LINCOLN, Neb. (Nebraska Examiner) — In 2019, the state made what would later amount to a $158 million mistake in awarding a state contract to St. Francis Ministries.
It’s widely acknowledged that the $197 million bid by the Kansas-based nonprofit organization to oversee the state’s child welfare system was horribly low.
A year ago, the Nebraska Department of Health and Human Services had to provide another $158 million to St. Francis to avoid the organization’s financial collapse.
The infusion meant that the state was now spending more on the five-year contract with St. Francis than the state’s previous contractor, Nebraska-based PromiseShip, had bid.
So now, given that admittedly “bad bid,” and what one state senator called a “pattern” of procurement problems in state government, questions are being raised about whether DHHS and the agency that handles state contracts, the Department of Administrative Services, can do any better when a much more lucrative state contract is awarded later this year.
Serves low-income, disabled
That contract, to handle the state’s Medicaid Managed Care program — called Heritage Health — currently costs the state nearly $3 billion a year. The program serves about 340,000 low-income and disabled Nebraskans, providing medical, behavioral health and pharmacy services.
Three large companies — HealthyBlue, United Health Care and Nebraska Total Care — now share the five-year contract, which is scheduled to go out for bid in April.
A DHHS spokeswoman said the contracts will be reviewed by two separate panels, then be awarded in July, though contracts likely won’t be signed until later this year and wouldn’t go into effect until mid-2023.
State Sen. John Arch of LaVista, a hospital administrator and chairman of the Legislature’s Health and Human Services Committee, said DHHS has assured him that state lawmakers will get “informal” oversight over the process, including input on the writing of the bid proposals.
“Everyone wants this to go well. It has to go well. It must go well,” said Arch, who also headed up the special legislative study into what went wrong with the St. Francis contract.
Others aren’t so confident.
Omaha Sen. Machaela Cavanaugh said it’s hard to see a better outcome with the Medicaid Managed Care contracts when no changes were made in the state procurement process following the St. Francis debacle.
“How can we get a better result?” Cavanaugh asked. “If they’re going on the current procurement process, I don’t think they’ll get it right at all.”
Former State Sen. Annette Dubas, who now heads an association of behavioral health providers, said her members also have some apprehension.
DHHS did set up a series of listening sessions to gather concerns about the current operation of Heritage Health, though some providers complained that the sessions were only one hour long.
Among the concerns expressed by Dubas’ group, the Nebraska Association of Behavioral Health Organizations, and others have included months-long waits for reimbursement and difficulty in obtaining authorizations for services.
Dubas said it’s important to “get this right” in awarding these lucrative contracts, “at the very least learning from the mistakes of the past.”
Too much credit for lowest bid
In a briefing for fellow state senators earlier in the 2022 session, Arch outlined a “pattern of procurement issues,” including a lack of due diligence determining the capabilities of bidders and whether they could actually perform the services at the price they bid.
One clear issue, Arch said, was that the lowest cost bid appeared to get too much credit, or too many points, regardless of whether a bidder could carry out the job. St. Francis was the lowest bidder — 40% lower than its only competitor, PromiseShip — as were contractors selected in two other DHHS bids that were ultimately canceled.
A report in December by a special investigative committee chaired by Arch called for improvements in the state’s procurement process, citing those two other procurement disasters in recent years:
- In 2007, the state awarded a $45 million contract, with an additional $25 million option, to provide a computer system to process claims in the Medicaid Managed Care program. But only 18 months into the contract, Arizona-based FourThought Group quit, saying it couldn’t deliver as promised. By then, the state had spent $6.8 million on the contract (90% were federal funds), and DHHS agreed to add another $4.75 million in a settlement with the company. The department’s CEO later admitted it had been a mistake to contract with FourThought because it was a “small company with little track record” and could not fulfill such a large task.
- In 2014, the state awarded an $80 million contract for a modern Medicaid eligibility and enrollment system, replacing a 20-year-old system. But four years later, the state terminated that contract with India-based Wipro, saying there was no evidence any part of the contract had been completed. That was after the state had paid out $6 million and the federal government $54 million. Wipro has filed a lawsuit against the state, which is still in court. The state has maintained that Wipro underbid the contract, then sought to obtain additional funds, and that the company lacked the capacity to fulfill the contract.
The St. Francis contract, meanwhile, was terminated in December, three years before its end date. Officials said the nonprofit had failed to deliver on a large number of contractual obligations, including caregivers meeting face-to-face with state wards and families and meeting caseload requirements, which are important steps in reunifying families and ensuring a child’s welfare.
It should be noted that competing bidders filed protests to both the FourThought Group and Wipro bids, but the state rejected those protests, as it did a protest filed against the St. Francis bid.
That helped prompt a bill by State Sen. Mark Kolterman of Seward to improve the protest process on large state contracts — changes that the senator says would have blocked St. Francis from getting the child welfare contract in 2019. He said the current, internal protest process at DAS isn’t working.
“We should have known right upfront that St. Francis couldn’t do that job,” Kolterman said.
But the senator said he is holding back on his bill this year, in deference to a proposal by Sen. Arch and 13 other senators, including Kolterman and Cavanaugh, to do a comprehensive study of the entire state procurement process. DAS handles the bidding process but state agencies, like DHHS, have input on what’s needed in a contract, and have the final say on who gets it.
Legislative Bill 1037, which will be the subject of a public hearing Feb. 10 at the Capitol, would require the Department of Administrative Services to hire an independent consultant to study the state’s procurement process, including a look at the rigor of a bidder’s competence and financial health, the protest procedures and “accountability for decision-making.”
A fiscal note on the bill indicates it might cost $200,000 to $400,000 for a consultant. The study would be required to be completed by Nov. 15, so it would not affect the Heritage Health bidding process.
Kolterman, as well as Arch, said the special legislative study, known as the LR 29 study, uncovered that the state’s procurement process had several problems, beyond the protest process. So they said it made sense to take a comprehensive look at the entire process, from development of requests for bids, to reviewing and scoring bids, to awarding them, rather than addressing just the protest process.
“Am I nervous (about the Medicaid Managed Care contracts)?” Kolterman asked. Yes, he said, but added that he’s been assured by Arch and Dannette Smith, the CEO of DHHS, that this year’s huge contracts will get more attention.
DHHS has posted on its website a summary of the concerns raised at the listening sessions. But Cavanaugh said she’s not convinced DHHS will actually respond to the input.
Arch, at the St. Francis briefing earlier this year, said it wasn’t entirely clear who ultimately OK’d the St. Francis contract.
Smith, the CEO of DHHS, has said she made the decision.
Confidence level varies
But the Department of Administrative Services, which develops requests for proposals and takes the bids, also has input, Arch said. And both DAS and DHHS are agencies that answer to Gov. Pete Ricketts.
When asked how much confidence she has that the Medicaid Managed Care bids will be handled well, Cavanaugh responded “zero.”
Arch was more optimistic.
“I have a pretty high level of confidence in this because we’re all participating, and we are highly motivated that this is a good process,” he said. “Everyone knows we can’t continue our struggles with procurement.”
A public hearing for LB 1037 is taking place at the Capitol at 1:30 on Thursday.
Nebraska Examiner is part of States Newsroom, a network of news bureaus supported by grants and a coalition of donors as a 501c(3) public charity. Nebraska Examiner maintains editorial independence. Contact Editor Cate Folsom for questions: email@example.com. Follow Nebraska Examiner on Facebook and Twitter.