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Auditor General rips into $7 billion health insurance contract process

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Illinois

* Auditor General Bill Holland released a scathing report yesterday about the state’s health insurance procurement process…

Potential conflicts of interest and other flaws created “serious deficiencies” in the state’s decision last year to award $7 billion in contracts for state employee health insurance, according to an audit released Wednesday. […]

The audit also questions the Illinois Department of Healthcare and Family Services’ estimate that the contracts would save the state about $100 million a year.

“It is difficult to know how Mercer calculations show the state saves money …,” the audit states. “No one from the department validated the figures Mercer provided.”

* The Department of Healthcare and Family Services, which oversaw the process, came in for some harsh criticism…

• Failed to include all relevant information, including scoring evaluation criteria, in the RFPs.
• Utilized a consulting firm to have a major participation role in the procurements even though the firm had business relationships with all the firms that proposed on the two State procurement opportunities.
• Failed to ensure that all members of the evaluation team had all needed materials to score the proposals.
• Failed to comply with policy by not having the evaluation teams meet during the evaluation process.
• Allowed 10 of 12 evaluators to violate the evaluation procedures by not providing appropriate comments.
• Failed to address major differences in scoring by evaluators, a violation of evaluation procedures.
• Within the period of one month, March 7, 2011 to April 6, 2011, had developed and the Director had signed two different recommendations to award the State healthcare contracts.
• The Department awarded [Blue Cross Blue Shield] 20 counties it did not even bid on. Also, network documentation showed that BCBS had zero primary care physicians in 24 counties that it was awarded. [Emphasis added.]

* From the audit comes this curious detail…

The Department took the first recommendation to a meeting with officials from the Governor’s Office and the Governor’s Office of Management and Budget in late March 2011. Sometime after that meeting and the date the awards were announced on April 6, 2011, the recommendation was changed. While the Department indicated that the Chief Procurement Officer (Matt Brown) could not support the initial recommendation, documentation did not support that position.

Somebody is apparently lying. Not good.

* General Holland’s conclusion…

Given the serious deficiencies in the procurement activities, including the disregard for following evaluation procedures and lack of documentation to support how the recommendation to award changed, we are unable to conclude whether the State’s best interests were achieved by the Department for the awards for the State health insurance procurements. Additionally, oversight of these procurements by the Commission lacked adequate review prior to approving the award of the contracts. These are serious problems given that this involved over 400,000 enrollees and eligible dependents and $7 billion in taxpayer monies.

* And check out the DHFS response…

“The technical issues identified in the audit did not affect the outcome of the procurement process, and the Department continues to believe that the overall procurement was executed in a fair and competitive manner,” said department spokesman Mike Claffey. “This was both a complex procurement and the first use of the state’s new procurement law for the group health insurance program. We will take into consideration the (auditor general’s) input in future Department procurements, including finalizing long-term health insurance options for state employees and retirees.”

Nothing to see here. Move along.

Sheesh.

* More…

The contracts resulted in one losing bidder, Urbana-based Health Alliance, filing a lawsuit in Sangamon County Circuit Court that cited many of the same deficiencies documented in the audit.

HFS has decided to settle the lawsuit by allowing companies such as Health Alliance and Humana to bid on a supplemental long-term contract for managed-care coverage that could begin July 1.

posted by Rich Miller
Thursday, Mar 8, 12 @ 11:19 am

Comments

This needs to be re-bid, if possible.

Comment by wordslinger Thursday, Mar 8, 12 @ 11:24 am
Why aren’t the critiques of the EEC, also substantially enumerated in the report, mentioned? They seem to be getting a pass…

Comment by gilder Thursday, Mar 8, 12 @ 11:31 am
Is the Quinn admin not up to handling multimillion dollar contracts. First, the DCFS contracting scandal, far fewer dollars, but supposed to go for children’s services. Now this.

Yes, they should be re-bid. But maybe the contract staff handling the bidding should be replaced.

Isn’t Hamos’ shop handling the Medicaid cost-cutting enterprise? Not encouraging.

Comment by cassandra Thursday, Mar 8, 12 @ 11:33 am
Some-one should be FIRED. Yes where was the EEC?

