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Archive for May, 2011

When it comes to twisting his stories and changing direction in mid-testimony, Commissioner of Administration Paul Rainwater, it seems, has no peer.

In yet another legislative committee hearing on the proposed sale/privatization/contracting for a third party administrator (TPA)/hybrid of the Office of Group Benefits (OGB), this one by the Senate Insurance Committee, Rainwater again altered his version of the truth that just doesn’t quite square with public comments he has uttered in the recent past.

Rainwater also got a surprise when his appointee as GEO for OGB admitted that if things remained the same as they are now, he could not reduce his staff. Rainwater has testified before two different committees that the sale/privatization of ORM would reduce the number of employees at OGB by 149, or by about half.

On Tuesday, Rainwater told Insurance Committee Chairman Sen. Dan Morrish that there was no plan to use any portion of the OGB $520 million surplus for the state general fund, nor would any private company that takes over the operations of the agency have access to the fund balance. “That fund is there for the state to pay claims and that’s what it’s going to be used for,” he said.

Barely three weeks ago, Rainwater said that the OGB surplus would be “an attractive selling point” because the private company that ultimately purchases the agency would not have to dip into its own capital to pay claims initially.

And while he steadfastly maintains that OGB is not for sale, his own office’s press release of April 26 describing his appearance before the Senate Retirement Committee repeatedly alluded to his testimony on the “potential sale and privatization of the state’s Office of Group Benefits” and of the procurement of a financial advisor to help the state “evaluate the potential sale of OGB…”

The first paragraph of Rainwater’s press release said that he testified before the Retirement Committee “about the potential sale and privatization of the state’s Office of Group Benefits.”

The second paragraph quoted Rainwater as telling the committee, “The simple fact of the matter is that a sale and privatization of OGB will have no negative impact for those covered. Let me say that again: a sale and privatization of OGB will have no negative impact for those covered.”

If that is not enough, that same press release from his office quoted him as testifying before the Retirement Committee, “The procurement of a financial adviser to help the state evaluate a potential sale of OGB was undertaken in accordance with applicable law.”

Morrish on Tuesday asked, “Is this a sale or a privatization?”

“We’re attempting to bundle our HMO and PPO.”

“Is it a privatization or a management contract?” Morrish asked again.

“It’s a privatization with a five-year contract. We’re taking OGB out of the day to day business of running an insurance company,” Rainwater said.

“We’re not selling OGB,” he said. “We’re not giving up the right to negotiate a contract. This is something that’s never been done before. It is privatization, but we’re not selling OGB.”

A brief but puzzling exchange ensued when Morrish commented that he had not seen the RFP (request for proposal).

“The RFP is not written yet,” Rainwater responded.

The RFP for a financial adviser to conduct an assessment of OGB’s value was issued last Friday giving bidders a deadline of June 6 in which to submit proposals to “assess the market value of the book of business and services provided by OGB and assist in the formulation of alternative methods of benefit delivery.

An earlier RFP was abandoned when the only bidder, Goldman Sachs, who helped in the crafting of the document, was the only bidder but could not agree to a demand that DOA hold Goldman Sachs harmless in the event of litigation.

Throughout the latest RFP, there are references to those submitting proposals having experience in the sale of health insurance entities and of track records in past sale efforts.

Sen. J.P. Morrell (D-New Orleans) asked Insurance Commissioner Jim Donelon about the impact on the state insurance industry if the same company ended up as the third party administrator (TPA) for both the state’s HMO and PPO.

“After Hurricane Katrina visited us,” Donelon said, “Blue Cross/Blue Shield went from having 40 percent of the insurance business in Louisiana to 70 percent. I have tried every way I know how to stop that trend. Blue Cross already has the state’s HMO and PPO, that could be a problem. I spoke to Angel (former Commissioner of Administration Angele Davis) about that when DOA awarded the HMO to Blue Cross over Humana and of course, that’s being litigated right now in the court of appeal.”

Sen. Gerald Long (R-Winnfield) asked Rainwater how he arrived at a value of $150 million for OGB.

“OGB collects $1 billion a year in premiums and currently has a $520 million surplus and we took variables of those figures and arrived at a price of $150 that we expect a company might pay us to manage that volume,” Rainwater replied.

Sen. Eric LaFleur (D-Ville Platte) asked Rainwater if the $150 million was recurring or one-time revenue and Rainwater admitted it would be a one-time payment. “But there would be a $10 million-a-year savings in staff reduction savings,” he said.

“Doesn’t the $500 million surplus help the state?” LaFleur asked.

“It does, but we need some balance,” Rainwater said.

“Isn’t what he’s supposed to do,” LaFleur asked, referring to Scott Kipper,
newly-appointed CEO of OGB following the April 15 firing of Tommy Teague

“It is. That’s why we brought him in.”

LaFleur then asked Kipper, “Is that impossible for you to do, to streamline the agency and make it more effective?”

“It’s not impossible,” Kipper said. “The trick is to try and get an apple-to-apple comparison in order to get the reserve where it should be.”

“What is a good reserve?”

“That’s a good question.”

LaFleur then dropped a bombshell when he asked Kipper, “Let’s assume this RFP doesn’t go anywhere and we’re right back where we are right now, who…how many people would you cut from OGB?”

