MedStar, which operates the District’s largest hospital, lost a contract to manage Medicaid patients through. (Molly Riley/AP)

The District government mishandled how it awarded lucrative contracts to manage care for Medicaid beneficiaries and must revaluate proposals by the end of January, an administrative law judge has determined.

The ruling, written Nov. 30 but released Wednesday, comes in response to a protest filed with the Contract Appeals Board by MedStar, one of the region’s largest employers and operator of the city’s biggest hospital. It has implications for tens of thousands of Medicaid patients who were transitioning to a new company with a different network of doctors and specialists.

The D.C. Department of Health Care Finance announced in May that it would not renew MedStar Family Choice, the company’s managed-care arm, for one of three five-year managed-care contracts after it scored the lowest in competitive bidding.

Instead, the agency renewed AmeriHealth Caritas and Trusted Health Plan and replaced MedStar with Amerigroup, one of the nation’s largest providers of managed care.

City officials have complained that MedStar ran up costs and had more patients readmitted to hospitals, even compared with a competitor with patients who were more sick.

But MedStar defended its record and launched a lobbying and legal blitz to preserve its contract, which generated $16.2 million in profits for managing about 54,000 city residents last year. And it noted Amerigroup's proposal would cost taxpayers more.

The D.C. Council declined to intervene over the summer, but the Contract Appeals Board agreed with MedStar that the contract review was unfair.

“The numerous errors and improprieties in the District’s conduct of this procurement, including the District’s failure to treat all the offerors equally, undermined the integrity of the procurement process,” Judge Maxine E. McBean wrote.

A spokeswoman for the Department of Health Care Finance referred questions to the D.C. Attorney General’s office, which is representing the agency in the contract appeal and did not immediately return a request for comment.

The judge found that contract reviewers gave too much weight to the experience and personnel of Amerigroup affiliates in other jurisdictions — without evidence that it would help operations for a brand-new affiliate in District.

“There is a dearth of any record evidence before the Board to support the contracting officer’s determination that a new company, without any officers or employers, would be able to obtain these officers and employees as part of the necessary organization, experience, operational control, and technical skills needed to perform this large size contract,” wrote McBean.

Responding to the judge’s opinion, Amerigroup said the District government made the right choice.

“For nearly 20 years, Amerigroup has provided high-quality, affordable health care services to more than 6.5 million beneficiaries across the country,” the company said in a statement provided by spokesman James Freeman. “Through our innovative approach and customized services, Amerigroup D.C. remains confident that our programs will improve the health of our members while reducing costs.”

The judge’s opinion didn’t suggest any motives for why the city favored Amerigroup over MedStar.

While McBean said MedStar failed to provide irrefutable evidence of bias, she also ordered contract reviewers to disclose more potential conflicts-of-interest, including prior employment with bidders and their affiliates.

Now the District must revaluate every company that bid for the Medicaid contract and select the top three bidders. If any of the original three choices don’t make the cut, they’ll lose their contract. The judge wrote that there was “a reasonable possibility” that MedStar would prevail because it was scored too low on some factors and its competitors scored too high on others.

“MedStar Family Choice vigorously pursued our contract bid protest because we are strongly committed to serving the people of the District,” the company said in a statement provided by spokeswoman Ann Nickels. “Over the past five years, our health plan has a solid record of providing high quality, cost effective health care to our Medicaid enrollees, many of whom are among the District’s most vulnerable residents.”

Amerigroup will continue serving Medicaid patients while the contract dispute continues. MedStar’s primary care physicians are no longer available to Medicaid patients, but other specialists, hospitals and urgent care clinics are available through a contract with AmeriHealth.

Some advocates for low-income people said the choice of managed-care organization doesn’t matter so long as patients know where they can get health care.

“They are more interested in if they are going to get served or not,” said Council member Vincent Gray (D-Ward 7), who chairs the health committee.

The District and many states contract with managed-care organizations to reduce the costs of offering health care to low-income people through Medicaid. Managed-care organizations deliver comprehensive Medicaid services to patients, assembling networks of doctors and paying claims to health providers using taxpayer funding.

Private companies involved in the city’s Medicaid program have attracted controversy before.

Chartered Health Plan, a politically-connected firm that dominated the market until 2013, collapsed financially and stopped paying some providers.

And an earlier Amerigroup affiliate pulled out of the District's Medicaid management market in 2008 amid a lawsuit claiming that it fraudulently charged taxpayers. The company denied wrongdoing.