The state's recent award of an estimated $1.5 billion Medicaid contract to two Mainland companies is being protested by AlohaCare, a Honolulu-based nonprofit health plan that also bid on the work.

AlohaCare yesterday said it was contemplating its options, including going to court. It said the state Department of Human Services rejected its appeal of the contract award last month.

"This inherently flawed bidding process does a grave disservice to the affected 37,000 Medicaid beneficiaries, their physicians and to all of the people of Hawai'i who will be making up the $21 million tax revenue that the state will annually rebate to these Mainland for-profit companies," said Ed Kemper, attorney for AlohaCare.

The three-year contract is being split between the two lowest bidders, UnitedHealth Group Inc., the largest U.S. health insurer, and WellCare Health Plans Inc., a Tampa, Fla., insurer, according to AlohaCare. The contract covers services for 37,251 Medicaid beneficiaries in the state who are blind, disabled or aged. The program represents an expansion of Medicaid benefits.

The state said it couldn't give a response to AlohaCare's allegations.

"It is inappropriate for the Department of Human Services to comment on the QUEST Expanded Access procurement at this time because of the active bid protest that is being pursued under the state procurement law," said DHS Director Lillian Koller in a statement.

AlohaCare said it was concerned that the request for proposals issued by Hawai'i's Department of Human Services was skewed and benefited for-profit, out-of-state health plans at the expense of nonprofits in Hawai'i. Kemper said the proposal request asked for bids on a pretax basis.

"When we questioned it, they explained it by saying we're going to pay for the profit corporations," he said.

AlohaCare is alleging this is an illegal rebate of the state's 4.265 percent premium tax that must be paid by for-profit insurers, and that the possible reimbursement will add more than $65 million to Medicaid costs over the life of the contract.

AlohaCare also noted that WellCare and UnitedHealth have legal problems.

WellCare is being investigated by the FBI and Florida officials for what is believed to be possible government overpayments. In January three of WellCare's top executives resigned, including its chief executive officer, Todd Farha.

Earlier this year UnitedHealth units were accused by state authorities of claims processing failures in California and fraudulent rate-setting in New York.

In addition, AlohaCare said UnitedHealth and WellCare were two of seven national health plans that agreed to suspend Medicare marketing last summer after being cited for failure to comply with marketing guidelines.

Reach Greg Wiles at gwiles@honoluluadvertiser.com.