Over the past decade, the Texas Health and Human Services Commission has bungled several major contracts that totaled nearly $2 billion, and despite public blowups and calls for reform, problems persist in part because of a lack of accountability in Texas’ fragmented purchasing system.
The massive health agency’s problems extend well beyond the unfolding 21CT no-bid contract scandal. Officials acknowledged to a state Senate panel last week that they don’t know for certain how much the agency has paid to private companies or how many contracts are active.
A scathing state review last year noted the commission and its four sister social service agencies estimated they spent $24 billion on nearly 34,000 contracts during fiscal 2013. But auditors had to take their word for it, said Karl Spock, a state analyst who dove into the agency’s books as part of a once-in-a-decade review.
That number is suspect, the audit said, because auditors couldn’t trust that “the data is complete, consistent, or reliable.”
An American-Statesman investigation has found the lack of accountability extends well beyond the health and human services agencies.
The Statesman reviewed thousands of pages of documents, interviewed officials across state government and analyzed more than 120 million rows of data maintained by the Texas Comptroller of Public Accounts, the Legislative Budget Board and the Department of Information Resources.
The investigation found:
- Data maintained by the Legislative Budget Board, supposed to be a window into contracts at agencies statewide, is unreliable and poorly managed.
- Since fiscal 2010, more than $9 billion in payments has flowed to private companies through the Department of Information Resources, a state agency that fast-tracks technology purchases with little oversight.
- Contract data and case management systems across state agencies vary widely, allowing problem vendors and bad contracts to escape scrutiny.
- Poor oversight has allowed modest contracts to balloon by tens of millions of dollars before being noticed by auditors.
The fallout of the now-canceled, multimillion-dollar Medicaid anti-fraud contract with Austin tech firm 21CT has renewed legislative focus on state contracting and the Health and Human Services Commission.
State Sen. Jane Nelson, R-Flower Mound, in the wake of a Statesman investigation into the 21CT deal, introduced a bill last month that would require stringent new reporting rules across state government.
“I can tell you that it’s shocking to me that we operate the way we do in this state,” she told the Statesman. “It’s a huge concern that we have these problems.”
Since its inception in 2003, the commission has botched $2 billion in contracts for Medicaid, technology and other services, state and federal reviews and news reports have shown.
Health agency officials insist those failures are outliers in a successful contracts system in which vendors usually make good on promises.
“There’s this tendency to say every piece is broken, and that’s not true,” commission spokeswoman Stephanie Goodman said.
Gov. Greg Abbott — pointing to Nelson’s bill as a blueprint for reform — ordered state agency heads to, among other things, publicly disclose no-bid contracts and for top officials to sign off on contracts of $1 million or more. That order took effect Feb. 1 for all agencies.
Last week Kyle Janek, executive commissioner of the Health and Human Services Commission, told a Senate panel that although he’s looking more closely at contracts, the agency hasn’t yet fully complied with the governor’s order.
Abbott also assembled a so-called strike force to do a top-to-bottom review of the commission.
Janek has hired two procurement specialists to sort out the mess. Janek’s chief operating officer leading that effort, John Scott, told the Senate Health and Human Services Committee last week, “We’re not going to sugar-coat anything.”
“Our goal is to find any contracts that we don’t think are proper and identify them and disclose them,” Scott said.
When the committee chairman, Sen. Charles Schwertner, R-Georgetown, asked for a reliable number of contracts along with their dollar amounts, Scott couldn’t answer.
“We don’t have a systemic way of finding that in one source,” he said, adding that data specialists are sorting through four disparate contract systems to cull bad data. “We’re going to come up with a number, and we’re going to know that number.”
A data morass
There is no reliable way to monitor the tens of thousands of contracts across more than 150 Texas agencies, the Statesman found. Problem deals are often identified too late, after state officials have made mistakes and millions have been paid.
