The CEO of Serco, a British-based company whose North American division received one of the largest contracts to work on the Obamacare insurance exchanges, resigned Friday amid allegations that the company had defrauded the British government of millions of pounds.
Even as myriad other allegations emerged about its work around the globe, Serco spent heavily on lobbying in Washington, D.C., and secured a multi-year contract potentially worth $1.249 billion to handle paper applications for the Obamacare exchanges. Serco did not respond to e-mail and voice-mail requests for comment.
Public records demonstrate Serco’s concentrated effort to woo the U.S. government. In recent years, it has spent more than a million dollars on lobbying and political activities, including $6,450 donated to President Obama’s election campaign, according to the Sunlight Foundation. This year, as the Centers for Medicare & Medicaid Services (CMS) was considering proposals for insurance-exchange work, Serco spent $100,000 to hire Greenberg Traurig, former home of Jack Abramoff, to lobby regarding the “implementation of [the] Patient Protection and Affordable Care Act,” according to January registration papers.
Earlier this year, Hayes became a central subject of a federal insider-trading investigation. The Washington Post reported that Hayes had sent information on April 1 about a significant Medicare policy change to an analyst at Height Securities. The analyst then “sent out an alert to Height’s hundreds of investor clients — ahead of the administration’s public announcement — and trading in Humana, Aetna, and other health-care stocks immediately soared.” Hayes could not be reached for comment, and it’s unclear whether the investigation is continuing. Papers filed in May, after the incident, stated that Hayes was expected to cease lobbying for Serco.
Regardless of the recent federal scrutiny of Hayes, Serco’s big spending seems to have paid off. In early July, the Obama administration awarded Serco a contract worth up to $1.249 billion to manage paper applications for the new insurance exchanges. The company will determine eligibility for tax credits, Medicaid, and exemptions from tax penalties. Privacy concerns have already arisen, because in 2011, a data breach at the U.S. Thrift Savings Plan for federal employees – managed by Serco — jeopardized the Social Security numbers and confidential information of more than 120,000 participants.
Just weeks after the Obama administration announced Serco’s contract award, news broke that Britain’s Serious Fraud Office had opened an investigation into the corporation, which had government contracts to electronically monitor criminals released from prison. An audit discovered that Serco and another company may have been overbilling the government by as much as $80.8 million. As many as one in six criminals whose monitoring was being paid for by the British government were reportedly either dead, back behind bars, no longer under supervision, or no longer living in the U.K.
Furthermore, although U.S. companies that are part of a foreign company are obligated to report any billing wrongdoings abroad, Serco did not give CMS such notice, Reuters reported in July. Nevertheless, the Obama administration defended its decision to award the $1.249 billion contract to Serco, claiming it was a “highly skilled company” with “a proven track record in providing cost-effective services to numerous other federal agencies.”
Shortly after that, more red flags went up. In August, the London police opened an investigation into Serco after allegations that it had falsified documents for another government contract for transporting defendants from confinement to court. Serco had repeatedly delivered prisoners late, and after it received a warning last summer, evidence emerged of “potentially fraudulent behavior,” according to the U.K. secretary of state for justice. Shortly thereafter, Serco said it had “identified misreporting” among its employees.
Even so, in late September, the U.S. amended Serco’s CMS contract, adding $87 million in value,, though it’s unclear what work that will entail or whether it will add to the $1.249 billion potential worth of the original contract. As of this writing, contract officers and media spokespeople from CMS had not responded to National Review Online’s requests for more details.
Serco’s big role in the Obamacare exchanges is even more disturbing in the light of its record with the British National Health Service.
In 2006, Serco won a contract to provide out-of-hours physician service in Cornwall, England. Guardian reporter Felicity Lawrence reported that the quality of service promptly declined, as Serco cut costs by cutting staff. Reportedly, there were sometimes more than 90 patients at a time waiting on the telephone help line. And according to whistleblowers, Serco on at least one occasion, had only one general practitioner available overnight for the entire county. Furthermore, “in 2010,” Lawrence wrote, “a Cornish boy, Ethan Kerrigan, six, died as a result of a burst appendix when the Serco out-of-hours service advised putting him to bed rather than sending a [general practitioner] to examine him.”
