Investigation excuse to get out of unfavorable contract?

The Gov. Bobby Jindal Administration better be pretty sure of its information by cancelling a state contract, or else what looks to be a tempest in a teapot might cost the state some real money. And if there are any political reasons behind it, they’re likely to disappoint equally Jindal-haters and those loving lurid stories of rampant government corruption.

Last week, the state took the unusual step of terminating this contract to process Medicaid claims, citing recently-revealed state and federal investigations into the process of how the contract was won. Controversy had followed the awarding of the contract, which had led to its appeal and a declaration by Atty. Gen. Buddy Caldwell’s office that it should not have been awarded to winner CNSI.

Several aspects initially raised cause for concern. Department of Health and Hospitals Secretary Bruce Greenstein years ago had worked for CNSI and in the initial phases of the process had made changes to the original contract parameters that would allow CNSI to qualify for bidding. He also met with former colleagues once prior to awarding. But no apparent impropriety was attached to this: Greenstein has no known current connection to the company, the reconfiguring of parameters opened eligibility to a number of firms, and other competing firms had no complaints about the restatement at the time.

Further, Greenstein had no official input into the actual grading and awarding process, although he did sign off on the response to a subsequent appeal. The way it works is DHH specialists wrote up the request for proposal and the bidding process was handled by the Office of State Purchasing in the Division of Administration. A special committee of evaluators from DHH with presumed expertise in the area, judging bids on the basis of 80 percent technical/20 percent cost, forwarded CNSI as the top candidate to OSP, which then concluded the process with the award. This chain of events initially bothered the Senate committee charged with confirming Greenstein’s appointment (which occurred a few months prior to the RFP formulation, but these officials need Senate confirmation when it comes into session after the appointment) in 2011, but this did not prevent them from confirming him.

The results of the bidding also brought controversy. Provider for nearly 30 years Molina Medicaid Solutions didn’t even make the technical cut and while on the technical side CNSI ranked the lowest of the three that did make the cut, its cost numbers of over $50 million below the next lowest bidder, ACS State Healthcare, won the day. Molina and ACS then contested the verdict, arguing that CNSI could not do the job for the price indicated. DHH defended the process and pointed out that the contract held the firm to that price, where nonperformance had to occur or termination would result. OSP and DOA ruled against the appeals.

Finally, recently CNSI tried to bump up that price, It had gotten a small revenue boost earlier this year when new work was reallocated its way, but then it claimed it needed $40 million more – which would have separated its bid from that of ACS by about $1 million a year over the decade. DOA rejected that and shortly thereafter announced cancelling of the contract, which entitles the state to secure the $6 million performance bond posted by CNSI. For its part, CNSI said it would allege breach of contract.

Naturally, the confidential nature of the investigations allows only for guesswork about the situation, but no charges have been filed and the federal grand jury involved has had relevant documents for about two months. Caldwell’s office claims there was improper contact between DHH employees and CNSI in the awarding process, but also has taken no action to date.

After consultation with Caldwell’s son David running the probe, Commissioner of Administration Kristy Nichols hopefully did very due diligence in announcing the cancellation and the new RFP solicitation, as if this got tied up in the courts and eventually the reasons for termination were found wanting, or, worse, the investigations fizzled, the state could be on the hook for a large penalty (although any change should not really delay the implementation of the new system, as it does not take effect until after 2014). It also leads to wondering whether the investigations ended up as a fortuitous circumstance that enabled the state to get out of what may have appeared to be an increasingly unfavorable deal.

Certainly, the $40 million addendum request must have shaken DOA confidence that the deal could come off as intended, and may have triggered second thoughts about the choice, if not searching for a way to wiggle out of it. And not just because of doubts about performance at the negotiated price, but that the amount itself may have exceeded the actual need.

Since the RFP went out, the state has undergone a significant transition in its Medicaid program. With the launch of its Bayou Health managed capitation plan, approximately three-eighths of Medicaid claims eventually will not go to the state for disposition, where the contracted system handles such claims, but to three managed care organizations. With this reduced volume this could lower the necessary cost to processing in the future.

Observers of a less-sophisticated nature and/or those suffering from “Jindal Derangement Syndrome” – the compulsive need to criticize Jindal no matter how unrelated the critique to Jindal or to reality, even with his pursuing policy with which they may agree – may conjure up some grand conspiracy theory behind the incident, forgetting Occam’s razor. If there’s anything beyond a simple discovery of alleged wrongdoing, it’s far more likely that has to do with avoiding embarrassment over a decision going wrong and/or getting a better deal because of changing times than with anything more than rogue civil servants disserving the public.