Illinois’s Medicaid Scandal

by Jillian Kay Melchior
A tale of questionable dealings and taxpayer risk

Bollywood performers, a Boston boat cruise with an open bar, gifts of cigars and wine — the vendor working on Illinois’s expensive new Medicaid information-technology system entertains public officials in style, according to sources in the Illinois government.

These whistleblowers tell National Review that when Client Network Services, Inc., was seeking the Medicaid contract, it wined and dined state officials, who then circumvented Illinois’s standard procurement procedures in order to outsource the multimillion-dollar contract to CNSI, which is currently under criminal investigation in Louisiana. CNSI, headquartered in Maryland, has a history of work of questionable quality, overrun project budgets, delays, and litigation in several other states.

Documents procured by OpenTheBooks.com, a national transparency organization based in Illinois but involved in all 50 states, have raised questions about the close relationship between Illinois state officials and CNSI. Several whistleblowers tipped off OpenTheBooks.com about what records to request, and National Review spoke to some of them. These sources within the Illinois government allege unethical and potentially unlawful behavior.

It looks like pure Chicago politics, but taxpayers both in Illinois and across the United States may end up footing the bill, since the federal government will pay for 90 percent of Illinois’s system upgrade. The Centers for Medicare & Medicaid Services (CMS) has approved an upgrade costing as much as $190 million, though the state claims that because it is partnering with Michigan on the project, it will cost only $85 million.

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In late August 2012, private- and public-sector workers gathered in Boston from across the United States to attend the Medicaid Enterprise Systems Conference, an annual event focused on the IT systems that support Medicaid.

They found time for fun. According to sources within the Illinois government, CNSI rented a two-story boat to cruise Boston Harbor for a private party. The 50 or so guests included several officials from Michigan, as well as employees of the Illinois Department of Healthcare and Family Services (HFS). CNSI outsources some work to India, and that night, Indian as well as American food was served. Liquor flowed freely from an open bar, and CNSI staff clinked glasses with Illinois HFS employees with whom they hoped to work, a whistleblower says, alleging that “the only people on that boat were people who were being solicited by CNSI.”

In addition to the boat party, CNSI hosted a bigger event in the ballroom of the conference hotel, also attended by Illinois officials. That party, too, had an open bar and buffet tables, as well as Bollywood performers for the guests’ entertainment, according to a source close to the project.

Another source within the government claims that CNSI also hosted a private party in a hotel suite that night, inviting only people it wanted to do business with, including Illinois officials. HFS spokeswoman Kelly Jakubek denies that allegation.

That entertaining may have violated the Illinois State Officials and Employee Ethics Act, which forbids officials to accept refreshments or gifts worth more than $75 per person. National Review was not able to confirm which boat company provided the cruise. But Boston Harbor Cruises reports that its fee for boat rental alone for 50 people is $1,000 for three hours; a buffet costs around $80 per person, and an open bar costs an additional $42.67 per person. Other companies offering cruises would not quote a specific price, or had not returned calls. 

Illinois HFS responded to an information request by government-accountability blog Edgar County Watchdogs, confirming that at least six state employees, several of whom were positioned to make key decisions regarding the upgrade contract, were on a boat in the Boston harbor with CNSI representatives, though “HFS does not know who paid for the boat trip.” (1)

HFS’s Jakubek says CNSI did not solicit Illinois government employees on the boat. In an e-mail, she told National Review that ten HFS employees were at the conference, and “they attended various events/activities that were offered to all attendees as part of the conference and they complied with all state ethics rules.”

A whistleblower says that after OpenTheBooks.com and Edgar County Watchdogs broke the story about Illinois officials’ partying in the Boston Harbor, several of those officials removed photos of the event from their Facebook pages and office desks.

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To prevent fraud and abuse, the federal government requires states to send specific data about Medicaid payments and beneficiaries to CMS. The amount of information required was expanded under the Affordable Care Act.

