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Archive for the ‘Privatization’ Category

The latter part of January 2014 should probably be remembered when the policies of Gov. Bobby Jindal began to unravel in rapid succession and as a time when he was finally exposed as far more goobernatoral than gubernatorial.

If that seems harsh and disrespectful of the man and the office, then so be it; it’s only because he has earned it—in spades.

He has submitted executive budget after executive budget crafted around one-time funding for recurring expenditures—something he vowed never to do when he was running for office. He has sold off state property and entire agencies to finance those budgets. He has gone on a privatization rampage that is now coming home to bite him in the posterior, to the surprise of few observers. He has stacked board after commission with campaign lackeys who possess few, if any, qualifications for their positions of responsibility for running such things as the state’s flagship university. He has embarked on an ambitious quest for the Republic presidential nomination that is doomed to failure and disappointment.

That said, let’s examine the developments of the past few days that have converged to upset the house of cards upon which his administration has been built over the past six years:

  • The Office of Group Benefits (OGB) was privatized only a year ago. In that time, some 100 state employees lost their jobs, a $500 million reserve fund has dwindled to half that because of an ill-advised decision by Jindal to reduce premiums to some 250,000 state employees, dependents and retirees by 7 percent to make the privatization more palatable—and to reduce the state’s share of premium payments thereby helping Jindal balance his budget. Meanwhile, Blue Cross Blue Shield of Louisiana, the third party administrator who assumed management of OGB as a “cost savings plan” was forced to draw down that cash reserve to pay claims.

The folly of that ploy, of course, manifested itself this week when it was learned that double digit (some say as much as 25 percent) premium increases are imminent in order to keep what was once arguably the best-run agency in state government afloat. Meanwhile, yet another CEO has departed and the fourth in less than three years has been ushered in.

  • The crash and burn disaster of the administration’s privatization of the LSU hospital system is even more dramatic. The Biomedical Research Foundation of Northwest Louisiana (BRF) took over the LSU Medical Center in Shreveport and E.A. Conway Medical Center in Shreveport last October because Jindal assured us that it would save taxpayer dollars. Yet, less than four months after BRF assumed operation of the two facilities, it is asking the state to bankroll more than $120 million in hospital improvements and expansions.

And don’t forget this privatization deal was approved by the LSU Board of Stuporvisors. One of the board members who voted for the deal which at the time, included a contract with more than 50 blank pages, just also happens to be the CEO of BRF but Jindal pooh-poohed the very idea that there could be a conflict of interests.

  • Another hospital privatization, that of the Interim Louisiana Hospital which replaced the old Big Charity that was heavily damaged by Hurricane Katrina, is also proving to be a tad more costly than we had been told by Jindal, thanks to the scrapping of a $46.5 million medical records system that is less than two years old.

On Friday, Jan. 24, ILH CEO Cindy Nuesslein notified employees of the one-time LSU Medical Center now jointly run by Children’s Hospital of New Orleans and Touro Infirmary that the electronic health record system installed by Epic Systems Corp. was being scrapped in favor of something called the Soarian Clinicals Siemens platform. No cost estimate was provided for the changeover, but it’s a good bet that the cost will be borne by the state.

The Epic system only went live in July of 2012 and the Epic contract, which began on May 18, 2010, expired on May 17, 2013.

  • When Jindal privatized the University Medical Center in Lafayette, he also closed the medical center’s First Step Detox, a “first step” treatment center for those suffering from chemical dependency—typically chronic alcoholics, IV heroin and/or other opiate abusers, including polysubstance abusers. When First Step Detox reopened, it sublet the center to Compass, a private entity that accepts only private pay and insured patients.

The news release announcing the reopening of First Step made no mention of the new admission policy, nor did it mention the ever-shrinking number of options for treatment for indigent patients. Now former patients are referred to the overburdened Baton Rouge Detox where they are instructed to fax their paperwork in order that they may be placed on a long waiting list.

  • Another private contractor with four contracts worth more than $385.5 million has been the subject of two critical audits by the Legislative Auditor’s Office. Moreover, a north Louisiana doctor claims that physicians are refusing to accept patients with Magellan insurance.

The first state audit, released in mid-December, says that the Department of Health and Hospitals provided no external evaluation of the performance of Magellan under its $361.4 million contract to handle paperwork and connect Medicaid 151,000 patients with mental health care providers.

Last August, the legislative auditor’s office said claims payments have been problematic for four state agencies and blamed Magellan for failing to meet significant technical requirements.

DHH Secretary Kathy Kliebert disputed that claim, saying that the privatization is working. She said the number of health care providers has expanded from 800 to 1,700—a claim hotly disputed by Scott Zentner, a Monroe neuropsychiatric doctor.

“I wish I could get to the bottom of Kliebert’s phony numbers regarding the supposed increase in providers since the Magellan takeover because the evidence is clearly to the contrary,” Zentner said. “I would bet my medical license that people are being counted now (that) weren’t before.”

Zentner said Magellan’s contract extends to private and public providers in a number of treatment settings. “Previously, they (providers) were reimbursed by fee for contracted services through DHH and some were not billing Medicaid at all, such as employees with the Office of Family Support.” Now, though, providers who were already delivering services before Magellan are now being included in the count who were not before, he said.

“I find it despicable that the head of DHH is twisting the numbers to cover up for a dramatic decline in services,” he said.

Zentner retired in 2012 after 20 years that included work as a medical director and staff psychiatrist for DHH and as a clinical associate professor of psychiatry at LSU. He said he returned to private practice after being “unable to further tolerate Jindal’s dismantling of our mental health system.”

He said he accepts all private insurances now except Magellan after “having been burned by them in the past for unpaid claims. They are the ultimate master in the use of passive-aggressive stall tactics in denying payments to providers, typically for silly technicalities; eg, misspellings resulting from typos.”

“In the northeast region of the state, with Monroe as the center of a 12-parish district, 75 percent of the physician/psychiatrist coverage has abandoned the community mental health system since Jindal took office,” he said. “Several Medicaid rehab agencies have shuttered their doors, one mental health clinic has closed in Rayville and others, including those in Winnsboro and Jonesboro, have been reduced to part-time outreach clinics operated by skeleton crews. Other outreach clinics, providing the most basic of mental health services, have closed in Tensas and East Carroll parishes,” he said.

“Other regions in the state have experienced even greater cuts than ours, but I doubt any of the regional administrators who are still employed would admit this publicly lest they be fired by Jindal.

“I’m highly skeptical of their (DHH) claims that provider rolls have increased, as (their figures) grossly contrast with reality,” he said.

The second audit was of the Office of Juvenile Justice (OJJ) and cited the office for its failure to develop a plan to monitor OJJ contracts managed by Magellan.

Magellan has a $22.4 million two-year contract with the Department of Children and Family Services also scheduled to expire on Feb. 28.

That contract calls on Magellan to provide an array of coordinated community-based services “for children and youth with behavioral health disorders and their families that risk out of home placement.”

Magellan’s contract calls for it to take over management beginning Jan. 1, 2013, at Harmony Center-Camellia Group Home in Baton Rouge, Boys and Girls Villages in Lake Charles, Boys Town of Louisiana (two facilities, in New Orleans and Baton Rouge), Harmony Center-Harmony III Group Home in Baton Rouge, and Allen’s Consultation, Inc., in Baton Rouge.

The contract requires that Magellan submit a written report detailing its progress to OJJ every six months but as of December 2013, OJJ had not received any such report documenting use of contract funds or of meeting specific goals of the contract.

  • Finally, in what is probably the most heartless, most ungrateful act yet by this administration, Jindal last week ordered the Louisiana National Guard (LNG) not to process any benefits for gay veterans on state property—in open defiance of the U.S. Supreme Court’s ruling that the 1996 Defense of Marriage Act (DOMA) is unconstitutional. Apparently Jindal based his position on some state’s rights legal opinion which he feels gave him the leverage needed to deny benefits on state property. It looks to us like more work for Jimmy Faircloth to try and defend another administration policy of questionable legal merit.

What makes this order so egregious is the blatant flag waving hypocrisy in which Jindal envelopes himself.

This is the same governor who, in a great show of his patriotism for the benefit of newspaper photographers and television cameras, traveled all over this state to hand out those appreciation medals to military veterans. The bill to award the medals was passed in the belief that legislators would benefit from the goodwill but Jindal stole that opportunity from under their collective noses with his shameless traveling awards show, denying lawmakers the chance to get in on the act. (Just for the record, as a matter of principle, I chose not to stand in line to have him present my medal nor did I apply for it to be mailed to me even though I served.)

Moreover, as thousands of Louisiana guardsmen were deployed to Iraq and Afghanistan over the past decade or so, never once do I remember anyone in this administration inquiring if anyone being placed in harm’s way for his or her country was gay. Apparently it’s perfectly okay to get shot or blown up by a roadside IED if you’re gay but if you’re lucky enough to survive, don’t bother coming home and applying for benefits.

Never, in my 70 years, have I witnessed an act so gutless, so callused. To hide behind the flag and to call oneself a Christian and a patriot while at the same time issuing such a cowardly order is beneath contempt.

It is the act of a petulant little ingrate who would defend the senseless and insensitive comments of a Phil Robertson while pretending to support the men and women who wear the uniform that he never had the courage to wear.

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The American Legislative Exchange Council (ALEC) may have suffered a mass exodus of sorts in the wake of its Stand Your Ground mantra that led to the shooting of Trayvon Martin, but ALEC is far too strong to let a few defections stand in the way of its political agenda in such areas as public education (even to borrowing from John White’s playbook), weakening workers’ rights, diluting environmental protections, healthcare and now even in the way U.S. senators are nominated and elected.

For that reason alone, the upcoming legislative session which begins at noon on March 10—less than two months from now—will bear close watching for any bills that might appear to have originated at ALEC’s States & Nation Policy Summit last month in Washington, D.C.

ALEC, while striving to change laws to meld with its agenda, nevertheless denies that it is a lobbying organization. That way, corporations and individuals who underwrite ALEC financially are able to claim robust tax write-offs for funding ALEC and its companion organization, the State Policy Network (SPN).

ALEC has a strong presence in Louisiana. Former legislator Noble Ellington, now a deputy commissioner in the Louisiana Department of Insurance, is a former national president of the organization and Gov. Bobby Jindal was recipient of its Thomas Jefferson Freedom Award a couple of years ago when ALEC held its national conference in New Orleans.