Comment by Just Because Thursday, Mar 8, 12 @ 11:38 am
The audit report is disturbing but not surprising. The stink bugs were rolling this procurement up last year when it happened. It smelled like a gimme to a Chicago based business then, and it still does now. Just one big dung pile.

Comment by KurtInSpringfield Thursday, Mar 8, 12 @ 11:41 am
Thank goodness we have that fabulous “ethics” division to protect us. You know, that “ethics” division that is stuffed with Blagojevich hacks.

“Ethics” division motto - we’ll let that slide just this one time (wink).

Comment by Joe from Joliet Thursday, Mar 8, 12 @ 11:44 am
Hmmm, conflicts of interest, lies, serious deficiencies, failure to comply with policy, etc. etc. Did they do ANYTHING right, sure doesn’t sound like it from this report. So now what?? Hey, Governor Quinn, you say we need to cut jobs to fix the State budget, looks like you need to start with DHFS, start at the top with Director Julie Hamos (who still maintains the process was executed in a fair and competitive manner), and work your way down the ladder. I’m sure not going to hold my breath waiting for that to happen, cause we all know the “Illinois” way of doing business is you scratch my back and I’ll scratch yours.

Comment by Bunny Thursday, Mar 8, 12 @ 11:47 am
You can say whatever you want about Thompson, Edgar and Ryan but at least they were able to manage the inner workings of the state. If there would have been these type of issues back then like the audit report or the DCFS scandal. The next headline would read HFS Director Replaced…. I bet Quinn don’t even know all the directors names!! You cannot manage remotely. Most Executive managers live and work in Chicago and the workers live and work in Springfield. The money and time that is being wasted in travel alone would make most people sick!
If there is no Accountability at the top level, then why bother at any other level????

One last note. There are so many layers in the procurement process its lucky anything purchased. With so many people (areas of Government) reviewing the process for something like the HFS to happen. Either important people were involved and over looked it ($$$$$$) or they are truly That Stupid!!!!! Its not that hard…

Comment by Just Because Thursday, Mar 8, 12 @ 12:01 pm
I said it was rigged last year when they posted the awards. I said the same thing when Blago tried to get away with it in (I think) 2003, trying to slide in two low rated Chicago based firms. Still think that was another crime Blago should have been prosecuted for but by the time the Feds came in the clock had run out on that one.

In the 2003 case, they changed the evaluation specs after the bids came in and they didn’t like the results with the original criteria. We know that as fact because someone on the committee leaked it to the press.

In the 2011 case, they used inconsistent standards and, as cited, also didn’t publish the rating criteria until the end, which gave an opportunity to play with the rankings. Don’t know if that actually happened in the 2011 case, no one leaked it this time.

The problem is that all the really knowledgeable procurement people left the end of 2002.

And as far as the 2009 procurement rules re-write being an excuse, I didn’t see that much changed. Buried in the fine print, there is still the “best interest of the State” loophole if management is willing to sign their names on the dotted line.

Comment by Retired Non-Union Guy Thursday, Mar 8, 12 @ 12:07 pm
How can there not be criminal investigations here? Beyond the rumored bid rigging at the time of the award, this report substantiates it pretty clearly.

Comment by Anonymous Thursday, Mar 8, 12 @ 12:15 pm
I thought the whole thing about awarding the winners contracts for counties they didn’t even bid on was a nice touch

Comment by OneMan Thursday, Mar 8, 12 @ 12:19 pm
Surprise- top state management corrupted by the “rules don’t apply to us important people” culture.

No ethics oversight, no accountability…. Welcome to the Quinnovich administration, confirmed by the legislature,and defended by the AG.

Comment by Honestly Thursday, Mar 8, 12 @ 12:22 pm
We need to contemplate cutting services while these hijinks continue?

Comment by Plutocrat03 Thursday, Mar 8, 12 @ 12:34 pm
I don’t think most of us know enough about this at this time to make knowledgeable comments. The audit report is certainly a fire bell in the night. I suggest we wait for more info, including the Audit Commission hearing that is sure to come. It should be interesting.

Comment by steve schnorf Thursday, Mar 8, 12 @ 12:37 pm
“Within the period of one month, March 7, 2011 to April 6,2011, had developed and the Director had signed two different recommendations to award the State healthcare contracts. The Department took the first recommendation to a meeting with officials from the Governor’s Office and the Governor’s Office of Management and Budget in late March 2011. Sometime after that meeting and the date the awards were announced on April 6, 2011, the recommendation was changed.”

