Medi-Cal Contract Not Wrongfully Awarded, Hearing Officer Decides

Times Staff Writer

A hearing officer has upheld the award of a $122-million Medi-Cal contract to Dallas-based Electronic Data Systems Corp., rejecting a losing bidder’s protest that the lucrative five-year assignment to process claims for the giant health care system was “wrongful if not unlawful,” officials announced Tuesday.

A spokesman for the losing bidder and present holder of the contract, Computer Sciences Corp. of El Segundo, said his firm would not contest the decision. “We’ll abide by it,” he said.

State General Services Director W.J. Anthony upheld the recommendation of the hearing officer, retired Sacramento County Superior Court Judge Sheldon H. Grossfeld, to deny the Computer Sciences protest.

Computer Sciences Vice President Arthur B. Sims had contended that the July 2 decision by Health Services Director Kenneth W. Kizer to award the contract to Electronic Data was “wrongful if not unlawful” because his company’s bid was $2 million below that of the Texas company and was rated higher in impartial evaluations conducted by state officials.


Even so, the state awarded the contract to Electronic Data because of factors not considered in the department’s initial evaluations, said Stan Rosenstein, the official in charge of Medi-Cal procurement.

Rosenstein said the evaluation procedures used by the department had failed to account for Computer Sciences’ performance under the present contract or the “structure” of the bid itself. He contended that Computer Sciences had written its proposal in such a way that would deny it enough profits to provide sufficient incentive to fulfill the assignment.

Ex-State Officials Hired

The award of the contract to Electronic Data had attracted attention because the company, a subsidiary of General Motors Corp., had hired two former top Deukmejian Administration officials to help it obtain the assignment.


Documents filed with the secretary of state show that Electronic Data paid the lobbying firm of former Finance Director Michael Franchetti and former Health and Welfare Secretary David B. Swoap $27,000 to assist in “securing” the Medi-Cal contract. As health services director, Kizer was Swoap’s subordinate until Swoap left his Cabinet-level post in November, 1985, to join Franchetti’s firm.

Officials have said that Swoap’s role was entirely proper.

The Medi-Cal “fiscal intermediary” acts as the state’s agent in processing claims submitted by physicians and other health care providers in California’s health care system for the poor. Rosenstein said the change in intermediaries, scheduled to occur June 5, 1988, will have little effect on providers.