Current Louisiana legislators who are members of ALEC are:

House of Representatives:

  • Rep. John Anders (D-Vidalia), Energy, Environment and Agriculture Task Force;
  • Rep. Jeff Arnold (D-New Orleans),      attended 2011 ALEC Annual Meeting;
  • Rep. Timothy G. Burns (R-Mandeville), Civil Justice Task Force Alternate;
  • Rep. George “Greg” Cromer (R-Slidell), State Chairman, Civil Justice Task Force (announced he was resigning from ALEC and from his position as Alec state chairman of Louisiana on April 17, 2012);
  • Rep. James R. Fannin (R-Jonesboro), ALEC Tax and Fiscal Policy Task Force;
  • Rep. Franklin J. Foil (R-Baton Rouge), Communications and Technology Task Force;
  • Rep. Brett F. Geymann (R-Lake Charles), ALEC Communications and Technology Task Force;
  • Rep. Johnny Guinn (R-Jennings);
  • Rep. Joe Harrison (R-Gray), State Chairman, member of Education Task Force; (solicited funds for “ALEC Louisiana      Scholarship Fund” on state stationery July 2, 2012);
  • Rep. Cameron Henry, Jr. (R-Metairie), ALEC Tax and Fiscal Policy Task Force;
  • Rep. Bob Hensgens (R-Abbeville);
  • Rep. Frank Hoffmann (R-West Monroe), ALEC Education Task Force;
  • Rep. Girod Jackson (D-Marrero), (resigned last August after being charged with fraud);
  • Rep. Harvey LeBas (D-Ville Platte),  ALEC Health and Human Services Task Force;
  • Rep. Walter Leger, III (D-New Orleans), ALEC Education Task Force;
  • Rep. Joe Lopinto (R-Metairie), (attended 2011 ALEC Annual Meeting where he spoke on “Saving Dollars and Protecting Communities: State Successes in Corrections Policy”);
  • Rep. Nicholas J. Lorusso (R-New Orleans), ALEC Public Safety and Elections Task Force;
  • Rep. Erich Ponti (R-Baton Rouge;
  • Rep. John M. Schroder, Sr. (R-Covington), ALEC Tax and Fiscal Policy Task Force;
  • Rep. Alan Seabaugh (R-Shreveport);
  • Rep. Scott M. Simon (R-Abita Springs), ALEC Commerce, Insurance and Economic Development Task Force;
  • Rep. Thomas Willmott (R-Kenner), ALEC Health and Human Services Task Force;

Senate:

  • Sen. John A. Alario, Jr.(R-Westwego), ALEC Energy, Environment and Agriculture Task Force;
  • Sen. Jack L. Donahue, Jr. (R-Mandeville), ALEC Civil Justice Task Force member;
  • Sen. Dale Erdey (R-Livingston); Health and Human Services Task Force;
  • Sen. Daniel R. Martiny (R-Metairie); Public Safety and Elections Task Force;
  • Sen. Fred H. Mills, Jr. (R-New Iberia), ALEC Civil Justice Task Force member;
  • Sen. Ben Nevers, Sr. (D-Bogalusa), ALEC Education Task Force member;
  • Sen. Neil Riser (R-Columbia), ALEC Communications and Technology Task Force;
  • Sen. Gary L. Smith, Jr. (R-Norco), ALEC Communications and Technology Task Force;
  • Sen. Francis Thompson (D-Delhi)
  • Sen. Mack “Bodi” White, Jr. (R-Central), ALEC Tax and Fiscal Policy Task Force.

All ALEC meetings are held under tight security behind closed doors. During one recent conference, a reporter was not only barred from attending the meeting, but was actually not allowed into the hotel where the event was being held.

Apparently, there is good reason for that. It is at these conferences that ALEC members meet with state legislators to draft “model” laws for legislators to take back to their states for introduction and, hopefully, passage. Some of the bills being considered for 2014 are particularly noteworthy.

We won’t know which proposals were ultimately approved at that December meeting in Washington, however, because of the secrecy in which the meetings are held. We will know only if and when they are introduced as bills in the upcoming legislative session. But they should be easy to recognize.

One which will be easy to recognize is ALEC’s push for implementation of Louisiana’s Course Choice Program in other states. Course Choice, overseen by our old friend Lefty Lefkowith, is a “mini-voucher” program which lets high school students take free online classes if their regular schools do not offer it or if their schools have been rated a C, D or F by the state.

Course Choice has been beset by problems in Louisiana since its inception first when companies offering classes under the program began canvassing neighborhoods to recruit students and then signing them up without their knowledge or permission. Vendors offering the courses were to be paid half the tuition up front and the balance upon students’ graduation, making it a win-win for the vendors in that it didn’t really matter if students completed the courses for the companies to be guaranteed half the tuition. Moreover, there was no oversight built into the program that would ensure students actually completed the courses, thus making it easy for companies to ease students through the courses whether or not they actually performed the work necessary to obtain a grade. The Louisiana Supreme Court, however ruled the funding mechanism for Course Choice from the state’s Minimum Foundation Program unconstitutional.

Three other education proposals by ALEC appear to also borrow from the states of Utah. The first, the Early Intervention Program Act, is based on Utah’s 2012 law which has profited ALEC member Imagine Learning by diverting some $2 million in tax money from public schools to private corporations. But Imagine Learning did not offer test scores for the beginning and ending of the use of its software, little is known of what, if any, benefits students might have received. The Student Achievement Backpack Act and the Technology-Based Reading Intervention for English Learners Act also appear to be based on Utah’s education reform laws.

The former provides access to student data in a “cloud-based” electronic portal format and was inspired by Digital Learning Now, a project of Jeb Bush’s Foundation for Excellence in Education when he was Florida’s governor.

Not all of ALEC’s proposals address public education.

For example, do you like to know the country of origin of the food you place on your table? More than 90 percent of American consumers want labels telling them where their meat, fruits, vegetables and fish are from, according to polling data. ALEC, though, is resisting implementation of what it calls “additional regulations and requirements for our meat producers and processors,” including those that would label countries of origin.

ALEC’s “Punitive Damages Standards Act” and the accompanying “Noneconomic Damage Awards Act” would make it more difficult to hold corporations accountable or liable when their products or practices result in serious harm or injury.

The organization’s “Medicaid Block Grant Act” seeks federal authorization to fund state Medicaid programs through a block grant or similar funding, a move that would cut Medicaid funding by as much as 75 percent. U.S. Rep. Paul Ryan (R-WI) has pushed similar block grant systems for Medicaid in several of his budget proposals.

In what has to qualify as a “WTF” proposal, ALEC for the second straight year is seeking approval of a bill to end licensing, certification and specialty certification for doctors and other medical professionals as requirements to practice medicine in the respective states and to prohibit states from funding the Federation of State Medical Boards.

Then there is the “Equal State’s Enfranchisement Act,” which is considered an assault of sorts on the 17th Amendment. For more than a century, U.S. senators were elected by state legislatures, a practice which often led to deadlocks and stalemates, leaving Senate seats open for months on end. But 101 years ago, in 1913, the 17th Amendment was ratified, changing the method of choosing senators to popular vote by the citizenry.

While ALEC’s proposal doesn’t mean full repeal of the 17th Amendment, it does mean that in addition to other candidates, legislatures would be able to add their own candidates’ names to ballots for senate seats. ALEC, apparently, is oblivious or unconcerned with a national poll that shows 71 percent of voters prefer electing senators by popular vote.

To keep track of these and other ALEC bills introduced in the upcoming session, just keep an eye on the member legislators and the bills they file.

And keep reading LouisianaVoice.

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It’s small wonder that Gov. Bobby Jindal wanted to get out of town quickly—he departed the state for an extended trip to Asia to recruit business and industry investment in Louisiana—given the flak he is receiving from the legislature and radio talk show hosts over his hiring of a consulting firm at a cost of $4.2 million to somehow magically find $500 million in state government savings. http://theadvocate.com/csp/mediapool/sites/dt.common.streams.StreamServer.cls?STREAMOID=sZuDzNJoJK2fudmeRm9FJpM5tm0Zxrvol3sywaAHBAlauzovnqN0Cbyo1UqyDJ6gE0$uXvBjavsllACLNr6VhLEUIm2tympBeeq1Fwi7sIigrCfKm_F3DhYfWov3omce$8CAqP1xDAFoSAgEcS6kSQ–&CONTENTTYPE=application/pdf&CONTENTDISPOSITION=Alvarez%20Marsal%20Government%20Savings%20Contract.pdfhttp://theadvocate.com/news/8045923-123/vitter-super-pac-raises-15

And that contract doesn’t even take into account Pre-Jindal recommendations by the firm that may ultimately end up costing taxpayers $1.5 billion which, of course, would more than offset any $500 million savings it might conjure up that the Legislative Fiscal Officer, the State Treasurer, the administration, the legislature and the Legislative Auditor have been unable to do, largely because of a time honored political tradition affectionately known as turf protection.

One might even ask, for example, why representatives of the consulting firm, Alvarez & Marsal, who somewhat smugly call themselves “efficiency engineers,” were wasting their time Friday at the gutted Office of Risk Management. Isn’t there already a promise of $20 million in savings on the table as a result of Jindal’s privatization of that agency four years ago? For just that one small agency, that’s 4 percent of the entire $500 million in savings Jindal is seeking through the $4 million contract. (The elusive $500 million savings, for the real political junkies, represents only 2 percent of the state budget.)

The Baton Rouge Advocate also got in on the act on Saturday with Michelle Millhollon’s excellent story that  noted that the actual contract contains no mention of a $500 million savings. http://theadvocate.com/home/8131113-125/vaunted-savings-not-included-in

That revelation which is certain to further antagonize legislators, including Senate President John Alario (R-Westwego) whom Jindal will now probably try to teague for his criticism of the governor’s penchant for secrecy.

Hey guys, your contract is only for four months, so why waste your time in an agency that supposedly is on the cusp of a $20 million savings? That ain’t very efficient, if you ask us.

Legislators immediately voiced their displeasure at the contract. “There’s a lot of people who don’t like it,” said Rep. John Schroder (R-Covington), a one-time staunch Jindal ally.

Rep. Tim Burns (R-Mandeville), chairman of the House Governmental Affairs Committee (if he hasn’t been teagued by now), said when the dust settles any cost cutting will ultimately be the responsibility of state officials. “Even the best PowerPoint presentation isn’t going to cut government,” he said. “The trick is to make the political choices.”

The contract raises immediate questions how Jindal, now entering his seventh year in office, could justify the move in light of his many boasts of efficiencies his administration has supposedly initiated.

Ruth Johnson, who is overseeing the contract for the Division of Administration, defended the deal with the simplistic and less than satisfactory logic that “Sometimes you have to spend money to save money.”

And while Jindal has indicated he wants a final set of recommendations in April, the contract runs through 2016, meaning the final cost could far exceed the $4.2 million Alvarez & Marsal is scheduled to receive for its review.

