Contract High

Contract High is an occasional series looking at how Texas outsourced crucial state services for two decades — and got smoked.

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Contract High is an occasional series looking at how Texas outsourced crucial state services for two decades — and got smoked.

Amid a gusher of news in recent months over a handful of troubled state contracts, lawmakers have vowed to get a handle on a vast network of taxpayer-funded deals between private firms and state agencies totaling tens of billions of dollars.

The spotlight is brightest on the Health and Human Services Commission, which oversees more in contracts than any other state agency. While a questionable no-bid $20 million contract with Austin tech firm 21CT has sparked resignations and an FBI investigation, that now-canceled deal represents less than 0.1 percent of the Health Commission’s $60 billion in contracts.

So what’s going on with the state’s biggest contracts? It’s a question that is currently impossible to answer. A significant share of the state’s largest contracts are handled by the health commission, where officials confirmed this week to The Texas Tribune that they do not currently know basic details about them.

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The Tribune requested information from more than 20 state agencies on their largest contracts.

The research revealed that the health commission’s contracts with managed care organizations for Medicaid and the Children’s Health Insurance Program are among the largest in state government, with some totaling well over $2 billion. While the commission is able to track the total money going to these companies through multiple contracts and health plans, it does not know the values of individual contracts, and could not provide information to the Tribune on the values of the largest ones. Agency officials hope to have a better handle on the numbers within a few weeks as part of a broader overhaul of its unwieldy contracting system.

“It’s because these health plans have multiple contracts and [HHSC officials] are just worried about some data entry issues,” spokeswoman Stephanie Goodman said.

Most agencies contacted by the Tribune were able to provide basic details of their largest contracts including the vendors involved, the amounts and the start and end dates. Only HHSC said that information was unknown to the agency itself.

"It is unacceptable that HHSC does not know the value of its contracts," said state Sen. Judith Zaffirini, D-Laredo, who has worked on contracting issues in the Senate for 20 years. "State agencies have not done enough to ensure they have staff with the specific skill sets and expertise needed to manage and monitor large, complicated contracts." 

Ron Pigott was aware of the health commission’s challenges back when he was director of procurement at the state comptroller’s office. He began seeing it from a different perspective this year when he took on the job of overhauling contracting for the commission and four other health agencies as deputy executive commissioner.

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“Half the money that goes through state contracts goes through these five agencies,” Pigott said. “We’re a jet at 30,000 feet and we’re trying to rebuild the engine without landing.”

When he first arrived at the commission, no one had a good handle on the total value of those thousands of contracts. Different contracts were segregated in different systems that didn’t communicate with one another, Pigott said. With some effort, he determined the grand total is $60 billion.

“We do feel good about that number,” Pigott said. “It’s taken two months for us to get to that.”

The managed care contracts are a different story. Texas began converting its Medicaid system to a managed care model in the 1990s. Texas pays managed care organizations a fixed rate for each Medicaid client — mostly low-income children and people with disabilities — with the hope that that will spur the companies to provide health care more efficiently.

Pigott said the growth of managed care has changed not only how Texas provides Medicaid and CHIP services, but how it contracts for them.

“What we used to do in-house, because it’s become more complicated, more technology driven, and far harder with insurance and everything else, it has gone more through the contract process,” Pigott said. “Those contracts have gotten bigger.”

There are now 3 million Texans on Medicaid managed care, according to a recent report by the Texas Sunset Commission. The same report asserts that, in the 2013 fiscal year, the health commission had contracts worth $10.2 billion with 19 health maintenance organizations and two dental maintenance organizations.

Goodman said that the commission probably performs more oversight over its managed care contracts than most other contracts in state government. However, that oversight has focused on the managed care companies rather than their individual contracts.

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“The way the Medicaid/CHIP division monitors it, they’re really looking at each managed care organization, even though they may have multiple contracts,” Goodman said.

The commission has good data on how much each managed care company gets paid through different Medicaid health plans across the state, Goodman said. For example, Centene Corporation, which does business in Texas as Superior HealthPlan, received $4 billion in state funds in the 2014 fiscal year, more than any other company, according to the commission’s records.

“We’re very confident to say how much each contractor spent, but we’re still working on some changes to increase the confidence in the amount per contract,” Goodman said.

In its evaluation of the health commission last year, sunset commission staff left unimpressed with how managed care contracts were being managed.

“Data and trend analysis is essential to effective program management,” the report reads. "HHSC’s lack of a proactive and ongoing effort to look at Medicaid data and trends across all 21 managed care organizations and the remaining fee-for-service population limits the agency’s ability to consistently identify problems, understand why these problems occur, and make changes to policy to prevent these issues from escalating or happening again."

Lawmakers have struggled in recent months with trying to strengthen contract oversight while lacking basic information about the state’s current contracts.

A contract reform bill from Senate Finance Committee Chairwoman Jane Nelson, R-Flower Mound, would create a centralized contracting database where agencies would be required to post all of their contracts online. The bill passed out of the Senate this week.

When asked about the health commission's inability to identify basic details of its largest contracts on Friday, Nelson recalled the work of the sunset commission, which she chairs.

"It was evident during the sunset process that, in addition to suffering from a hodgepodge of protocols across the independent agencies, there was a fundamental lack of proper controls over contracting," Nelson said in a statement. "These problems run very deep, and it is going to take a tremendous effort to correct them."

In the House, multiple bills have been filed requiring a central online database for all of the state’s contracts. At a recent hearing of the House Government Transparency and Operation Committee, state Rep. Chris Turner, D-Grand Prairie, advocated for his bill requiring the comptroller to manage an online database that would include basic information on every state contract including the values and start and end dates. Committee Chairman Gary Elkins, R-Houston, expressed frustration that the state was not equipped to easily implement Turner’s simple proposal.

“One of the problems, Rep. Turner, is if the state wanted to do what you’re requesting they can’t do it,” Elkins said. “They don’t have the data. It’s a mess.”

Other Agencies

Aside from the health commission, two other agencies have drawn attention for problem contracts in recent months.

The Texas Department of Transportation’s contract with Xerox for tolling operations has been plagued with customer service and billing problems, prompting several recent hearings in the Capitol on how TxDOT was fixing the issue. Yet that five-year, $100 million contract pales in comparison to the agency’s major highway projects, several of which surpass $1 billion and are set up as public-private partnerships. The largest one is the building of managed toll lanes on IH-635 in Dallas, a $3 billion project, of which $762 million is coming from public investment, according to TxDOT data.

The General Land Office drew national attention last month when it cited multiple contract violations upon ending its long-standing relationship with the Daughters of the Republic of Texas to manage the Alamo. But that contract was among the agency’s smaller ones at $360,000 over three years, according to spokesman Jim Suydam. The office's largest contract, meanwhile, is $85 million to manage a veterans home in Bonham, according to agency records.

Like the health commission, the Texas Lottery Commission could not provide the total value of its largest contract, but that is by design. Providence, Rhode Island-based GTECH has managed the state’s lottery since its inception in 1992. In 2010, the lottery commission signed a new 10-year contract with GTECH in which the company earns 2.2 percent of lottery sales, according to spokeswoman Kelly Cripe. In the 2014 fiscal year, the company was paid $94.7 million off of $4.4 billion in lottery sales.

Cripe said having the contract based on sales is “standard practice” in the lottery industry and is designed to encourage the vendor to find innovative ways to boost business.

“Greater lottery sales means that more revenue is generated for the state,” Cripe said.

Terri Langford contributed to this report.