There are gobs of data that could indicate trends and raise red flags as costs balloon. There are data sets that, if better maintained, could connect a bad contract with a troubled vendor in the Department of Family and Protective Services, for instance, to another contract with the same bad vendor at the Department of Public Safety.
But the data are either not being used to monitor for worrisome trends or aren’t being connected to other systems that would allow for such monitoring. Sometimes the data are neglected altogether.
In the case of the Legislative Budget Board, the Statesman found that its repository of significant state contracts is effectively useless for data analysis.
Legislative Budget Board analyst Ed Osner told the Statesman that the dollar amounts of contracts couldn’t be added to produce a sum total. In fact, officials warned against any analysis because it would produce misleading results.
The data are self-reported by agencies to the board, which doesn’t clean up, monitor or analyze the information, according to board officials. The result is messy data replete with double entries, contract amendments that are reflected as total contract amounts and inconsistent labeling that makes it impossible to reliably track vendors and deals.
The board at one point cleaned up data coming in from agencies in myriad formats, but it stopped doing so in 2010 due to a “resources issue,” according to Julie Ivie, an assistant director of the board.
Even when the agency cleaned up the data, its annual data dumps wouldn’t allow for a year-to-year analysis that might help identify trends, the agency said.
Conversely, data kept by the Texas Comptroller of Public Accounts — which writes billions in state checks — form a comprehensive repository of expenditures.
But while the comptroller’s database can provide totals — the health and human services agencies have paid out $60 billion since the beginning of fiscal 2014, for instance — it doesn’t list vendors in a way that allows for reliable tracking.
Meanwhile data kept by the Department of Information Resources, the state’s contracting hub for major technology purchases, appears well maintained, and some of it has been released through a Web portal for public analysis.
Over the past five years, the department has tracked millions of sales. But due to data-entry problems, tracking vendors also is problematic.
The Department of Information Resources doesn’t audit the deals state agencies make with vendors through its Cooperative Contracts Program, which awards “master contracts” to certain vendors who can then sell to state agencies without a bidding process.
The case of 21CT — whose initial $20 million deal with the state’s Medicaid fraud division nearly grew to $110 million without department officials’ knowledge — highlights how easily that program could be abused. Through the 21CT contract, the commission’s Office of Inspector General also ordered laptop computers and the construction of a $4 million case management system, neither of which 21CT was approved to sell.
The Austin data company had no experience with Medicaid or case management systems, which are offered by numerous tested vendors.
That deal, the Statesman found, was brokered by a state official who was the former business partner of a 21CT lobbyist and who was touting the company’s technology at industry conferences before the company had applied for the work. The lobbyist, fired days after the state canceled the contract, has told the Statesman that the official, former health agency chief counsel Jack Stick, seemed poised to become a 21CT executive. Both Stick and Irene Williams, the company’s chief executive, have denied that account.
The oversight mechanisms that do exist were bypassed by officials as they sealed the deal with 21CT and secured funds from the federal Centers for Medicare and Medicaid Services.
The Department of Information Resources data also are susceptible to abuse by vendors, who are supposed to, but don’t always, report what they sell to state agencies.
Priscilla Pipho, the department’s chief customer officer, acknowledged those weaknesses and said the Department of Information Resources will ask lawmakers to give them more authority to audit.
“We have all these decentralized agencies with all their data,” Pipho said. “If we were given that during the session, that would address some of the gap that you’re seeing there.”
A legacy of failure
The Health and Human Services Commission has been routinely rebuked since at least 2006. But in just the past three years, the State Auditor’s Office has released at least five reports detailing how officials failed to keep a close eye on contracts.
Legislators say the 2003 consolidation of 12 health and human services departments into five agencies led to the privatization of many of the state’s services — and opened the floodgates for hundreds of billions of dollars in contracts over a dozen years.
Then-state Rep. Arlene Wohlgemuth introduced the bill that consolidated the health agencies, saying the move would save money by eliminating state jobs and allowing Texas to get the best deals possible through the competitive nature of private enterprise. Legislators, then facing a $10 billion state budget deficit, jumped at the idea.