Jim Engster, host of a talk show on public radio in Baton Rouge, on Friday predicted during an interview with State Treasurer John Kennedy that Alvarez & Marsal’s final report will most likely bear an uncanny resemblance to the 400-plus-page interim report of Dec. 18, 2009, by the infamous Commission on Streamlining Government.

The hearings by that commission, you may remember, gave birth to the term teaguing, a favorite tactic employed by the Jindal administration when a state employee or legislator refuses to toe the line. A state employee named Melody Teague testified before that commission and was summarily fired the following day. Six months later her husband, Tommy Teague, was fired as head of the Office of Group Benefits when he was slow in getting on board the Jindal Privatization Express. Mrs. Teague appealed and was reinstated but her husband took employment elsewhere in a less volatile environment.

The Alvarez & and Marsal representatives have pleaded ignorant to questions of whether their report will draw heavily from the four-year-old commission report and even professed to not know of its existence.

A curious denial indeed, given that Johnson was also the ramrod over the streamlining commission during Jindal’s second year in office. Does she not share this information with the firm or was all that commission work for naught? Or part of Jindal’s infamous deliberative process? Curious also in that Alvarez & Marsal is specifically cited—by name—no fewer than six times in the report’s first 51 pages, each of which is in the context of privatizing the state’s charity hospital system. The report quoted the firm as recommending that:

  • “The governor and the legislature authorize and direct the LSU Health System to adopt the recommendations of Alvarez and Marsal for the operation of the interim Charity Hospital in New Orleans. The governor and legislature direct every other charity hospital in Louisiana to contract for a similar financial and operational assessment with a third party private sector consulting firm, such as but not necessarily Alvarez and Marsal, that specializes and has a proven track record in turnaround management, corporate restructuring and performance improvement for institutions and their stakeholders.”

That’s right. That is where the seed was apparently first planted for the planned privatization of the LSU Hospital system, even to the point of directing the LSU Board of Stuporvisors to vote to allow a Shreveport foundation run by one of the LSU stuporvisors to take over the LSU Medical Center in Shreveport and E.A. Conway Medical Center in Monroe. Alvarez & Kelly performed that bit of work under a $1.7 million contract that ran for nine months in 2009, from Jan. 5 to Sept. 30 (almost $200,000 per month).

Alvarez & Marsal also received a $250,000, contract of a much shorter duration (10 days) from Jindal on April 9, 2013, to develop Jindal’s proposal to eliminate the state income taxes in favor of other tax increases. That quickie, ill-conceived plan was dead on arrival during the legislative session and Jindal quickly punted before a single legislative vote could be taken

But Alvarez & Marsal’s cozy if disastrous relationship with state government goes back further than Jindal, even. http://www.alvarezandmarsal.com/case-study-new-orleans-public-schools It’s a relationship that could become one of the most costly in state history—unless of course, the state chooses to ignore a court judgment in the same manner as it has ignored a $100 million-plus award (now in the neighborhood of a quarter-billion dollars—with judicial interest) stemming from a 1983 class-action flood case in Tangipahoa Parish.

In fact, the state probably has no choice but to ignore the judgment as an alternative to bankrupting the state but that does little to remove the stigma attached to a horrendous decision to accept the recommendation of Alvarez and Marsal which subsequently was rewarded with a $29.1 million three-year state contract from April 4, 2006 to April 3, 2009 to “develop and implement a comprehensive and coordinated disaster recovery plan in the wake of Hurricane Katrina.”

In December of 2005, the Orleans Parish School Board adopted Resolution 59-05 on the advice of the crack consulting firm that Jindal somehow thinks is going to be the state’s financial salvation.

That resolution, passed in the aftermath of disastrous Hurricane Katrina was specifically cited in the ruling earlier this week by the 4th Circuit Court of Appeal that upheld a lower court decision the school board was wrong to fire 7,500 teachers, effective Jan. 31, 2006. The wording contained in the ruling said:

  • “In December 2005, the OPSB passed Resolution No. 59-05 upon the advice and recommendation of its state-selected and controlled financial consultants, the New York-based firm of Alvarez & Marsal. The Resolution called for the termination of all New Orleans Public School employees placed on unpaid “Disaster Leave” after Hurricane Katrina, to take effect on January 31, 2006.1 On the day that the mass terminations were scheduled to take place, Plaintiffs amended their petition to seek a temporary restraining order preventing the OPSB from terminating all of its estimated 7,500 current employees at the close of business on that day. The trial court granted the TRO and this Court and the Louisiana Supreme Court denied writs on the issue. The TRO was later converted into a preliminary injunction that restrained, enjoined and prohibited the OPSB, et al, from “terminating the employment of Plaintiffs and other New Orleans Public School employees until they are afforded the due process safeguards provided in the Orleans Parish School Board’s Reduction in Force Policy 4118.4.” Nevertheless, Plaintiffs and thousands of other employees were terminated on March 24, 2006, after form letters were mailed to the last known address of all employees of record as of August 29, 2005.”

The appellate court upheld the award of more than $1 million to seven lead plaintiffs in the case of Oliver v. Orleans Parish School Board but adjusted the lower court’s damage award, ordering the school board and the Louisiana Department of Education to pay two years of back pay and benefits and an additional year of back pay and benefits to teachers who meet certain unspecified requirements.

Immediately following Katrina, state-appointed Alvarez and Marsal set up a call center to collect post-Katrina addresses for a majority of staff members in time for the anticipated layoffs. But when the state began the hiring process for schools that had been taken over, the terminated employees were never called, prompting plaintiff attorneys to charge that the entire procedure was intentional and part of the state’s plan to take over the Orleans Parish school system.

Plaintiffs said that then-State Superintendent of Education Cecil Picard chose Alvarez & Marsal to prevail upon the school board to replace acting parish Superintendent Ora Watson with an Alvarez & Marsal consultant.

So, Watson was replaced, 7,500 teachers were fired, and the teachers sued and won, leaving the Orleans School Board and the state liable for a billion-five and the firm that started it all is hired by Jindal to find savings of an unspecified amount. What could possibly go wrong?

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A company holding two state contracts worth $32.8 million was the lead IT contractor of the ill-fated Affordable Health Care enrollment web page rollout late last year, LouisianaVoice has learned.

CGI Technologies and Solutions, headquartered in Quebec Province, has experienced problems with other contracts in Canada and the U.S. even before the Obamacare debacle.

The largest tech firm in Canada, CGI also has offices in the Washington, D.C. area—Fairfax and Manassas, VA., Washington and Baltimore, and is part of the CGI Group which has 72,000 employees in 400 offices worldwide—many of those in India.

CGI Technologies and Solutions was awarded a $32.5 million contract with the Office of Community Development’s (OCD) Disaster Recovery Unit (DRU) on March 2, 2012 to provide computer software hosting, support and training for OCD’s Hazard Mitigation Grant Program (HMGP), small rental programs.

That contract is scheduled to run out on March 1, 2015.

CGI also has a $300,000 contract with the Office of Information Services to provide technical support for the Division of Administration’s (DOA) advanced financial system (AFS). That contract is set to expire on June 30.

The state also has a $20 million contract with Hunt Guillot & Associates of Ruston through OCD and DRU for grant management activities for infrastructure and other projects undertaken as a result of damages resulting from hurricanes Katrina, Rita in 2005 and Gustav and Ike in 2008.

The Hunt, Guillot contract was first issued for $18.2 million on Oct. 31, 2007—just 10 months after Gov. Bobby Jindal took office, and called for the firm to work in program design, the pre-application and application process, pre-construction and construction of projects related to hurricane recovery. That contract expired on Oct. 30, 2010, but the company was awarded a subsequent contract of $1 million on Dec. 1, 2009 which called for it to review applications for grant funds pursuant to the hazard mitigation grant.

It was not immediately clear how much, if any, overlap there might be between the CGI and Hunt, Guillot contracts, if one was intended to augment the other, or if the two are completely separate, unrelated contracts.

What is clear is that in April of 2013, less than a year ago, the Legislative Auditor issued a report which indicated the state could be on the hook for a minimum of $116 million and possibly as much as $600 million in improperly received or misspent disaster aid following Katrina and Rita.

http://www.nola.com/politics/index.ssf/2013/04/louisiana_on_for_misspent_road.html.

State auditors reviewed 24 loans to property owners through the state’s Small Rental Property Program. The state had allocated $663 million to the program and of the 24 cases reviewed, none had been flagged as problematic by OCD. Though only 24 cases were reviewed, more than 8,000 properties benefitted from the assistance program—increasing the likelihood that the total number and amount of improper payments could go significantly higher.

OCD Executive Director Patrick Forbes said rather than attempt to chase down homeowners to retrieve the misspent funds, he intends to change OCD regulations to provide more assistance to homeowners before “triggering the recapture of funds.”

Despite that statement of intent, a month after that audit report, on May 21, the administration issued a $600,000 contract to the Baton Rouge law firm of Shows, Cali & Walsh to “review and analyze Road Home files for overpayments, ineligible grantees, etc., (and to) negotiate and collect funds due to the state.”

Shows, Cali & Wash, meanwhile, has its own problems stemming from a federal judge’s findings that it manipulated evidence in a federal lawsuit by three death row inmates at the Louisiana State Penitentiary at Angola. http://louisianavoice.com/2014/01/03/baton-rouge-law-firm-with-3-million-in-state-contracts-faces-legal-sanctions-over-evidence-manipulation-in-angola-lawsuit/.

Meanwhile, the ObamaCare project—healthcare.com—disaster appears to have had caused a negative impact on employee morale at CGI, according to a staff worker who asked not to be identified. “There’s a lot of frustration,” he said. “People are getting sick, fainting in conference calls.”

Employee turnover is said to be high at CGI, making matters more complicated when trying to assemble a web page for the health-care exchange. Despite that, the upper management mentality at CGI appears to work toward establishing relations “so intimate with the client that decoupling becomes almost impossible,” according to one company profile. http://www.washingtonpost.com/blogs/wonkblog/wp/2013/10/16/meet-cgi-federal-the-company-behind-the-botched-launch-of-healthcare-gov/.

CGI was hired by the Hawaii Health Connector, that state’s new health exchange for providing insurance options under ObamaCare, to build its website and the state portal, like HealthCare.gov, had immediate problems when it launched on Oct. 1, 2013. http://www.foxnews.com/politics/2013/10/23/red-flags-company-behind-obamacare-site-has-checkered-past/.

“The morning I heard CGI was behind (the Obamacare web page development), I said, ‘My God, no wonder that thing doesn’t work,’” said James Bagnola, a Texas corporate consultant who was hired by the Hawaii Department of Taxation in 2008. “The system is broken all the time.” Bagnola said CGI was able to continue work on the Hawaii project despite repeated managerial complaints and a “corrosive environment” in which state employees felt pitted against CGI staff.