States should already have this information on hand in their Medicaid databases, but Illinois’s system, which processes $14 billion in annual payments, (2) was created in 1982 and had continued to run through a series of patchwork fixes, which had become increasingly cumbersome.

About five months before the boat party, Michigan had approached Illinois to discuss the possibility of sharing a Medicaid Management Information System (MMIS), a complex program that stores data about beneficiaries and providers and processes claims and payments. Michigan’s own system had been built by CNSI. The contract was awarded in 2006 at $51.5 million but has grown to a current aggregate value of over $227 million

Illinois would normally go through a highly competitive procurement process to find a vendor for a project such as the MMIS upgrade. That process typically includes soliciting and evaluating multiple bids, vetting possible contractors for compliance with Illinois state law, and negotiating a contract.  For a project as big as this one, procurement could take between 18 months and two years, Matt Brown, Illinois’s chief procurement officer, said in an interview with National Review.

But contracts between governments are exempt from the Illinois procurement code,(3) and in December 2012, Illinois signed an intergovernmental agreement to enter formal planning discussions to share Michigan’s Medicaid IT system. (4) Under the agreement, Illinois will write a check to the state of Michigan, and then Michigan will collaborate with CNSI to deliver the system, paying the company and managing its work.

Brown says the intergovernmental agreement was “where a lot of the state’s policies start to be tested: What does it mean to access resources through the state of Michigan? Was that a no-bid contract with the state of Michigan’s contractor? Well, no, because we don’t contract with the state of Michigan’s contractor. We contract with the state of Michigan.” He adds that after reviewing the transaction thoroughly, he “did not find any circumventing of competitive practice,” and that “the state of Michigan and the state of Illinois both have something to gain in this partnership.”

But Adam Andrzejewski, founder of OpentheBooks.com, says via e-mail that “Illinois has now set a precedent to purchase anything it wants without a competitive bid process as long as they can find a state to resell the product or service to Illinois.”

Jakubek says the intergovernmental agreement is “fully consistent with Illinois law. The purpose of the Procurement Code is to enable the state to get the best possible price while ensuring integrity and ethical conduct. We have worked diligently with the state’s Chief Procurement Officer from the beginning to ensure full compliance with Illinois’ procurement laws.”

However, one of the whistleblowers tells National Review that Illinois “did not have to go this route.” It “could have easily procured this the right way and put it out for a bid, but the time frame and the excuse they were looking for was Obamacare’s October deadline,” even though enhanced federal funding would have extended beyond October 1. Jakubek says the upgrade project is “not related to the Oct. 1 launch of the Health Insurance Marketplace and the Affordable Care Act.”

Since the intergovernmental agreement was signed, CNSI has hosted a lavish dinner party in Michigan for Illinois officials, according to a source close to the Illinois government. Furthermore, a whistleblower says that CNSI sent bottles of wine and a box of Cuban cigars to HFS officials who would be working on the upgrade.

Edgar County Watchdogs sent a public-information request about these allegations to HFS, asking for information about gifts given to its employees. “We assume you mean gifts given by CNSI,” responded Kiran Mehta, the Freedom of Information officer. The agency confirmed that one employee, who was close to the upgrade, had “received two cigars, although she does not know what kind of cigars they were.” A whistleblower says that more than one employee received gifts, and that the gifts were well in excess of two cigars.

National Review asked Jakubek whether CNSI had sent bottles of wine and a box of Cuban cigars to employees who would be working on the MMIS upgrade. “No,” she wrote back in an e-mail. “To be clear, your allegations listed above are false.”

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National Review’s interviews with whistleblowers also raise questions about the working relationship between Illinois officials and CNSI. A source close to the upgrade project says the HFS’s chief information officer, Stephen DePooter, and others on the team have corresponded copiously with CNSI, sometimes sharing information that would give the company an unfair advantage. The whistleblower said DePooter was one of the key people gunning for the collaboration with Michigan and CNSI. And e-mails obtained through a public-records request appear to show that DePooter coached CNSI on how to respond to CMS, which must sign off on the project at the federal level. HFS says the project did not receive federal CMS approval until May 2013.