I thought the new procurement process was meant to take politics out? So how does the recommendation change after meeting with Gov.’s office? Why are they even meeting with the Gov.’s office? Shouldn’t there be some sort of follow up investigation here?

Comment by Hoping for Rational Thought Thursday, Mar 8, 12 @ 12:41 pm
Those of us in the counties where there were no Blue Cross/Blue Shield providers knew there was something smelly about the whole thing. This, along with Blago getting his official federal prison number makes me feel vindicated.

Comment by lincolnlover Thursday, Mar 8, 12 @ 12:47 pm
Let’s be fair here. The Department maintains: “The technical issues identified in the audit did not affect the outcome of the procurement process, and the Department continues to believe that the overall procurement was executed in a fair and competitive manner,”
Fine. Then show us the $102 million in savings.
If they can’t produce the $102 million, then yeah, maybe we’ve seen enough of these folks.

Comment by What the. . . Thursday, Mar 8, 12 @ 12:48 pm
We were forced into taking Blue Cross by CMS, and it has been nothing but a nightmare. We can’t wait to go back to Health Alliance if we can, the minute the registration window opens, and I don’t even care at this point if it isn’t cheaper.

Blue Cross has been horrible on doctor choice and paperwork. Our whole family, wife and kids too, went 2 months without our RX’s due to the delay and paperwork in the transition. Just this week, we had a billing error (double billed) and we got three different answers from Blue Cross and SIU medical about what is going on. Blue Cross used to be the Cadillac brand name in health care when I was a kid, but this has just been a nightmare, I swear.

Comment by Get me out of the Blue Thursday, Mar 8, 12 @ 1:06 pm
Reading the response of the Department’s representative I had flashbacks to Baghdad Bob. “Technical issues”? I realize they have to say something, and perhaps the response will be sufficient for the overwhelming majority of the media who won’t even bother to read the Auditor’s General’s summary of the report, but there is a bit more here than than “technical” deficiencies.

Comment by Just the Facts Thursday, Mar 8, 12 @ 1:43 pm
In all deference to Steve’s comments, I would hope this would be handled promptly so that the mistakes made in this monster procurement process can be corrected and appropriate action against the perpetrators. Unfortunately, my personal opinion is that the Quinn administration will bury this too and we will be left with the same problems in the future as well.

Comment by RetiredStateEmployee Thursday, Mar 8, 12 @ 1:49 pm
Time for a Patrick Fitzgerald investigation into the State of Illinois health insurance procurement process. Try to find a bookie that would bet against him finding corruption.

Comment by Mark Thursday, Mar 8, 12 @ 1:55 pm
Remind me again - what exactly were the charges against George Ryan?

Comment by What the. . . Thursday, Mar 8, 12 @ 2:00 pm
I am always happy to hear from Holland. We’ll see where this goes. There were some obvious errors, but any claims of “corruption” seem to be a real stretch, based only on this report.

I do have one quibble with Holland: If you’re going to get the best as a consultant in this field, you are going to hire Mercer, and of course as the industry leader they do have some kind of history with most who would be bidding. That’s the risk in using any world-class consultant.

Comment by mark walker Thursday, Mar 8, 12 @ 2:03 pm
We will take into consideration the auditor general’s “input”?

Go reread the Blagojevich impeachment and trial transcripts.

Bill Holland isn’t the canary in the coalmine

He’s the smoke detector in your bedroom

Comment by Yellow Dog Democrat Thursday, Mar 8, 12 @ 2:17 pm
And there were those that doubted the announcement a few days ago that Chicago was “most corrupt” and Illinois was “third most corrupt”. Same Old Same Old. As has been said, nothing to see here, move along now.

Comment by Anonymous Thursday, Mar 8, 12 @ 2:26 pm
Schnorf, I don’t disagree, but me thinks you’re missing the entire point of why blogs exist.

Comment by Michelle Flaherty Thursday, Mar 8, 12 @ 2:27 pm
@Mark Walker - hiring a “consultant” and handing the process over to them are two different things. It appears here that Mercer was not consulting, but the procurement process was contracted out to them. Two very different things, and a
Legitimate concern if true.