CGI’s contract to design and execute a new $46.2 million diabetes registry for eHealth Ontario, part of the Canadian government health care system, was canceled in September of 2012 after a series of delays that rendered the system obsolete.

The state of Vermont as recently as last October, meanwhile, was considering whether or not to penalize CGI for not meeting deadlines for designing and producing that state’s health care exchange as per an $84 million contract with the company.

It may be too early to say that there is an “ominous pattern” of inferior work product from CGI as claimed by some http://www.examiner.com/article/is-cgi-and-white-house-liable-for-obamacare-massive-site-failure and http://www.renewamerica.com/columns/fobbs/131028 but there can be no denial that the failed debut of the ObamaCare web page has cost taxpayers hundreds of millions of dollars.

Which raises the obvious question: What quality of work Louisiana is receiving from the firm? Considering last April’s findings of the Legislative Auditor in its examination of the Road Home program, that’s a fair question.

Contractors are being paid tens of millions of dollars to provide oversight of the grant programs in the hurricane recovery efforts. But what oversight is being provided of the contractors themselves? And if the contractors need oversight, why are they even in the equation to begin with?

How do we know they are doing the jobs they are being paid to do?

If we are to believe the auditor’s report, they well may not be giving the state a return on its dollar.

Are contracts simply being doled out by the Jindal administration with little or no vetting? When one looks at some of the other contracts awarded since 2008, there seems to be ample cause for concern.

All one has to do is study the administration’s smarmy record of questionable contracts, beginning with the hiring of Goldman Sachs to help write the request for proposals (RFP) for the privatization of the Office of Group Benefits (OGB). Who was the sole bidder on that project at the outset before the project was re-bid? Goldman Sachs. http://louisianavoice.com/2013/12/01/jindal-and-rainwater-preoccupied-with-ogb-privatization-missed-or-chose-to-ignore-obvious-cnsi-contract-red-flags/

And then there was the infamous contract with CNSI http://www.frontpagemag.com/2013/volpe/billionaire-swindlers-line-up-for-obamacare/

and the ensuing investigation by the FBI  http://tomaswell.files.wordpress.com/2013/12/fbireportscnsi3.pdf

http://tomaswell.files.wordpress.com/2013/12/dt-common-streams-streamserver1.pdf and the Louisiana Attorney General’s office http://tomaswell.files.wordpress.com/2013/12/ldoj-interview-report-on-cnsi-from-0514121.pdf

There also is a series of contracts with Affiliated Computer Services (ACS), since absorbed by Xerox. ACS, once represented by U.S. Rep. Bill Cassidy’s sister-in-law Jan Cassidy who now works for the Division of Administration (DOA) as Assistant Commissioner in Procurement and Technology at an annual salary of $150,000). http://www.linkedin.com/pub/jan-cassidy/6/4aa/703

ACS also has its own string of problems as evidenced by stories from other states http://louisianavoice.com/2013/03/15/doa-hires-jan-cassidy-sister-in-law-of-cong-bill-cassidy-at-150000-previous-employers-records-are-less-than-stellar/ and with the Securities Exchange Commission http://www.sec.gov/litigation/litreleases/2010/lr21643.htm

Not to be outdone, Deloitte Consulting which helped the state in planning for a comprehensive consolidation of information technology (IT) services for DOA, was named winner of the state contract for “Information Technology Planning and Management Support Services,” according to an email announcement that went out to IT employees last September.

Never mind the fact that Deloitte Consulting has experienced a multitude of problems in North Carolina, California, Tennessee, and Virginia because of delays, false starts and cost overruns. http://louisianavoice.com/2013/09/05/surprise-surprise-gomer-deloitte-wins-it-contract-after-spending-year-consulting-with-state-on-consolidation-plan/

And yet this governor is so unyielding in his misguided belief that the private sector can perform any and every governmental function better than public employees that now, six years into his eight-year term, he has decided pay yet another contractor, the international consulting firm Alvarez & Marsal, $4 million to conduct an efficiency study to determine possible savings in state government.

Clueless, thy name is Jindal.

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When we wrote what we thought was a parody about Gov. Bobby Jindal’s decision to privatize the LSU football program, little did we know the American Legislative Exchange Council (ALEC) and the Charles Koch Charitable Foundation beat us to the punch—by a good six years.

Only they were dead serious.

Thanks to an alert reader who forwarded us a link to a Tampa Bay Times story from May of 2011, we learned that Koch, one-half of the infamous Koch brothers who are the primary benefactors of ALEC, had pledged $1.5 million to Florida State University’s economics department way back in 2008 (How did we manage to miss this for so long?).

There was one major caveat, however: In exchange for his generosity, Koch received veto power over hiring decisions for the department.

But even the FSU endowment was not precedent-setting. Between 2007 and 2011, Koch and brother David were said to have given more than $30 million to various groups that negotiated deals with more than 200 universities throughout the U.S.

As Rachel Maddow of MSNBC correctly observed, naming rights to a stadium in exchange for an endowment is one thing, but purchasing faculty rights is something else altogether.

http://www.rawstory.com/rs/2013/12/23/rachel-maddow-charles-koch-buying-sway-over-university-hires-is-objectively-insane/

Maddow, while conceding the deal made perfect sense from Koch’s perspective, was still critical of state officials “crazy enough to let him do it.”

She said that Koch “gets to make sure his conservative billionaire economic ideas get taught and published and propagated under the brand name of something that is supposed to look like a university-level education.

“If you don’t like what the facts say, then write your own facts,” she said. “If you don’t like what independent scholarship looks like, then buy some.”

Normally, university benefactors have little input into who fills a chair that they endow. The unfettered power of university administrators to hire professors of their choosing is considered sacrosanct in academia.

Most universities, the University of Florida among them, have strict policies limiting donor input over the use of their gifts and Yale University once even returned a $20 million endowment when the donor wanted veto power over appointments. Such control was “unheard of,” the university said.

And technically speaking, Koch did not get direct authority over hiring decisions but he did receive authority to select members of an advisory committee that screens candidates which, it turns out, is just as good. A year after the grant was awarded, that advisory committee had rejected 60 percent of job applicants suggested by FSU faculty.

Author Jennifer Washburn called FSU’s capitulation to the siren song of the dollar “an egregious example of a public university being willing to sell itself for next to nothing.”

One of Koch’s favorites, George Mason University, has received more than $30 million over the past two decades. Koch also has underwritten faculty members who push his political beliefs at Clemson and West Virginia universities.

Bruce Benson, chairman of the FSU economics department, denies any suggestion that he agreed to the deal with Koch for economic reasons but did say he makes annual reports to Koch on faculty publications, speeches and classes. He says he has no concerns that agreements with Koch will encourage other donors to seek control over hiring or curriculum.

Yeah, right.

Koch is in political lock step with Florida Gov. Rick Scott who, in one of his first acts as governor, froze all new state business regulations and who has pushed for sweeping tax cuts.

Sound familiar?

The Koch brothers are also political allies of Wisconsin Gov. Scott Walker who likes to tout bogus surveys and reports that make the state appear as the national pacesetter for robust economic health and job growth.

Again, sound familiar?

In fact, one discredited report by Arthur Laffer, who concocted the infamous Laffer Curve nearly 30 years ago, said that Wisconsin’s economic outlook had made a quantum leap in 2013, from 32nd in the nation to 15th. That would be great if only it were true.

But, as they say, there are lies, damned lies and statistics.

It turns out Laffer’s annual report, Rich States, Poor States, is published and distributed by ALEC. Moreover, ALEC solicited funding to underwrite the report from two foundations—the Searle Freedom Trust ($175,000) and the Claude R. Lambe Charitable Foundation ($150,000).

The Koch brothers, by the way, control and run the latter.

The Laffer report, co-written by Wall Street Journal writer Stephen Moore and ALEC director of tax and fiscal policy Jonathan Williams, does not limit its favorable treatment to Wisconsin. Other states with Koch-friendly administrations tend to get the same glowing reports. The Jackson Clarion-Ledger published one of his reports last May with the headline trumpeting that Mississippi’s economic outlook ranked in the top 10 nationally. (Of course, both Mississippi and Louisiana also lead the nation in poverty, obesity, pay disparity between men and women, and the percentage of citizens without health care insurance.)

And Laffer’s report, while serving as a cheerleader for Wisconsin’s economic outlook which he said had jumped 17 spots, was less enthusiastic over data that showed the state’s economic performance moved up only one position, from 42nd to 41st. Obviously, then, there is a huge difference between economic outlook and actual economic performance. Laffer’s recommended formula for the state to improve on economic performance? Lower the state income tax rate for the wealthiest of the state’s citizens while slashing the corporate tax rate in the upcoming 2014 legislative session.

Not to belabor the point, but that should have a familiar ring to Louisiana citizens.

“This is not rocket surgery,” Laffer said. (Yes, he really said that.)

We suppose it’s really not rocket surgery. In fact, it all seems rather easy to comprehend: package your economic philosophy in institutions of higher learning and promote your political and economic agenda in cooperative state legislatures with friendly governors leading the charge.

Once those goals are accomplished, the Koch brothers, through ALEC and their newest organization, the Center for State Fiscal Reform and their corporate membership, can pretty much have their way with us.

And that, of course, would include the elimination of collective bargaining, doing away with the minimum wage, abolishing medical and retirement benefits, discarding worker safety rules, repeal of anything else that stands in the way of their agenda which also includes passage of increased deregulation of business and industry and even more corporate tax cuts.

First, there was Citizens United, and those criteria have already been met, thanks to the 2010 U.S. Supreme Court ruling.

In Laffer’s words, it’s not rocket surgery.

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Just in time for the college football bowl season, Forbes magazine has rated the LSU football program as the fourth most valuable in the country, prompting an announcement by the Jindal administration to capitalize on the latest data.

With an estimated value of $105 million, the LSU programs ranks behind only the University of Texas ($139 million), Notre Dame ($117 million) and Alabama ($110 million) and ranks ahead of such traditional football powerhouses as Michigan, Florida, Oklahoma, Georgia, Ohio State, Nebraska, Auburn, Arkansas, Southern Cal, Texas A&M, and Penn State—5th through 15th, respectively.

http://www.forbes.com/sites/chrissmith/2013/12/18/college-footballs-most-valuable-teams-2013-texas-longhorns-cant-be-stopped/

Upon learning of the ranking, Gov. Bobby Jindal, always the political opportunist, immediately pressured the LSU Board of Stuporvisors to approve a request for proposals (RFP) aimed at the privatization of the LSU football program in time for the start of the 2014 season.

