Texas state audit reveals 'operational defects' led to 21CT deal

A scathing report released by the State Auditor's Office (SAO) in Texas reveals that organizational mismanagement and failure to adhere to internal policies allowed the Texas Health And Human Services Commission (HHSC) and the Office of Inspector General (OIG) to award two no-bid contracts worth $110 million to 21CT for fraud prevention software and services. HHSC canceled the company's $90 million extension in December and is now in the midst of a legal process to get back the original $20 million contract.

The report lay much of the blame on the "OIG's former deputy inspector general," whom the report declines to identify by name. Jack Stick, who was forced to resign following the 21CT fallout, was the deputy inspector general at the time, FierceHealthPayer: AntiFraud previously reported.

Auditors said that the HHSC and the OIG failed to "establish and maintain a working environment that emphasized ethics, integrity, and accountability," with the actions of a few individuals allowing the department to skirt the competitive bidding process. The report also said that Stick was the "primary decision maker for all aspects of the procurement from 21CT," but he lacked any "professional experience in procurement or required training."

Furthermore, the OIG did very little to ensure the 21CT contract would benefit the state. For example, the HHSC and the OIG relied on vendor "proofs of concept" without conducting their own analyses. The agencies also deterred from past procurement processes and neglected to create a stakeholder group to provide input. The OIG misled CMS when requesting federal approval for funding, stating that "HHSC OIG reviewed several vendors via a competitive, best value procurement." In reality, the OIG "predetermined that 21CT would be the vendor."

In addition to contract procurement issues, auditors revealed 21CT was paid on a payment plan rather than being reimbursed for goods and services provided. At one point, HHSC paid 21CT $405,000 for laptops that hadn't been received by the agency or the company. OIG staff approved invoice payments based on the direction and approval from Stick, who spent exorbinent amounts on badges and chairs. 

The report substantiated previous claims that, in addition to Stick, a HHSC executive had a prior relationship with the 21CT CEO. The report also revealed that when Stick became the HHSC chief counsel, he reported to his wife, who served as the HHSC chief of staff.

The SAO offered 12 recommendations to the legislature, including a requirement that the HHSC executive commissioner approve all contracts over $1 million and a mandate that state entities obtain three bids for purchases made through the Cooperative Contracts program.

The Texas HHSC and OIG have faced a tidal wave of criticism and scrutiny ever since state officials announced a $90 million extension with 21CT, a company that had little experience with Medicaid fraud detection. Since the fallout, Texas has hired a new inspector general with plans to make sweeping changes to the agency. FierceHealthPayer: AntiFraud previously reported on vast inefficiencies within the HHSC, an agency that set a goal to uncover $1 billion Medicaid overpayments, but managed to collect just $5.5 million.

For more:
- read the SAO report (.pdf)

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