On January 28, 2013, DePooter e-mailed Sharif Hussein, a senior vice president at CNSI who, sources say, worked closely with Illinois officials and hosted parties for them. Copying two Illinois state employees and a Michigan counterpart, DePooter told Hussein that “we need to be sure to mold the new story into one that includes benefits both [sic] for both states so it appeals to both state specific audiences as well as the Feds.” DePooter also told Hussein that a presentation by Netlogx, a company that had earlier presented to CMS on cloud-based Medicaid systems, “could lend value to the final presentation.” In addition, he sent along internal decision memos and an annual report, “in case any verbiage there may be useful.”

Nicholas Taylor, a partner at Netlogx, tells National Review that the presentation referred to in the e-mails was not confidential.

Hussein later replied to DePooter, copying Karen Parker, the director of the Bureau of Medicaid Financial Management & Administrative Services at the Michigan Department of Community Health. He asked them “to extract the salient points that have already been presented to CMS.”

On February 22, 2013, James Gorman, the senior technical adviser at the Data and Systems Group for CMS, e-mailed DePooter, telling him that “we want to take a look” at an alternative option for an MMIS claims-processing system that “is billed by the contractor as a faster, better, cheaper solution.”

DePooter promptly forwarded the e-mail to Parker and asked her to discuss it with Hussein, who immediately responded that “our solution is a proven and certified solution, theirs is not yet implemented and it is just a claim they are making that it would be faster and cheaper. We are ready to engage in these discussions at any time.”

“How’s that for a quick response?” Parker wrote to DePooter.

“Chuckle . . . I would expect nothing less! ;),” DePooter replied.

A whistleblower says that more than 3,900 e-mails were traded between CNSI and Illinois officials. Edgar County Watchdogs and OpenTheBooks.com sent a Freedom of Information Act request for this correspondence, but fewer than a quarter of the e-mails were released, they say.

DePooter could not be reached for comment. Jakubek denies that DePooter ever shared information with CNSI or gave the company advice that would help it make a better presentation or gain the approval of CMS.

“Illinois has an intergovernmental agreement with the state of Michigan and CNSI is one of Michigan’s vendors,” Jakubek wrote in an e-mail. “Communication with MI and the entire project team is ethical and necessary to work on this project.”

According to one of the whistleblowers, at least two state employees working on the upgrade have already interviewed for jobs at CNSI, raising concerns about a revolving door. National Review directly confirmed that at least one employee has interviewed with CNSI, and a whistleblower says at least two have.

Jakubek said HFS was aware of no employees who had interviewed for jobs with CNSI.

This isn’t the first time questions have been raised about the appropriateness of communications between CNSI and state officials.

Louisiana canceled its contract with CNSI on March 21, and a week later, Secretary of Health and Hospitals Bruce Greenstein resigned amid allegations that he had abused his position to secure the MMIS contract for CNSI, where he had worked as a vice president in 1995–96. The governor’s office confirmed in April that Greenstein had exchanged “hundreds of phone calls” and “thousands of text messages” with CNSI as it competed for the contract. Earlier, Greenstein had testified under oath that he had “limited involvement with a contract and the companies vying to win it,” the Times-Picayune reported. CNSI is now under federal and state criminal investigation for its dealings in Louisiana.

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Shady dealings are only one concern; taxpayer expense is another. In several states where CNSI had done similar work, the company had bid low, only to see costs grow significantly after the contract had been awarded to it (although some of these cost increases have been attributable to ongoing maintenance and system enhancements). Furthermore, according to sources in some of the states, there were problems with the quality of the product CNSI delivered.