The board approved the plan without discussion or objection.

“We actually have been considering this opportunity for some time,” Jindal said. “The latest story by Forbes simply provides us with the opportunity to negotiate the most favorable contract for the people of Louisiana.”

Jindal said the timing is such that it will be impossible to issue the RFP before the Feb. 5 LSU Bayou Bash recruiting party but he said he felt logistical problems of dealing with new signees could be overcome with assistance from legal counsel Jimmy Faircloth.

“The fact of the matter is, long story short, at the end of the day, there are two things: the LSU football team is overloaded with unproductive players. Applying my well-known ‘do more with less’ mantra, the new team owners will drastically cut the excess fat from the program. All players who do not make the first team on either offense or defense will be dismissed from the team. The kickers and punters will come from the remaining 22 starters.”

He said that move alone would save the program millions of dollars in housing and meal costs as well as costs for extra uniforms, equipment, game tickets and tutors. Other cost saving measures to be initiated by the privatization move include the termination of medical treatment for injured players and suspension of any athletic department financial contributions to academics. “We have already seen that academics can do more with less; now they will have the opportunity to do even more,” he said.

Jindal said in his prepared statement that the 22 players will each be paid on a sliding scale beginning at $100,000 per year. “That should allow LSU to attract the very best starting players in the nation and prevent the raiding of the top two or three high school players that Louisiana produces each year by other colleges—especially by Nick Saban and Alabama,” he said.

“This move will represent a new gold standard of athletic competition,” he said.

He said that a player who is injured and unable to continue in a game will be replaced from a pool of about a dozen standby contract players who will be employed in administrative positions within the Department of Education. In some cases, players will be asked to play on both offense and defense as an example of his “do more with less” crusade.

“The fact that the new owners will schedule only home games also should help us move forward with all due speed,” he said.

Jindal said his latest plan represents a “bold new move” for LSU football. “This should allow us to win the BCS championship virtually every year,” he said. “That fact alone should dispel all arguments that privatization doesn’t work.”

Confidential sources confirmed that one unidentified administration official who raised questions about possible NCAA sanctions for paying players was summarily teagued, a claim that was immediately denied. “That person left on his own accord,” an administration spokesman said. “We had nothing to do with his decision to leave.”

“There is a reason the NCAA would take issue with our proposal,” Jindal said. “I don’t believe it’s a coincidence that the head of the NCAA is a former president of LSU and that he is envious of LSU’s success since his departure. If you recall, when Dr. Mark Emmert was at LSU he was the one who hired Nick Saban and because of that, he has a vested interest in the continued success of Coach Saban. So it’s understandable that he would be opposed to this move.”

Jindal then proceeded to verbally attack Emmert and the NCAA over the anticipated encroachment. “Dr. Emmert and the NCAA want to deny a voice to the very people who will be harmed by such ridiculous sanctions,” he said. “They are trying to muzzle fans who simply want to express their support for what will be the most successful football program in the history of intercollegiate athletics. The only thing our fans want is for the finest athletes in the nation to have the opportunity to escape failing programs.

“Dr. Emmert is attempting to tell our fans to sit down and shut up. That’s never going to happen. Despite whatever evolving legal argument the NCAA comes up with, the voices of hundreds of thousands of fans will be heard,” he said.

“I have already indicated that the NCAA’s effort to deny these kids the right to equal opportunity in football is both cynical and immoral,” Jindal continued. “They (the NCAA and Emmert) can’t have it both ways. Our fans know the real result of any NCAA action, should it be successful, would be to keep great football players in failing programs like those at Alabama, Auburn, Georgia and Florida.”

Key losses to Alabama “have pushed a significant number of players to go out of state,” Jindal said. “Threatened sanctions are another intrusion by the NCAA on players’ personal decisions. Players who wish to play for a premier program should not have to seek approval of Dr. Emmert or the NCAA. It is our moral obligation to ensure that every top player who we recruit has access to the best program available.

“America is a nation of opportunity and a quality football program opens the door to opportunity, no matter the social background of the player.

“We in Louisiana are rejecting the status quo because we believe every player should have the opportunity to succeed.”

He said the Tiger Athletic Foundation (TAF) has been contracted to help draft the RFP for the administration.

Insiders have intimated that TAF is likely to be the sole bidder on the project, although Spectacor Management Group (SMG), which operates the Mercedes Benz Superdome, the New Orleans Arena, Zephyr Field in Metairie and the Baton Rouge River Center, has not been ruled out.

Economic Development Secretary Stephen Moret said whoever wins the contract will receive generous tax incentives and exemptions “for bringing new jobs to Louisiana.”

Jindal said the privatization should save the state “approximately $500 million a year, give or take a few hundred million.”

(We wanted to hold off on this story until April 1, but we just couldn’t wait.)

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One probably can understand former Commissioner of Administration Paul Rainwater for not putting the kibosh on that ill-fated $194 million contract with CNSI in mid-2011. Rainwater was, after all, preoccupied at the time with Gov. Bobby Jindal’s priority project, that of privatizing the Office of Group Benefits (OGB).

You may remember the controversy surrounding the OGB privatization push. First, the state brought in Goldman Sachs to help write the specifications of the request for proposals (RFP) for the privatization scheme and then (drum roll please) Goldman Sachs was the only bidder at $6 million.

After Goldman Sachs subsequently withdrew in a dispute over the issue of indemnification, Blue Cross Blue Shield of Louisiana finally got the bid but in between all that, there was that $49,999.99 contract to Chaffe and Associates for a study that failed to produce the results sought by the administration—not to mention questions about the possibility of the existence of two Chaffe reports. http://louisianavoice.com/2011/06/20/was-leaked-chaffe-report-real-or-a-doa-misdirecton-ploy/

Then there was the little matter of Rainwater’s own confirmation hearings and that of a new OGB director before the Senate and Governmental Affairs Committee that almost certainly demanded much of Rainwater’s attention.

But the confirmation hearing for Bruce Greenstein as Secretary of Health and Hospitals by the same committee a week later should have served as a red flag and should have set off all sorts of alarms within the Jindal administration—beginning with Rainwater.

http://louisianavoice.com/2011/06/09/jindals-appointees-arrogant-bureaucrats-or-simply-a-multitude-of-misunderstood-misbehavin-miscreants/

The warnings were clear and the track record of CNSI was readily available. Apparently no one in this administration ever heard of vetting a company before awarding it the largest single contract in the state’s history.

That, it turned out, was a mistake of monumental proportions.

The details of the awarding of the contract to Greenstein’s former employer now reads like some kind of Tom Clancy espionage novel—complete with secret communications, bid-rigging, lavish entertainment of state officials, death threats, creative accounting principles, money laundering, ghost employees, payments of non-existent loans, posh homes of questionable ownership, possible tax evasion, and claims of an ancestral link between Gov. Jindal’s Indian heritage and CNSI’s Indian ownership. dt.common.streams.StreamServer

Throw in the fact that CNSI is one of the subcontractors working on the Obamacare website, and you’ve got all the makings of a real suspense story.

To say the CNSI story is complex would be to belabor the obvious which is all the more reason that Jindal and Rainwater should have taken a closer look at the qualifications of CNSI before committing to such a contract.

It turns out that every state might want to take a long, hard look at CNSI’s credentials now that the company is in position to bid on billions in new contracts with individual states that, in order to receive new grants for expanded Medicaid rolls, will be required to update outdated IT systems in order to more readily share data. Michael Volpe recently had a story that dealt with that very issue in Frontpage Mag. http://www.frontpagemag.com/2013/volpe/billionaire-swindlers-line-up-for-obamacare/

In examining CNSI, these states might wish to begin with Maryland where CNSI’s problems began as far back as 2001. In was that year that Maryland hired CNSI to develop its new web-based Main Medicaid Claims System for the processing of $1.5 billion per year in Medicaid Claims. CNSI has submitted the lower of two bids for the project. The company’s $15 million bid was exactly half the $30 million bid by the other company. Experts say the state should have known right then that the low number of bidders and the disparity between bids were red flags.

CNSI, it turned out, had zero experience in developing Medicaid claims systems. It was given 12 months to develop the system, which was finally put online in January of 2005, three years late.

Problems occurred almost immediately. The company’s costs quickly grew to $25 million but even worse for the state, there were an unusually high number of rejected claims from the outset and the number of suspended claims quickly reached 300,000—a rejection rate of about 50 percent—and by June the number had grown to 647,000, representing about $310 million in back payments to medical providers. Some facilities had to close their doors because of non-payments while others had to take out loans to keep their doors open and others simply stopped seeing Medicaid patients altogether.

In 2008, South Dakota awarded CNSI a $62.7 million contract for a new Medicaid processing system. By 2010—nearly a year before Louisiana hired CNSI—work was halted on the project after costs had grown to $80 million and the system was still two to three years from completion.

A year ago, the Southeast Michigan Health Information Exchange (SEMHIE) filed suit against CNSI over a $1.8 million contract to develop a Social Security e-Disability project for SEMHIE. One of the stipulations of that contract was that any software developed for the project would become the property of SEMHIE. The lawsuit says that SEMHIE “repeatedly, both orally and in writing,” demanded delivery of the software but that CNSI has refused to turn over the software or even to communicate with SEMHIE.

SEMHIE says it had been negotiating to provide the Michigan Health Information Network (MHIN) with the software but that CNSI’s refusal to turn it over resulted in MHIN’s termination of the agreement, thereby costing SEMHIE “substantial” revenue.

The latest twist in the CNSI saga is that the State of Arkansas has, on the basis of the FBI investigation of CNSI’s contract with Louisiana, disqualified CNSI from doing business with that state.

But the really interesting details of the CNSI contract and the company’s links to former employee Greenstein, who was DHH Secretary at the time the contract was awarded, can be found in a series of interviews conducted by the FBI in Maryland FBIReportsCNSI in which two former employees, Vice President and Corporate Counsel Matthew Hoffman and Vice President of Accounting and Finance Jeffrey Weisenborne, reported bookkeeping irregularities, falsification of asset statements to bankers, the purchase of secret homes in Maine, Michigan and Washington State which were not carried on the CNSI books, non-existent loans for which the four CNSI partners received monthly payments, the hiring of CNSI partners’ family members who did no work, bid-rigging, and threats to Hoffman that he would be killed if he disclosed company misconduct. dt.common.streams.StreamServer

The Louisiana Attorney General’s office also conducted an interview with a CNSI employ who originally was a contract employee but who was subsequently hired full time by the company. The employee, identified only as Kunego, which was said to be a pseudonym, was conducted on May 10—11, 2012.