Also, prior relationships are very different than ongoing contracts.

Comment by Yellow Dog Democrat Thursday, Mar 8, 12 @ 3:03 pm
What I do know from Champaign County is that the state is paying less per month for the Health Alliance HMO they were forced to continue by court injunction, than they were going to pay for the contracts they wanted to award, which would have provided less complete coverage. I believe this was true across Central Illinois. I am not surprised that this obviously absurd result was produced by an insanely flawed process. That the state would compound the idiocy by continuing to defend the process and the result is unbelievable. The DHFS response “The technical issues identified in the audit did not affect the outcome of the procurement process” is so totally and obviously false that it amounts to an insult to the intelligence of every citizen of the state.

Comment by jake Thursday, Mar 8, 12 @ 3:11 pm
An artifact of the “I don’t no nothing” administration of DHFS Director Barry Maram?

Comment by Got the t-shirt... Thursday, Mar 8, 12 @ 3:37 pm
@Mark
they didnt like the outcome so they changed the test during the evaluation. you might want to believe its not corruption but it is criminal. go read the ill procurment code. i dont have a problem with mercer. there are ways to use consultants and control what they know and share.

Comment by Just Because Thursday, Mar 8, 12 @ 4:09 pm
@got the t-shirt
You did know that Barry Maram and Stuart Levine were friends? Maram Came from Public Health. Had a lot of dealings with the Health Policy Board!!!!!

Comment by Just Because Thursday, Mar 8, 12 @ 4:17 pm
Just Because- try googling Jim Edgar and MSI if you want to know how he handled contracts.

Comment by DuPage Dave Thursday, Mar 8, 12 @ 4:45 pm
Ah, what the heck difference does it make? The state doesn’t pay your claims in anything resembling a timely manner anyway. I’ve been turned into a collection agency twice in the past year because the state was (and still is ) late with their payment.

Comment by Leave a Light on George Thursday, Mar 8, 12 @ 4:46 pm
Leave a Light on George @ 4:46 pm:

Those of us who managed to stay with Health Alliance (and most of the other actual HMO’s) get our bills paid in a timely manner. That’s because it is true insurance, not a self funded plan.

Back last year when all the shenanigans were going on, I pointed out that if the State forced all the HMO people onto one of the other plans, they could play the “delayed payment” game and get a one time savings of billions by pushing the bill’s into the next fiscal year.

Comment by Retired Non-Union Guy Thursday, Mar 8, 12 @ 5:07 pm
steve schnorf @ 12:37 pm

With all due respect, I disagree.

I saw too much of the internal workings of procurement during my 35+ years with the State (under both D & R admins). I wrote way too many RFI, RFP & RFQ’s. I learned there were legal ways to rig bids by constructing narrow specs and evaluation criteria beforehand (basically a sole source w/o saying so) and where you crossed the line into illegality by changing things after the fact. I saw how the “best interest of the State” loophole was used; I saw lots of “dirt” over the years.

From my perspective, either the State has the most incompetent bunch of idiots imaginable in both procurement and legal … or there were “upper management” fingerprints all over that health procurement.

Comment by Retired Non-Union Guy Thursday, Mar 8, 12 @ 5:43 pm
Maybe the Attorney General could look into these matters.
Yeah, right.

Comment by Old Dad Thursday, Mar 8, 12 @ 9:55 pm
My point is that, though it is obvious mistakes were made, we have no idea yet by whom, and much more importantly, why (there are such things as honest mistakes). That should come out over the next few weeks or months, especially thru Audit Commission hearings. I’ve seen nothing in PQ’s performance to date that makes me anticipate an attempted cover-up.

Comment by steve schnorf Thursday, Mar 8, 12 @ 10:03 pm
I know for an absolute fact that when the contracts were announced and the bids made public, that the fact that the contracts were given for the more expensive option for central Illinois, was explicitly communicated to PQ by reps from the area, and he refused to even look into it or even reply to the communications. That may or may not be a coverup, but it is negligence at least. There is no way PQ is blameless–he went out of his way to support the contracts as they were let out, even when it was obvious that something was totally wrong.

Comment by jake Friday, Mar 9, 12 @ 5:11 am