In Louisiana, CNSI submitted a bid for $185 million and received the contract but then a few months later asked for $40 million extra, “which would have placed CNSI’s bid in the ballpark of competitors,” the Chicago Tribune recently reported. ACS State Healthcare Services, a competitor for the Louisiana contract, alleged in 2011 that “CNSI’s proposal constitutes a gross underestimate of what a prudent fiscal intermediary would incur to fulfill its obligations. . . . CNSI’s numerous incomplete, ignored and flat incorrect submissions as a proposal [sic], nonetheless enabled it to ‘game the system,’ in contravention of the Procurement code.”

In 2008, South Dakota gave the company a $62.7 million contract, and the communications director told National Review that was the final amount, although a 2011 local news report had said the system was “expected to cost far in excess of $80 million.” And state representative Susan Wismer (D., Britton), tells National Review the contract with CNSI was “a disaster for several years.” 

In 2005, Washington State awarded CNSI a $77.2 million contract to design, develop, and implement a new MMIS. But the final bill came in at $105.8 million, and a new operation and maintenance agreement awarded to CNSI puts the current aggregate value of the contract at $467.1 million, according to Cindy Davidson, Washington’s MMIS federal liaison.

And in Michigan, as noted earlier, CNSI was awarded the contract in 2006 for $51.5 million, which has since more than quadrupled, to an aggregate value of more than $227 million.  

And then there is CNSI’s foray into Maine, which is a cautionary tale of epic proportions. The company’s first bid for a Medicaid processing system, in 2001, was $15 million, half the bid by the competing vendor. After substantial delays, the system was launched in January 2005 but then crashed, suspending more than 600,000 Medicaid claims, the Chicago Tribune reported recently.

CIO magazine reported in April 2006 that hundreds of thousands of Medicaid recipients with unpaid bills “were turned away from their doctor’s offices. . . . Several dentists and therapists were forced to close their doors, and some physicians had to take out loans to stay afloat. With the Medicaid program accounting for one-third of the entire state budget, Maine’s finances were in shambles, threatening the state’s financial stability and its credit rating.”

Eventually, Maine was forced to issue more than $500 million in temporary payments, and so problematic was CNSI’s product that CMS eventually halted federal cost-sharing. Speaking to the Chicago Tribune, a former official with the Maine Health and Human Services Department said that the cost of implementing the system had, at that point, grown to “well over tenfold of what the . . . contract was at the beginning.”

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National Review asked Jakubek why Illinois is partnering with Michigan to buy a CNSI product, given the company’s criminal investigation in Louisiana and the increased costs and quality problems in other states.

She responded by e-mail that the partnership met Illinois’s three primary goals: “to save taxpayer money, mitigate risk and reduce the time it will take to modernize Illinois’ 30-year-old antiquated system.” Jakubek added that “based on Michigan’s successful implementation of its MMIS system and the fact that they already have federal certification, the Illinois-Michigan partnership represents the best technological solution at an optimal, cost-effective pricing structure. Illinois and Michigan are utilizing a system already implemented, thereby drastically reducing risk.”

But given CNSI’s long and troubled history in other states, Illinois taxpayers should cringe: The state is indirectly awarding it a multimillion-dollar contract, which could potentially grow much larger, using an anticompetitive process that is subject to little sunshine. And because the federal government will cover 90 percent of the cost, the contract is of concern to taxpayers across the United States. Ultimately, it boils down to a question of trust. And, unfortunately, the reputations both of Illinois politics and of CNSI precede them.

 — Jillian Kay Melchior is a Thomas L. Rhodes Fellow for the Franklin Center for Government and Public Integrity.

(1) June 26, 2013 FOIA response to Kirk Allen, Edgar County Watchdogs.
(2) “Comprehensive Technology Plan for Illinois’ Health and Human Services System,” issued July 1, 2011, by the Department of Healthcare and Family Services, the Department of Human Services, and the Office of the Governor.
(3) May 28, 2013 Memorandum From Matt Brown, chief procurement officer, to Julie Hamos, director of the Department of Healthcare and Family Services.
(4) Intergovernmental Agreement between the Illinois Department of Healthcare and Family Services and the Michigan Department of Community Health 2013-62-014.

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