He testified that CNSI’s bid was structured so that it could “shave off” about $40 million from its bid, thus allowing the company to win the contract after which it could get the terms of the contract changed. “In many states this alone would lead to disqualification of the CNSI proposal,” he said. Additionally, he said DHH “front-loaded” the contract, meaning CNSI got money up front because “CNSI was close to being insolvent and needed this change to keep them afloat.”

Kunego said in January of 2011 he and CNSI officials were in North Dakota to prepare their pricing for the Louisiana proposal when they were told by CNSI cofounder and CEO Bishwajeet Chatterjee that the number they had to beat was under $199 million. “This indicated that CNSI officers knew ahead of time the dollar amount that they had to propose to win the contract,” he said.

“After the contract was awarded and during the protest period, Greenstein went to DC (Washington) and was picked up by CNSI officers and entertained to dinner,” the witness said.

He said that during the Greenstein confirmation hearings, CNSI Vice President of Government Affairs Creighton Carroll “was very concerned that the Senate committee would subpoena their phone records.” Carroll told Kunego that they deleted many text messages between CNSI officers and Greenstein “to avoid them being subpoenaed.” Moreover, he said Carroll used his wife’s cell phone for most of the “off channel communications” with Greenstein.

Also during the Greenstein confirmation hearings, CNSI’s lobbyist Alton Ashy was texting Greenstein in an effort to help him with his answers to questions being asked by committee members.

Kunego said that when Greenstein worked for CNSI he lived in a CNSI-owned townhome and that he “got the impression from Chatterjee that Greenstein had ownership in CNSI.” He said 80 percent of CNSI is owned by the four founders—Chatterjee, Chief Strategic Officer Adnan Ahmed, Chief Financial Officer Jaytee Kanwal, and Chief Administrative Officer Reet Singh—while the remaining 20 percent is owned by 23 different people.

The Attorney General report quoted Kunego as saying Jindal has “an India to India ancestor-driven background and network of connectors that brought CNSI and Jindal together” (a characterization the governor’s office labeled as “insulting”) and that “Jindal’s public persona does not jive (sic) with what is going on at DHH.” LDOJ Interview Report on CNSI from 051412

Finally, we have to raise a couple of other questions here about the sequence of events that don’t exactly shine the best light on the Jindal administration.

Was the timing of the personnel change in the Division of Administration (DOA) coincidental or was it somehow tied to the pending investigation?

Rainwater was brought over to the governor’s office on Oct. 15, 2012, to serve as Jindal’s Chief of Staff and has not been heard from since while Deputy Chief of Staff Kristy Nichols left the governor’s office to move across the street to the Claiborne Building to take over Rainwater’s former duties.

In January, the FBI served a subpoena on DOA for all records pertaining to the CNSI bid and contract, including the RFP. And while Jindal certainly knew of the subpoena (and if he did not know, Nichols should be run off by a mean, biting dog for not informing her boss), the subpoena did not become public knowledge until early March. Once the news broke, Jindal acted with all deliberate speed (and yes, that’s sarcasm) to announce the termination of the contract, saying his administration would “not tolerate corruption.”

A week after that, Greenstein announced his resignation, but incredibly, was allowed to remain on the job for another month.

So, did the administration initiate the personnel change at DOA in October in anticipation of the FBI and Attorney General investigations and the subpoena that would come down in three months?

Why did the administration try to keep a lid on the news of the subpoena for some two months and cancel the CNSI contract only when the subpoena’s existence became public knowledge?

And most important: why was Greenstein allowed to remain on the job for a full month after news of the subpoena and the cancellation of the CNSI contract?

Something here just doesn’t pass the smell test.

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If public humility is your thing, all you have to do is appear before a state legislative committee or state commission unprepared to provide answers to even the most basic of questions.

That’s what happened last Friday in two separate legislative committee rooms during meetings of the State Bond Commission and the Joint Legislative Committee on the Budget (JLCB) during discussions of capital outlay projects and BA-7 requests, respectively.

BA-7s are budget request forms used to make changes in revenues and/or expenditure line items during the year. Agencies submit them to the Division of Administration (DOA) Budget Office and if approved there, they are placed on the monthly agenda of the JLCB for consideration.

Bond Commission Chairman State Treasurer John Kennedy was particularly rankled over the shifting of construction projects to be replaced by $5 million in capital improvements to the LSU Health Sciences Building in Shreveport which is being taken over by Biomedical Research Foundation of Northwest Louisiana (BRF).

After Mark Moses of State Facility Planning and Control submitted changes to the commission, Kennedy said, “In July, you said the list was top priority and shovel ready. Now you’re saying they are not. What changed?”

“Cash flow needs have changed,” Moses said. “We’re shifting money. Eighteen projects are complete and on 76 others, there has been no activity and if the need is not there, we shift the dollars.”

“Why did you say in July that they were top priority?” Kennedy asked again. “The problem is if we replace them with something else, the original projects go to the back of the line. We’re shutting 90 projects down even though we have already spent money on some of them and now we’re sending those projects to the back of the line.”

Kennedy then launched into his ongoing criticism of the privatization of the Louisiana Medical Center at Shreveport and E.A. Conway Medical Center in Monroe. “We’re making $5 million in capital improvements to the Health Science Center. Who’s going to own that?”

Liz Murrill, DOA chief legal counsel, said, “We own the building. They (BRF) are leasing it.”

“We’re spending $4.8 million on scanner clinical and research imaging equipment for Biomedical Research Foundation…”

“This is a non-state entity. The dollars are being used for a public purpose,” Murrill said.

“Like an NGO (non-government organization)? We’re just giving it to them?”

“We’re providing money for this piece of equipment,” she said.

“Do we require them to file quarterly reports?”

“It’s contemplated it will be used for a public purpose,” she said, failing to answer his question.

Kennedy then asked if the legislative auditor would be able to audit the expenditure of the funds to which Murrill said, “I assume so, just as with any capital outlay projects.”

“One of the conditions of the agreement is there would be no public record,” Kennedy said, referring to a clause in the certificate of agreement between the LSU Board of Stuporvisors and BRF which says, “Financial and other records created by, for or otherwise belonging to BRF or BRFHH (BRF Hospital Holdings) shall remain in the possession, custody and control of BRF and BRFHH, respectively,” and that “such records shall be clearly marked as confidential and/or proprietary,” and thus protected from Louisiana public records laws.

“A public record is a public record,” Murrill said somewhat tentatively. “We have procedures to decide what is public record.”

“Who decides what’s public?” Kennedy asked.

“It depends on who gets the request.”

“Do you have a problem adding a condition to these purchases on the legislative auditor’s being able to audit the purchases?”

“I think that’s the case now,” Murrill said.

“Why are we buying this for the Biomedical Center instead of LSU?” Kennedy asked.

Mimi Hedgecock of the LSU School of Medicine—and formerly Jindal’s policy advisor—said the purchase was part of the partnership with BRF prior to the certificate of agreement between LSU and BRF.

“Is it accurate to say we have not picked an operator of the hospital yet?” Kennedy asked. “The testimony before the Louisiana Joint Budget Committee was they (BRF) were going to pick an operator. We’re entering a 99-year lease and don’t know who is even going to run the facility. The legislature has no say. How can we audit if we don’t know who’s running it? We can’t audit HCA (Hospital Corp. of America).

“This makes a mockery of the capital outlay procedure,” Kennedy said. “You’re supposed to be building a priority of projects. In July, you cam to us and said these projects were absolutely top priority and (were) shovel ready. Now they’re not shovel ready or top priority. Now we have new projects and these projects are going to the back of the line. I don’t think this is a good way to do business.”

Joint Budget Committee

Things got even testier at the Joint Budget Committee, thanks to the amateurish performance of witnesses appearing on behalf of the Recovery School District (RSD), just another ongoing embarrassment for the Louisiana Department of Education (DOE).

The fun began when committee member Jim Fannin (R-Jonesboro), who also serves as House Appropriations Committee chairman, questioned RSD’s claim to having $34 million in self-generated funds for the projects it was submitting.

“Explain how you self-generated $34 million,” he said. “It’s unusual for RSD to self-generate that many dollars.

The breakdown given was $27.13 million in new market tax credits, $3.37 million from insurance proceeds and $4.05 million from Harris Capital funding for construction of Wheatly and McDonough 42 schools.

Fannin responded that the way the budget was presented was “confusing.” He said he was seeing too many “other” expenditures on the BA-7 submitted by RSD. “You have legal expenses of $800,000,” he said. “I never saw legal expenses of $800,000 to rebuild two schools.”

“Those legal fees pay for 82 schools—the entire master plan,” said RSD spokesperson Annie Cambre.

But it was Sen. Ed Murray (D-New Orleans) who peppered the RSD types with a barrage of withering questions—withering because the RSD representatives were woefully ill-prepared with answers much as State Superintendent John White has been since his appointment in January of 2012.

Murray asked about the expenditure of $375,000 in funds for engineering and architectural costs before RSD had authority to spend the money. “Are we using any of this $375,000 to pay them already?” he asked.

“Most were paid from multiple fund sources,” responded a young, unidentified red-headed RSD representative who more resembled a high school FBLA member than a public education professional.

“Let me ask my question again,” Murray said. “Are we using any of this $375,000 to pay them already?”

“For some of them, yes. Some are eligible from FEMA, some not,” said Red.

“Then why are we just now getting this request if we’re already using the money?”

“We already had some authority but we just realized we need additional authority.”

Murray, beginning to show his exasperation, then asked, “How much of the $375,000 have we spent so far?”

“I don’t know,” said Red. “I can get that for you.”

“It disturbs me that we’re spending money without authority to do so,” Murray said. “Let’s go to the legal expense of $800,000. How much of that have we spent?”

“Again, I don’t have that exact number,” said Red. “I can get that for you.”

“Mr. Chairman,” Murray said to committee Chairman Jack Donahue (R-Mandeville), “can we get them to come back next month when they have answers?”

“That would seem appropriate,” said Donahue. “There’re a lot more questions than answers.”

Bordelon, in a last-ditch effort to salvage the request said, “It’s important that everyone understand the timing of the Wheatly-McDonough projects. There will be several thousand students affected by any delay. The New Market tax programs and closing times are specific. Timing is of the essence.”

“We’d like to help you guys,” Donahue said, “but when you come here you don’t have sufficient information to answer questions. I don’t know how you think we can approve something when you can’t answer questions about the money you’re asking for that you’ve already spent and how many dollars are involved.”

“We were utilizing previously granted authority,” Bordelon said.

“I appreciate that,” Bordelon said, “but on the other hand, you’re already spending it and didn’t come for authority to do that until you started spending the money. And when members ask how many dollars have already been spent, and you can’t answer, that’s a problem.”