That sweeping legislation, House Bill 2292, ordered the Health and Human Services Commission to oversee and take over administrative functions for four departments: Family and Protective Services, State Health Services, Assistive and Rehabilitative Services, and Aging and Disability Services.
But right from the start, the commission was confronted with contract performance problems. Wohlgemuth attributes the failures to poor state oversight, something she says she continuously warned about.
“I must have said at every meeting, the success of this is going to depend on our ability to contract well and manage contracts,” said Wohlgemuth, now executive director of the conservative Texas Public Policy Foundation.
In one of the commission’s early missteps, a state contractor bungled the rollout of employee payroll services in 2004. The state auditor later slammed the commission for failing to monitor the contractor closely or seriously question the vendor’s $26 million in startup costs — which it exceeded in less than six months.
Then came the $899 million contract with Accenture in 2005 to run much-heralded call centers. After widespread problems getting people enrolled in entitlement programs, the state canceled the contract. That agreement fell apart in 2007.
In 2008, the attorney general’s office lost a significant amount of data after a server crashed at its Medicaid fraud division in Tyler. IBM had failed to back up the data, as required by its $863 million contract to merge two dozen state agency data centers into two.
Goodman, the commission spokeswoman, said the commission always took the auditor’s reports about contracting problems seriously and followed their suggestions. But each contract is different and often presents unique challenges, she said.
“Things pop up,” she said.
Supporters of consolidation acknowledge the trend of contract meltdowns but attribute the problems to poor oversight. Today the agencies are loosely connected, but effectively autonomous in many ways.
While the commission is ultimately responsible for all contracts, each of the other four agencies still signs and monitors many of its own deals with its own legal department. And each agency maintains its own contract management systems, which don’t communicate well with the other agencies’ systems.
Nelson, who supported the 2003 consolidation, said this is the year the Legislature needs to finish the job. She heads the powerful Senate Finance Committee and the Sunset Advisory Commission, which issued a blistering analysis of the health and human services agencies that recommended a complete overhaul and endorsed further consolidation into one monolithic organization.
Nelson says it’s the best way to clarify what auditors called “gray lines of accountability.”
“I think it’s even more important now,” Nelson said. “It was never carried out the way it should have been.”
But some say consolidating the agencies is just another pill for a decade-long migraine.
“If there’s a problem in the agency, it’s always, ‘Let’s change the name and move things around,’” said Seth Hutchinson with the Texas State Employees Union. “We hope the state will address the real problems happening in all these agencies.”
The Health and Human Services Commission continues to confront big-dollar, high-profile contract meltdowns. In December 2014, the auditor’s office released a report on the state’s contract with AT&T Global Services, saying the contract had swelled from $48 million in 2008 to $105 million in 2014, even though the commission had no proof it was getting what it paid for.
It didn’t know how much it had paid AT&T and allowed state employees who once worked at the company to manage part of the contract, the report stated.
Meanwhile, after years of problems, the commission is suing Xerox to recover hundreds of millions of dollars in Medicaid money the state says the company wrongly approved for medically unnecessary braces.
The commission has been slammed over the years for failing to walk away from bad contracts sooner, including the one with Xerox. But Goodman said it’s not that simple.
While a contractor might be performing badly in one area, it might be doing well in other parts of the contract, she said. It’s also impossible to drop a company when there’s no one else to pick up the slack, she said.
Goodman said that the commission needs to improve the way it monitors contracts. But she also says the agency devotes plenty of resources to overseeing those deals, works closely with companies, holds them accountable and learns from mistakes.
“You had a failure of the contracts,” Goodman said. “But I would argue those failures show how the process works.”
About this investigation
To try to untangle the disconnected contracts and payments that make up the state’s purchasing ecosystem, the American-Statesman analyzed three state databases using both computational analysis and state-provided, publicly accessible search tools.
