State auditor finds more contracting errors made by health agencies

The State Auditor’s Office released a 30-page report on Monday showing the Texas Health and Human Services Commission and the Department of State Health Services bungled a contract with Genesis Systems Inc.

Charles Smith of the Texas Department of Health and Human Services testifies Wednesday, Nov. 1, 2017, to the House Committees on Human Services and Public Health at the Capitol. Bob Daemmrich for the Texas Tribune

For the second time in a week, the Texas Health and Human Services Commission is getting flack for mishandling state contracts — and this time the Department of State Health Services is also involved.

The State Auditor’s Office released a 30-page report on Monday showing both agencies bungled a contract for how Genesis Systems Inc. would work the state’s birth and death records system. 

The report comes a week after three Texas Health and Human Services Commission employees were fired following a scathing letter from Republican Gov. Greg Abbott to Executive Commissioner Charles Smith over contracting failures related to the Children’s Health Insurance Program in rural communities. Abbott said he had asked the State Auditor’s Office and the health commission’s inspector general to investigate where that contract award went wrong.

Combined with that issue and a series of other contracting mishaps in recent months, Monday's audit caused chagrin among some state leaders. State Sen. Jane Nelson, a Republican from Flower Mound and chair of the Senate Finance Committee, said in a news release that “the Legislature will not accept another systemic breakdown in procurement — especially at an agency serving our most vulnerable Texans."

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"Twice in one week?” Nelson said. “After an exhaustive Sunset review and major reforms, we are still seeing sloppy contracting that drives up costs and puts services at risk. I am investigating our options to tighten oversight policies.”

According to the new audit report, the commission used inconsistent methodology, inconsistent math formulas, inaccurate calculations and data entry errors to score the contracting competition between five companies vying to work on the Texas Electronic Vital Events Registrar. Officials also did not verify that the competing companies were qualified for the job. Auditors also found the commission inaccurately reported the contract value to the Legislative Budget Board.

Commission officials agreed to auditors’ recommendations to require an additional review of scoring contract bids and to verify qualifications for companies in the future. They pointed out, though, that even after they corrected and verified the formulas for the scoring, the results were the same. Officials also responded that there would be more accurate reporting to the Legislative Budget Board in the future, thanks to a new electronic reporting system.

Carrie Williams, a spokesperson for the Texas Health and Human Services Commission, said in an email statement that the report "is deeply concerning to us."

"Our integrity and credibility is central to our agency mission and cannot be compromised," Williams said. "We are pushing every resource we have into strengthening our work and providing the very best services for the people we serve. We are working in lockstep with auditors and procurement experts and welcome every ounce of scrutiny. We absolutely have to get this right."

Meanwhile, the Department of State Health Services made a $1.8 million blunder when officials didn’t get the proper approval to amend a contract that allowed Genesis Systems Inc. to host the records system, the auditor said. Auditors said that delayed the record system’s launch date by a year and increased the total cost of the project by $10.2 million.

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In the report, Department of State Health Services officials agreed to auditors’ recommendations to create processes for ensuring they get proper permission for exemptions and for reviewing contracts to make sure the work is being done well.

But department officials disagreed with auditors over the contract costs.

“The conclusion that the amendment resulted in increased costs to the project is misleading,” Department of State Health Services officials responded. “Further, the analysis does not consider that, with the implementation of the recommendations, the costs of the amendment, other than those noted above, would simply have been incurred under the base contract.”

The health commission hasn’t been able to catch a break over its contracting woes. 

But the agency has been trying to step its game up. In March 2017 the agency requested a Sunset Commission review of its contracting processes to help ensure compliance, and just last month it started an internal audit of its system. The commission is also working to find a third party to assess the contract procurement processes.

In January, the commission endured the ire of Texas House Speaker Joe Straus, a Republican, after an audit report found the commission allowed a health insurance company to make $29.6 million in bonus and incentive payments paid to medical providers' employees, even though those payments were not allowed under its contract.

During the 2017 legislative session, Texas Health and Human Services Commission officials came under fire from legislators over not reporting at least 42 contracts worth $100 million or more to the Legislative Budget Board’s database in a timely manner.

Last year, the State Auditor’s Office also released a scathing audit of one of the agency’s large private contracts with a health insurance company called HealthSpring, which the state paid more than $700 million in fiscal year 2015.

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Disclosure: The Texas Department of State Health Services has been a financial supporter of The Texas Tribune, a nonprofit, nonpartisan news organization that is funded in part by donations from members, foundations and corporate sponsors. Financial supporters play no role in the Tribune's journalism. Find a complete list of them here.