“It was my understanding we were operating under previously granted authority,” Bordelon persisted.

“That’s not what was said,” Bordelon said. “That was not the testimony. The testimony was you were already spending that money but you don’t know how many dollars were spent.”

Murray’s motion to defer action until next month passed unanimously and Murray then had one last word of advice to Bordelon.

“You say this is going to affect ‘several thousand students.’ I’m pretty familiar with Wheatly and McDonough 42. You don’t have several thousand students in those two schools. We want you, when you come before this committee, to tell us accurate information.”

Sen. Dan Claitor (R-Baton Rouge) added, “When you come back, be prepared to discuss the oddly round legal expenses and issues related to that.”

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The following is a press release by State Treasurer John Kenney. LouisianaVoice presents it here as a guest column that we feel underscores the concerns expressed in our Sept. 29 post entitled False prophets, false profits—and false reasons to privatize LSU Hospital System (or trolling for more Medicaid dollars)

The reason advanced by the Jindal Administration for privatizing Louisiana’s charity hospitals is that a private hospital like Lafayette General or Ochsner, for example, can manage a hospital more efficiently, and therefore cheaper, than the state.

That’s why I was taken aback when the chairman of the private entity taking over the Shreveport state hospital testified before the Joint Legislative Committee on the Budget that the private contractor’s costs to run the Shreveport facility will be the same as the state’s. Where, then, will the Jindal Administration’s promised annual savings of $150 million come from if not from achieving operational efficiencies?

Dig deeper into the details and it becomes apparent that the planned “savings” won’t result from lower costs but from getting more money from the federal government through an accounting change. This won’t make the charity hospitals or Louisiana’s Medicaid program, which pays for the hospitals, more efficient. It will just make them more expensive, fueled by additional federal (American taxpayer) money.

Here’s how the new financial strategy will work: Medicaid, which is government health insurance for the poor, is a federal-state program. The states run it but the feds put up most of the money. In Louisiana, for every $1 in state taxpayer money we contribute, the feds contribute $2. The more money we put up, the more money the federal government contributes.

Under the Charity Hospital privatization, the state will “lease” the charity hospitals to private hospitals, which then will be responsible for treating our low-income and uninsured citizens. The state will pay the private hospitals to do this with large amounts of federal money from our Medicaid program. The private hospitals will then return some of those federal dollars to the state as “lease payments.” The federal dollars paid to the state as “lease payments” now become new state dollars, which the state can use to draw down even more federal money.

This accounting maneuver is undeniably clever. The question is whether it is legal. It must be approved by the federal Centers for Medicare and Medicaid Services (CMS).

Louisiana’s track record with CMS is not good. CMS has previously rejected similar financing strategies designed to leverage federal money. In the early 1990s, for example, Louisiana and other states adopted financing strategies such as “provider taxes,” “provider donations,” and “intergovernmental transfers,” designed to launder federal Medicaid funds into state funds in order to draw down more federal funds. CMS and Congress spurned them all. (The Medicaid Disproportionate Share Hospital Payment Program: Background and Issues, The Urban Institute, No. A-14, October 1997). http://www.urban.org/publications/307025.html

In fact, Louisiana was more aggressive than most states in trying to leverage federal dollars. Our health care budget grew from $1.6 billion in 1988 to $4.48 billion in 1993, of which 90% was federal funds. The amount of money actually contributed by the state during this period declined from $595 million to $462 million. (Washington Post, Jan. 31, 1994, page A9).

When CMS and Congress stepped in to stop what then-Congressman Bob Livingston called Louisiana’s “abuse” of Medicaid financing, and, in Livingston’s words, the “unjustified and unwarranted benefits” came to an end (The Advocate, Feb. 6, 1997, page 1A). Newly-elected Gov. Mike Foster was faced with a $1 billion deficit in the health care budget. To clean up the mess, Foster appointed Bobby Jindal as DHH Secretary, who sought special relief from Congress. As The Advocate newspaper editorialized, “Louisiana pleaded guilty as charged, threw itself on the mercy of the court and got off easy,” because “the state for years ran a scam using ‘loopholes and accounting gimmicks’ to justify fantastic increases in federal payments.” (The Advocate, April 29, 1996).

Perhaps this time is different. Perhaps CMS will view the new “lease payments” being used to obtain additional federal money more favorably han the strategies CMS has rejected in the past.

One thing’s for certain, though. We need to find out. The state should seek CMS review of its new strategy immediately—not “soon” as DHH has promised—but now. Until then, our entire state health care delivery system for more than two million of our people is at financial risk.

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Editor’s note: This essay is more than twice the length of our usual posts but with the takeover of LSU Medical Center in Shreveport and E.A. Conway Medical Center in Monroe set to take effect on Tuesday (Oct. 1), we felt it vital to provide more detailed information about the administration’s smokescreen that it likes to call a $125 million taxpayer savings. Please take the time to read it in its entirety.

False reasons for privatizing

The governor’s stated purpose of privatization was to improve quality, improve medical education, and save the taxpayers about $125 million (The Advocate 9/4/13).  His actions, however, support none of these stated purposes.

  • Improve quality?  There are many measures of quality, safety, and patient satisfaction that Medicare and others publish (see the discussion on NOLA.com September 14, 2013 story on East Jefferson and West Jefferson Hospitals).  Through a public records request I asked DHH what measures of quality they used in concluding that quality would be improved with these privatizations.  To no surprise, they did not attempt to review any data on quality despite this being one of the governor’s primary reasons for privatizing.  If you look at Medicare’s website http://www.medicare.gov/hospitalcompare/search.html  the LSU facilities compare very favorably to the new private partners.  Furthermore, the Cooperative Endeavor Agreements (CEAs) do not have requirements of the partner hospitals to measure, report, and be held accountable for any quality measures.
  • Improve medical education?  This is vintage Jindal.  He creates a crisis to force change then regardless of the outcome, declares victory for staving off the crisis he created.  Compared to not having hospitals to train in, the partnerships are better, but the public hospital system under LSU prior to Jindal’s meddling was very supportive of medical education and programs were performing well there.  Since the governor slashed funding for the hospitals, however, the programs ran into difficulty because of the governor’s actions.
  • Save taxpayers about $125 million?  Go back to the Medicare website (http://www.medicare.gov/hospitalcompare/search.html ) and compare the cost to Medicare for care delivered around a hospital stay at the LSU hospital and at the private partner.  In every case the care associated with the LSU hospital was much cheaper than the private partner.  The truth is the governor’s team never asked the private partners what their costs were.  In response to a public records request in which I asked DHH for their analysis comparing costs, DHH was unable to provide any documents demonstrating they compared the actual cost of care at the public and private hospitals prior to entering into the CEAs.  Even though the CEAs commit the state to paying the cost of care at the private hospitals, no one from the administration bothered to ask them what their costs were.  The LSU Board signed off on these agreements without knowing this basic information – an action they were willing to take with the public’s money but that none of them would be so irresponsible to do with his own business.

Here is the breakdown for all cost to Medicare for a patient from 3 days prior to hospitalization to 30 days after the hospital stay (from the Medicare website):

LSU     Hospital Private     Partner(s)
Medical Center of Louisiana     (Charity): $16,698 Touro: $20,022
University Medical Center     (Lafayette): $11,781 Lafayette General: $18,578
Leonard Chabert (Houma): $13,356 Terrebonne General: $18,961
Ochsner: $19,571
W.O.Moss (Lake Charles): $9,299 Lake Charles Memorial: $18,262
Earl K. Long (Baton Rouge): $12,017 Our Lady of the Lake: $21,133

 

So despite the governor’s claim, DHH has no evidence that these deals will save taxpayers $125 million and in fact the public data available indicate just the opposite.  The governor’s real plan is to quietly shift this added cost from state funds to federal funds.  It may save state funds but this approach does not match his public stance on rejecting additional spending, even federal funds since those are taxpayer dollars too.

 Examining the money

Why would the state agree to pay these private partners their costs without knowing how much that is?  Why would the state move its patient care from the lower cost state providers to higher cost private providers?  One explanation is that the higher cost will be borne by the federal government, not the state.  Last year, the public hospitals were appropriated $955 million.  Commissioner of Administration, Kristy Nichols, testified that in 2014 that number will exceed $1 billion.  As reported in The Advocate (May 28, 2013), “The total operating expense associated with the privatization of the LSU hospitals will hit $1 billion during the next fiscal year, Commissioner of Administration Kristy Nichols said Thursday. That’s more than there is in the current year’s budget – $955 million for the state to operate the charity hospitals…”

The private partners will participate with the state in a financing scheme that will allow the state to withdraw its support of the LSU hospitals while increasing the flow of federal funds.  The scheme involves at least 3 different components.  In isolation, each component may be (MAY BE) deemed allowable by the federal government but viewed together they demonstrate an effort to skirt federal requirements that the state put up its fair share of funding for the Medicaid program.

  1. Supplemental or extra payments from Medicaid to private hospitals using federal Medicaid dollars
  2. Lease payments including “up front” payments, in effect, the state “borrowing” funds from a private Medicaid provider (that it just prepaid a supplement using federal funds) in order to cover a state budget shortfall
  3. The state using the private hospital lease payments as match to draw more federal funds and then paying a portion of that back the private provider.

The entire process is designed to cut out the state support and increase the federal support.

Reducing state support

In September 2011 a consulting group named Verite hired by DHH submitted a business plan review that was considered by the Joint Legislative Committee on the Budget at its September 2011 meeting when it voted to approve contracting for construction of the new hospital www.newhospital.org.  The report points out the average state funds in the Interim LSU Hospital (ILH or “Charity”) from 2006 – 2011 was $42.8 million.  It projected an average annual amount of state funds in years 2015-2020 of $52.5 million necessary to pay for the cost of caring for uninsured people.  The JLCB approved construction based on these expectations.

However, the 2014 state budget includes zero state funds for ILH.  How can this be?

