For the past two years, Ellen Yankellow has been battling with the Department of Public Safety and Correction Services for her company to continue providing pharmacy services to Maryland state inmates.

For its business, the state has paid the Linthicum-based Correct Rx Pharmacy Services firm $207 million since 2005.

But for Yankellow, president and CEO of the company, the stakes were raised even higher in December, when Correct Rx was outbid by Diamond Pharmacy Services, a Pennsylvania firm whose $120 million proposal bested Yankellow’s by $24 million over the life of a five-year contract.

The award comes after Correct Rx protested the state’s solicitation of a new contract as far back as October 2010, when the corrections department sent the company a letter stating its intent to give the new contract to Correct Rx. But the department later found problems in the request for proposal and reissued it.

Yankellow since has managed to stave off turning over the contract, which was slated to begin in January, through a series of six protests — all of which were denied by the state — and appeals of the state’s denials.

A final decision will be made by the Board of Contract Appeals — a three-member, governor-appointed body that settles disputes between state agencies and contractors — as to whether awarding Diamond the contract is really the most advantageous option for the state. Correct Rx’s hearing could take place as soon as early fall, said Michael Carnahan, the board’s deputy clerk.

Correct Rx is asking that a new request for proposal be issued by the corrections department.

The new contract will not be awarded until the appeals process is completed, and the award is subject to approval by the Board of Public Works, said Rick Binetti, corrections department spokesman.

At stake are 43 local jobs, Yankellow said at a Dec. 21 hearing before the Board of Public Works, and almost half the business the company has built up since she founded it in 2003.

But the odds might be stacked against Correct Rx. Of the 13 appeals the Board of Contract Appeals has decided since January 2011, only two have gone in favor of the appealing contractor.

In a given year, the board decides an average of 15 appeals, but there are a lot more protests from contractors that are resolved without making it that far, said Carnahan, who has worked for the board for 10 years.

“Procurement in Maryland is extremely complex, and that’s so we can get the people of Maryland the best product,” Carnahan said. “We often give parties the room they need to work out issues.”

According to the 2011 Procurement Advisor’s Report, the Board of Public Works, which consists of Gov. Martin O’Malley, Comptroller Peter Franchot and Treasurer Nancy Kopp, approved 538 contracts on services ranging from insurance to information technology, and contract modifications worth $2.86 billion. While most large contracts require approval by the board, others — under $200,000 or on a list of exceptions such as highway construction — do not.

One of the factors state agencies can look at when evaluating a contract proposal are the economic benefits the contract would bring to the state, including jobs and tax revenue.

A contract does not automatically go to the lowest bidder in the process used by the corrections department, called competitive-sealed proposal, if the services provided in the contract of the higher bid are superior.

Other state contracts are solicited though a separate bid process, called competitive-sealed bid, in which the lowest bidder is automatically awarded the contract.

Preferences based on contractors’ residency are not permitted by Maryland law for most contracts. A majority of states give preference to in-state bidders in some or all contracts, according to a list compiled by the Texas Comptroller of Public Accounts.

A spokesman for the Department of Public Safety and Corrections declined to comment on the performance of Correct Rx over the past seven years, because the procurement process is still open.

Although she would not comment on the specifics of the case until the appeals process plays out, Yankellow said in a statement that awarding the contract to an out-of-state company would affect Maryland residents.

“Our nearly 100 employees who live, shop and pay taxes in Maryland will be directly impacted by this decision,” Yankellow said. “These are real taxes, business and personal, and real Maryland jobs.”

At the December hearing before the Board of Public Works, Yankellow said that the state would gain $20 million in tax revenue from Correct Rx and its 98 Maryland employees over the five-year contract period.

The contract dispute also is a David and Goliath story of sorts. Diamond is the nation’s largest provider of drugs to correctional institutions, with nearly 800 employees and contracts to serve more than 400,000 inmates, according to the company website. Correct Rx serves 200,000 patients in correctional facilities and other institutions nationwide.

Correct Rx delivers medications to prisons across the state once a day, providing whatever pharmaceutical products are needed by inmates.

The $24 million in savings, said Diamond COO Mark Zilner, is largely because the company can reduce the amount it charges the state to distribute each prescription.

“We’re happy to wait through the process, but hopefully it can be wrapped up soon,” Zilner said. “We’re looking forward to saving the state money.”

Zilner also said his company, which does not yet have any facilities or jobs in Maryland, plans to establish a pharmacy somewhere in Maryland to make distribution more convenient.

That move will create at least 18 jobs, he said, although he anticipates that the company’s business in Maryland and surrounding states will grow, which could add more jobs in the state.

Nevertheless, Yankellow said, Correct Rx is going to continue to push for the contract, and she said she anticipates that the Board of Contract Appeals will rule in her company’s favor.

“Correct Rx intends to aggressively compete for this business, and we expect to retain this business,” Yankellow said.

hnunn@gazette.net