A team handpicked by Gov. Greg Abbott to investigate the 21CT contract scandal has concluded the firm’s no-bid deal to detect Medicaid fraud was a “policy fiasco” that “skirted the limits” of the law.
The so-called strike force conducted 50 interviews and determined the deal with Austin tech company 21CT had been inappropriately awarded by the Health and Human Services Commission, whose leaders “exercised judgment so poor” that they placed the agency’s credibility at risk.
The 92-page report, released Monday, also could throw a wrench in a plan to consolidate the state’s five health and human services agencies, which the four-person team warned against because it could exacerbate the “quiet turmoil” fomenting in the wake of a similar restructuring a decade ago.
Abbott called the findings of the report “deeply troubling” but has not publicly addressed calls from at least three lawmakers — two Democrats and a Republican — for the resignation of Executive Commissioner Kyle Janek.
“It is now more clear than ever that the Texas Health and Human Services Commission has been riddled with operational, managerial, structural and procedural problems that go far beyond any individual or contract,” Abbott said in a statement.
Responding to the report via a letter to Lt. Gov. Dan Patrick, Janek said he is working to address a slew of recommendations detailed by Abbott’s team.
“My goal is to make HHSC a model for good government and ethical leadership,” Janek wrote.
The strike force report marks the conclusion of the first of several official inquiries into the 21CT contract. Investigations by the FBI and the Public Integrity Unit of the Travis County district attorney’s office continue, as does a review by the state auditor’s office.
Those probes, and subsequent efforts by lawmakers to reform contracting statewide, follow an American-Statesman investigation that raised questions about a $20 million deal with 21CT, penned in 2012, and a pending $90 million deal, which Janek canceled in December.
The governor’s team was led by Billy Hamilton, a former deputy comptroller, and included three others who have experience with state contracts.
Janek on the defensive
The report ratchets up the pressure on Janek, who was appointed in 2012 by then-Gov. Rick Perry and has held on to his job even as four other top officials have resigned since December.
In December, Janek told reporters he had been misled on the 21CT deal by his chief counsel, Jack Stick, the ousted official who brokered the deals. Stick was a one-time business partner with 21CT’s former lobbyist, who told the Statesman that Stick was working to grow the company and had plans to become an executive. Stick first advocated for the purchase of 21CT services and software while leading the Medicaid fraud unit at the Office of Inspector General, an autonomous agency loosely organized under the Health and Human Services Commission.
Those interviewed by Abbott’s team described Janek as “an affable and knowledgeable boss, but one insulated from many issues by his immediate staff — and not always well served by them.”
While the strike force report focuses primarily on systemic failures and dysfunction, it singled out Stick as “the key decision maker on 21CT.”
But Janek, despite setting new rules to prevent another contract fiasco, has remained on the defensive as he explains to lawmakers not just the 21CT morass but also two recent audits that detailed other contract failures under his watch.
Both Stick and Irene Williams, 21CT’s chief executive, have denied allegations that Stick was poised to become a company executive.
Mike Rosen, a 21CT spokesman, took issue with the report, saying it is “disturbing” that strike force members didn’t interview company executives. He also took issue with the strike force’s conclusion that the state spent “$20 million on a product that, at present, has no practical value.”
“21CT takes great exception to the report’s unsupported claim that the agency has nothing to show for its investment when in fact our work resulted in identification of hundreds of millions of dollars in suspicious Medicaid payments,” Rosen said.
Lack of oversight
The report was also critical of the Department of Information Resources, the office whose so-called cooperative contracts were inappropriately used to steer taxpayer money to 21CT while avoiding oversight and competition.
That department’s structure is weak and provides “little or no external or internal oversight,” a conclusion that echoes findings of a Statesman investigation this month that detailed weaknesses in tech contracting statewide.
By connecting preapproved vendors with government agencies, which can then buy goods and services without seeking bids, the Department of Information Resources gets a percentage profit on sales, which the report called a “perverse incentive in favor of sales over oversight.”
In large part, the report drew on news reports as source material in its explanation of how an untested company came to land a lucrative contract without competition, while flying under the radar.
“The 21CT agreement as it developed could have been stopped by 1 correct decision at several points, but it was not,” the report said.
Questions surrounding that deal snowballed to illuminate problems not just at the commission but throughout Texas’ vast and fragmented purchasing system.
Responding to those weaknesses, the strike force outlined a slew of recommendations, focused primarily on tweaks to the commission’s structure and better leadership to prevent embarrassing contract blunders.
“Without skilled leadership, the risk of future failure is high,” the report said. “The 21CT controversy represented a failure of HHSC’s management oversight and controls.”
Consolidation in jeopardy?
Citing problems with management structure, and offering a new structure of its own, Abbott’s team warned against a plan to combine health and human services agencies as outlined in a package of bills making its way through the House and Senate.
“It can be mandated,” the report said of the plan to consolidate, “but it can’t be achieved successfully.”
The plan to consolidate, informed by a once-in-a-decade review of the health and human services system, has already been slowed amid concerns that the agencies aren’t ready to be crammed together.
State Sen. Jane Nelson, chairwoman the Sunset Advisory Commission, the legislative panel that envisioned the restructuring of those agencies, defended the plan to consolidate Monday.
“The problems identified in this report are symptomatic of a broken system that needs to be restructured,” Nelson said.
In recent months, Nelson, R-Flower Mound, has been among Janek’s critics. But throughout the contracting chaos, she has championed the consolidation of the Health and Human Services Commission.
She filed a bill that would eliminate more than 30 advisory committees, along with consolidation.
“We cannot keep the enterprise as it is today, and I look forward to working with the governor and others to address these issues on a manageable timeline,” she said.
The story so far
After 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.