Here is the scheme:  The private hospital pays LSU money to lease the LSU hospital.  That money does not stay with LSU; it ends up (directly or indirectly) being used as match in the Medicaid program.  After matching those lease payments with federal funds, the total, larger amount is paid back to the private partner in the form of a Medicaid payment.   The lease payments supplant the state funds.  However, the legislative fiscal office has already raised concerns about the leases being $39 million short which is  why the Division of Administration has already begun planning on “double” lease payments this year.  http://www.nola.com/politics/index.ssf/2013/09/new_orleans_shreveport_hospita.html

For years states have devised schemes to receive additional federal funds while reducing the state contribution for Medicaid.  There is a problem with these schemes, however.  Consider this from a 2009 report by the Congressional Research Office:

“In 1991, Congress passed the Medicaid Voluntary Contribution and Provider-Specific Tax Amendments (P.L. 102-234). This bill grappled with several Medicaid funding mechanisms that were sometimes used to circumvent the state/federal shared responsibility for funding the cost of the Medicaid program. Under these funding methods, states collect funds (through taxes or other means) from providers and pay the money back to those providers as Medicaid payments, while claiming the federal matching share of those payments. States were essentially “borrowing” their required state matching amounts from the providers. Once the state share was netted out, the federal matching funds claimed could be used to raise provider payment rates, to fund other portions of the Medicaid program, or for other non-Medicaid purposes.”

https://opencrs.com/document/RS22843/

DHH’s current scheme includes a “borrowing” component that looks similar to the practices this legislation was aimed at preventing.  Medicaid rules do not allow a Medicaid provider (read “hospital” here) to voluntarily donate money to the state when they know they will get this money back plus more (the federal share) as part of an increase in their Medicaid payments.  The federal oversight agency, CMS, has already expressed concerns to state officials that these lease payments could qualify as non bona fide provider donations http://louisianavoice.com/2013/06/26/cart-ahead-of-the-horse-cms-letter-to-sen-ben-nevers-continues-to-leave-jindal-hospital-plan-approval-up-in-air/ and they will be examining the hospital leases to determine this.    If CMS determines these are conventional fair market value leases, they will allow the payments.  Beyond the basic annual lease payments, the deals include “double lease payments” and other large up front lease payments designed to fix the state’s budget problem raising the specter of non bona fide provider donations.  If these payments are deemed to be non-allowable, the federal government will recoup any federal funds that were paid as match for these state funds http://louisianavoice.com/2013/06/26/cart-ahead-of-the-horse-cms-letter-to-sen-ben-nevers-continues-to-leave-jindal-hospital-plan-approval-up-in-air/.  This will likely be resolved after Jindal leaves office and can just be added to the huge mess the state will need to clean up when he departs.  The legislature is derelict in counting on these up front lease payments for at least two reasons: First, if they are legitimate, they are still borrowing from future years, and second, there is a good chance that they are not legitimate and will not be allowed by CMS.

A key question is, “Are these fair market value leases?”  The state and the complicit private hospital want the lease amounts to be as high as possible – this is how they will maximize the fund shift from private hospital to the state; then the funds will be used to generate the maximum amount of federal match which will be paid back to the hospital.  The state did not engage in a competitive bid process to determine the value of the leased facilities.  Instead, the state identified existing in-state private hospitals that it could pay additional funds through the Medicaid program to make the funding scheme work.  After receiving large up-front extra Medicaid payments, these hospitals would agree to lease the LSU hospitals and the lease payments would be used (recycled?) as match to replace the state funds the governor cut out.  The annual lease amounts are presumably based on an appraised value of the property being leased, but the actual payments which include large up-front amounts and multiples of the annual lease amounts – have nothing to do with the value of the property and everything to do with the state’s budget holes.  Furthermore, it is all but certain that none of the hospitals would garner the large lease amounts without the corresponding agreement by DHH to pay them higher Medicaid payments once they agree to lease the facilities.

Let’s take a closer look at the New Orleans deal.

The LSU Interim Hospital will be leased by Louisiana Children’s Medical Center (LCMC), a health system that includes Children’s Hospital and Touro Infirmary.  In addition to the annual lease LCMC agreed to pay $110 million in an “up front” lease payment to be repaid by the state over the next 20 years.  LCMC is in essence loaning the state $110 million for its use in the Medicaid program.  In addition, LCMC agreed to pay an additional $143 million to the state in order to build the parking garage and clinic office building at the new hospital in New Orleans.

  • $110 million payment.  This amount is notably similar to the state fund shortfall that the governor imposed on LSU shortly after the 2013 legislative session.  Remember the meeting of LSU leadership, board members, and Alan Levine that Fred Cerise documented in the recently circulated memo http://louisianavoice.com/2013/08/21/cerise-townsend-firing-came-soon-after-fateful-2012-levine-meeting-with-lsu-officials-to-discuss-lsumc-privatization/)? The supposed purpose was to identify a way to deal with the massive budget cut that the governor was laying at LSU’s feet.  Cerise outlined the magnitude of the cut which was equivalent to $122 million in state funds and a total – including federal funds -of $329 million and the impact would result in the closure of over half of the LSU hospitals.  Those cuts were never made, yet the governor never explained how the funds were restored to LSU’s budget.  In the New Orleans CEA, LCMC agreed to make an upfront lease payment of $110 million to LSU on or before June 24, 2013.  So with one week left in the fiscal year, LCMC paid LSU $110 million to avoid the massive budget cuts that were assigned to LSU by the governor to prompt the wholesale privatization.  But the cuts were never made, savings never achieved.  Instead, the administration borrowed the money from a private partner.  These funds will be repaid to LCMC over the next 20 years.  The state “borrowed” from LCMC, a private entity, funds to be used as match in the Medicaid program  – a practice that is at the very least against the intent of the federal Medicaid regulations and which the state will be repaying for many years after Jindal is gone from office.  If CMS does not approve of this trick, the state will be repaying the federal funds too (which is a much larger amount).
  • $143 million payment for parking and clinic buildings.  When LSU finally gained legislative approval of its business plan for the new hospital in New Orleans at the JLCB on September 16, 2011, there was a gap of $130 million in funding needed to complete the project (it appears that has grown to $143 million).  LSU explained at the time that it intended to use an LSU- affiliated foundation to provide that funding.  The approval to enter into a contract for construction was based on that assumption which was included in the business plan the JLCB considered.

The motion by Senator Murray (stated at 1:08 on the video archive of September 16, 2011 by Rep. Leger) was to “authorize the Office of Facility Planning and Control to enter into contracts up to the amount of funding in place for construction and completion of UMC in New Orleans.”

LSU received a commitment from the LSU Health Sciences Center – New Orleans Foundation as stated in this excerpt from a letter from LSU President John Lombardi to Thomas Rish, the senior manager for the Division of Administration.

“The mechanism for accomplishing such financing involves the UMCMC  [University Medical Center Management Corporation] Board entering into an agreement with LSU for LSU to provide services to the UMCMC Board, as represented by that board to the Joint Legislative Committee on the Budget on September 16, 2011, and in accordance with the business plan presented in open committee hearing at that time.  In carrying out that business plan and the above-described construction, it is expected and necessary for the UMCMC Board at the appropriate time to enter into one or more agreements with one or more other affiliated entities of LSU so that the affiliated entity will have a sufficient revenue stream to support the financing of the Ambulatory Care Building and the Parking Structure.  LSU has engaged in such financing methods in the past with great success, without affecting the state tax supported debt limit or relying upon the full faith and credit of the state.”

However, the UMCMC Board subsequently refused to commit to an agreement that acknowledged its support for LSU because a plan was already underway to reconfigure the governance structure into a private entity unencumbered with the commitments to LSU, commitments that LSU and UMCMC used in gaining approval for acquisition of private property and construction.  As a result, the LSU Foundation could not obtain this funding.

The Division of Administration proceeded to enter into a contract for construction of the entire project anyway (without the funding in place) in violation of the JLCB motion that authorized contracting for up to an amount of funding in place.  As construction proceeded and desperate for a funder so it could meet its obligations to the contractor, the Administration turned to LCMC for the funds which they agreed to provide on or before June 24, 2013.

Why would LCMC, in addition to an annual rent payment for the hospital agree to pay an additional $253 million up front to the state?  Likely because the state gave them the money first.  On June 18, 2013, DHH made a series of supplemental Medicaid payments to Children’s Hospital and Touro Infirmary in the amount of $250 million.  DHH made Medicaid payments (which include federal money) to LCMC affiliates so that LCMC could return those funds to the state to use as match for more federal funds.  You have to appreciate this scheme from a governor who doesn’t like federal money.

Annual lease payments.

In addition to the $253 million up-front payments, Children’s will make its first annual lease payment this year.   But that won’t be enough money to fill the budget hole for the 2014 budget year.  Remember, any lease payment Children’s makes is to be multiplied with federal match dollars and repaid to Children’s so they have every incentive to pay as much “lease” as possible.  Given federal prohibition on “provider donations” these lease payments must be restricted to fair market value amounts.  In order to address the state budget shortfall, the state will borrow from future year lease payments and have Children’s make a “double” lease payment this year (in addition to the $110 million “up front” lease payment to be repaid over the next 20 years).  The Times Picayune reported this plan by Commissioner Nichols’s to have Children’s make a “double lease payment” of $68 million to plug the current year’s budget hole by encumbering future administrations and legislatures with a payback of state funds and potentially the federal match as well.  http://www.nola.com/politics/index.ssf/2013/09/new_orleans_shreveport_hospita.html

The state will use this $68 million to draw down additional federal funds ($107 million in federal funds based on most recent match rate for Louisiana) and pay the entire amount back to Children’s or an affiliate of Children’s for Medicaid services.  Who wouldn’t put up a double payment?  Why not triple payment?  Quadruple?  Only CMS can put the brakes on this scheme.  They have been through this type of thing before in Louisiana and so will be closely scrutinizing the entire arrangement.  Jindal is calculating that any recoupment of funds will come well after he has destroyed the public hospital system and celebrated his success.  He seems to believe he can violate the CMS provider donation provisions by simply calling the donations “lease payments.”  We’ll see if CMS agrees.

Let’s review:

  1. The state is building a replacement hospital for Charity Hospital in New Orleans using $474 million in federal funds from FEMA and $300 million in other hurricane recovery funds.
  2. The state agreed to lease this facility built with federal funds to a private entity that is a Medicaid provider.
  3. Those lease dollars will be used annually as match in the Medicaid program to draw additional federal dollars.  “Monetizing” an asset built with federal funds, the state will generate additional federal funds as match dollars to support the operation. This will allow the Division of Administration to renege in its commitment of state funds to LSU (which the legislature accepted in the business plan submitted to JLCB as a condition for approval of construction).
  4. In addition, the state made a $250 million Medicaid payment to the private provider on June 18, 2013.  This Medicaid payment included roughly 2/3 federal funds.
  5. The private provider then made a $253 million payment back to the state on June 24, 2013.
    1. $110 million of that payment was directly or indirectly used as match in the Medicaid program to draw more federal money by which LSU was able to meet its budget for 2013.
    2. $143 million of that payment is targeted to complete construction of the new hospital in New Orleans (and qualify as all future rent payments for LCMC) that will be operated as a private facility.

That’s a lot of recycling federal dollars and private handouts, even for Louisiana.  Surely the governor must be proud of this innovation in financing.  Why is he not clearly explaining it to the public?

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