adjudication, negotiates and manages contracts between itself and its network pharmacies, provides 340B program administrative services, and provides for other pharmacy benefits administration services. Further, the services to be provided under the Ramsell II contract included, among other things: claims processing; plan design, review and management; real-time review of drug utilization; reports of claims data; ongoing maintenance and reporting of virtual inventory of 340B program covered drugs at contract pharmacies; payment of 340B program drug acquisition costs and negotiated dispensing fees; ordering drugs; managing each individual pharmacy’s inventory and generating replenishment orders; and providing electronic patient and inventory recordkeeping.

The Ramsell II contract provided Ramsell would make available the use of Ramsell’s proprietary software application by which the pharmacy could track inventory and purchases. At the end of the term of the contract, Ramsell would assist the County in transitioning all data collected to the County.

DHS sent a recommendation to the Board that the Board approve Ramsell II, and that the contract was exempt from the competitive solicitation requirements of Los Angeles County Code section 2.121.250, subdivision (B.3. because the contract was temporary and for a professional or technical service. The Ramsell II contract had a term of up to 12 months, at an estimated cost not to exceed $5.9 million per month for pharmaceutical ingredient costs, ...


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