The Care Quality Commission, which regulates British health services, soon found that Serco’s managers “routinely altered daily performance reports which showed if the service was meeting its targets for responding to calls from patients on time.”  And in March 2013, the National Audit Office reported that within a six-month period Serco had on 252 occasions made “unauthorized changes to performance data” that it offered to the NHS about its operations in Cornwall to hide poor performance and create a favorable impression.
Nor are the Cornwall derelictions Serco’s only health-care debacle. In 2009, the British government awarded a $1.29 billion contract outsourcing its biggest pathology lab to GSTS Pathology, a joint venture of Serco, King’s College Hospital, and Guy’s & St. Thomas’ Hospital. In 2011, the pathology lab saw a whopping 400 “clinical incidents”; these errors included blood and tissue samples’ being mislabeled or lost altogether, the Guardian reported. Records requests by Corporate Watch, a not-for-profit organization, revealed that one patient got the wrong blood-test results, and another got inaccurate results for a kidney-damage test. The Care Quality Commission reported in June 2012 that GSTS had failed to comply with regulations for staff training and supervision.
Recent news outside the health-care sector has also called Serco’s ethical standing into question.
Last month in Britain, a 23-year-old Romani woman claimed that at Yarl’s Wood immigration detention center — which is run on contract by Serco — officers coerced women to engage with them sexually, “offer[ing] to make life easier, saying they would have more chance of winning their case or staying in the country” if they acquiesced. Since then, three more women have made similar allegations about inappropriate sexual behavior at Yarl’s Wood. And last year, three staffers at Yarl’s Wood were dismissed after allegations of “sexually inappropriate behavior.” Earlier this year, Serco “paid an undisclosed sum to a 29-year-old asylum seeker from Pakistan who claimed she was sexually assaulted by a nurse at Yarl’s Wood, although the company did not admit liability,” the Guardian reported.
Furthermore, in 2004, a 14-year-old boy, Adam Rickwood, committed suicide at a Serco-run youth facility, becoming the youngest person to die in British custody in modern times. At the inquest, the jury found that staff had inappropriately used a violent restraint method against Rickwood, who had already been saying he would commit suicide if forced to remain in the facility. Staffers had hit him in the nose, giving him a severe nosebleed that was untreated, the inquest found. Shortly afterward, Rickwood hanged himself with a pair of shoelaces.
National Review spoke with Harriet Wistrich, a lawyer for several of the Yarl’s Wood women. She said that though she has direct knowledge only of the detention-center operations of Serco, she thinks the American public has reason to question the $1.249 billion contract award.
“Serco has got a lot of bad marks about it,” Wistrich says, adding that it is “far too large, and that means that they can get away with scandals without it really affecting their ability to carry on bidding for things.”
Allegations have also emerged in Australia about significant problems at Serco-run facilities. Last year, a 2010 Serco training manual was leaked online. It detailed how employees could use physical force to control those held at immigration detention centers, including punches, baton strikes, kicks, and temporarily debilitating blows to pressure points. The Australian minister for immigration and citizenship said that the manual, which had since been replaced, did “not reflect very clear guidelines agreed to by Serco and the Department of Immigration on engagement with people in detention facilities.”
A 2011 inspection by the Australian government found “dangerous overcrowding, inadequate and ill-trained staff, no crisis planning and no requirement that Serco add employees when population exceeded capacity” in the Serco-run facilities. And in September 2013, Guardian reporters discovered that though Serco was contractually required to submit regular reports to the Australian government about several of its detention centers, it had failed to do so. Furthermore, the Australian government has found that since Serco took over facilities, instances of self-harm by immigrant detainees, including children, have increased significantly.
The Obama administration must have known about Serco’s checkered history, even as it was being lobbied to award the corporation an ACA insurance-exchange contract. Any one of these scandals would have been troubling enough, but taken together they make you wonder what the U.S. government was thinking — as with so much of the rest of Obamacare.
— Jillian Kay Melchior is a Thomas L. Rhodes Fellow for the Franklin Center for Government and Public Integrity.
EDITOR’S NOTE: This article has been amended since its initial posting.