The Statesman analysis included the comptroller’s records of all state expenditures, the Department of Information Resources’ records of vendor-reported technology purchases and the Legislative Budget Board’s contract database.
In total, the analysis included more than 120 million rows of data across the three databases and used raw data files made available by the three agencies, allowing for insights not available using the departments’ respective public data portals.
That raw agency data revealed a lack of common structure between state data systems that makes many simple analytical tasks impossible.
Furthermore, the more an agency relies on other state agencies to provide data, the more unreliable individual data points become. Vendors are reported under different names and the formatting for many key fields, such as a contract’s number, vary from agency to agency.
Given those inadequacies, it’s impossible to correlate spending across the three publicly available databases without human examination of every database row – a task that, if completed a rate of 1 second per row would take more than 33,000 hours.
- The Health and Human Services Commission, along with its four sister agencies, has a combined budget of $73.9 billion and employs 56,000 people across the state. The agency provides food and medical benefits to more than 4 million Texans and is responsible for public health programs and foster care.
- The Department of Information Resources facilitated $2 billion in sales (about 650,000 transactions) in fiscal 2014; about $232 million, or over 18,000 transactions, were for the five health and human services agencies.
- The comptroller’s office handled at least 15 million expenditures in fiscal 2014 for the state, including about $41 billion for the health and human services agencies.
- State agencies in fiscal 2014 reported to the Legislative Budget Board about 39,311 contracts worth at least $167 billion dollars.
A decade of missteps
House Bill 2292, which consolidates 12 health and human services agencies into five, is signed into law. It privatizes many state services and opens up billions of dollars in contracts to private industry.
Texas moves to privatize foster care, awarding a contract to Providence Service Corp. Health and Human Services later pulls the bid amid allegations of insider dealing.
Accenture LLP wins an $899 million contract to run call centers for Texans seeking services. The plan calls for laying off 2,000 state employees.
The commission kills the contract with Accenture because of widespread problems. State keeps control of call centers; 2,000 state employees stay on the job. In all, the failed effort costs the state $243 million.
AT&T wins a $48 million telecommunications contract.
Auditors find significant failures by the Department of Information Resources in its oversight of an $863 million data center consolidation project awarded to IBM Corp.
Despite years of troubles with Xerox Corp., the company is awarded another contract to help administer Medicaid.
The state again moves to privatize foster care and begins using contractors to provide foster homes and services for children.
A federal audit says TMHP, a Xerox subsidiary, defrauded the state by rubber-stamping orthodontia claims without review.
The Health and Human Services Commission’s Office of Inspector General pursues a $20 million no-bid deal with 21CT through the Department of Information Resources, asking for federal money to help with Medicaid anti-fraud investigations.
Providence is awarded another foster care privatization contract, a five-year, $30 million deal to care for 1,100 foster children in 60 counties.
The chronically troubled Xerox contract is finally abandoned by the Health and Human Services Commission. The state is now suing the company for hundreds of millions of dollars.
Officials pursue a $90 million contract extension with 21CT, citing early success in its Medicaid anti-fraud initiative in a funding request to the federal Centers for Medicare and Medicaid Services.
Providence walks away from the foster care contract after state officials say the company didn’t meet standards and was $2 million over budget.
Citing concerns that the 21CT deal skirted purchasing rules to avoid competitive bidding, the pending $90 million contract extension is canceled. Four high-level officials would resign.
A scathing audit says the Health and Human Services Commission contract with AT&T ballooned from $45 million to $105 million and cited conflicts of interest with state contracting managers who once worked for the company.
The story so far
Following an American-Statesman investigation into a lucrative, no-bid state contract with Austin tech company 21CT, four state health officials resigned, a pending $90 million deal with the company was canceled, and state and federal criminal probes were launched. Read previous Statesman coverage of the scandal and see an interactive timeline with this story online at mystatesman.com/21ct.