“If we continue to operate as we do now, there would be no significant cuts,” Kipper said. “There’s not a lot of excess now.”

Rainwater, visibly upset at Kipper’s answer, interrupted to say, “The only way to reduce the number of employees by 149 is to privatize.”

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The Senate Retirement Committee held its third consecutive week of public hearings on the Jindal administration’s proposed privatization of the Office of Group Benefits (OGB). The only things missing were witnesses and a second request for proposals (RFP) that was substantially different from the first.

Commissioner of Administration Paul Rainwater, Deputy Commissioner Mark Brady, and new OGB CEO Scott Kipper all were no-shows for the hearing, choosing instead to snub their noses at legislators.

Rainwater, who already has been grilled by legislators during the first hearing two weeks ago, vowed to staff members that he would not attend another of the hearings being conducted by committee Chairman Sen. Butch Gautreaux (D-Morgan City), according to sources within the Division of Administration (DOA).

Mark Brady has not attended any of the hearings and Kipper reportedly has been told to stay away from Gautreaux’s committee meetings.

Only DOA Chief of Staff Dirk Thibodeaux bothered to show up for the administration. The only other witness was former OGB CEO Tommy Teague, who testified at length on the history of OGB, the latest RFP which appears to conflict with testimony by Rainwater last week, and of the disadvantages of privatizing the agency or contracting with a third party administrator (TPA).

Teague also disputed administration claims that privatization of OGB would save the state some $10 million per year be reducing the number of OGB employees by half.

The latest RFP was released late last Friday and if anything, appears to reinforce the administration’s determination to sell OGB outright despite claims to the contrary by Rainwater a week ago who said the state would retain control of OGB. “At the end of the day,” he told the committee last week, “we will still have the Office of Group Benefits with 149 employees.”

Teague’s testimony, however, shed considerable light on the language of the RFP that he indicated was misleading and which he said provides insights into the administration’s not-so-well-hidden agenda to keep certain information from the public as well as possibly forestalling any financial audits for a period of three years after signing of a contract with a financial advisor.

He said OGB was created in 1969 by executive order of then-Gov. John McKeithen. “Up to then, each agency more or less shopped for its own health coverage,” he said.

Nine years later, in 1978, OGB was sold. “Overnight, state employees became employees of AdServ Corp., a California software company,” Teague said. “One day they worked for the state and the next day for an out-of-state company.”

The following year OGB was brought back in-house and placed within the Department of the State Treasury and in late 1979, an executive director was hired.

In a scenario that has become all too familiar of late, an employee of the California company testified before the Appropriations Committee and the next day was fired, he said. “Of course he was immediately re-hired by OGB,” Teague said.

Teague’s wife, Melody, was fired in October of 2009 one day after testifying before the Commission for Streamlining Government but it took her six months to get her job back. Then, less than a month ago, on April 15, Teague himself was fired as OGB CEO by Brady. Rainwater attributed the decision to Teague’s lack of leadership even though the agency flourished under his six years as director.

Teague said in late 1980, the decision was made for OGB to go self-funded. “That means that OGB was on risk for all claims,” he said. “With a TPA, you simply pay a third party to answer the phones. The state is still on the hook for risks.”

He said it has taken OGB 30 years to build a network that now includes contracts with every hospital in the state except one. “The most critical component of a TPA is to assess the value of their discounts with medical providers. But all discounts come back to OGB. The TPA is simply paid an administrative fee,” Teague said. “OGB pays the TPA a per employee fee each month, in this case, we pay Blue Cross/Blue Shield $26 per month per employee member.

“With OGB, there are no taxes and no profit and there is no need for a TPA because we have already built our network,” he said.

Teague said he first to OGB in 1980 as an OGB attorney. “I was with the department for eight years and was acting director for one-and-a-half years,” he said. “In early 1990 I was named special counsel for the board and helped set up the PPO network. I left in 1995 to run the Pennsylvania state plan.”

He returned to OGB as CEO in 2006 when former Gov. Mike Foster moved OGB back under DOA. DOA took all power from the OGB board and now it only serves in a planning and policy capacity and the CEO served at the pleasure of the governor.

He said that prior to 2006 OGB was fully insured by Ochsner Health Plan, meaning the insurer (Ochsner) assumed all risk.

“When I was named CEO in 2006, there was a negative fund balance of $36 million,” he said. “As a result of becoming self-insured, we now have a $520 million fund balance because we beat the actuary projections every year.

“Had we stayed with the fully-insured plan in 2006, we would not have the fund balance we now have.”

Teague also debunked the $10 million in savings that Rainwater said the state would realize with the reduction in payroll that would accompany privatization. “We already pay Blue Cross $26 per member per month. A similar arrangement for a Preferred Provider Organization (PPO) with its 41,825 actual employees and retirees would more than offset the $10 million savings realized by cutting staff,” he said.

Sen. Ben Nevers (D-Bogalusa) asked about the other states cited by Rainwater as being more efficient than Louisiana by providing benefits to more people with lower costs and fewer staff but Teague was quick to say it is impossible to fairly compare Louisiana to other states “because we don’t know what the other states are providing. We’re not really seeing what it costs other states. OGB, for instance insures levee boards 50 school systems.”

He said OGB deals with 110 different payroll systems and various commissions. “OGB does a big part of the TPA work because only OGB can. A fully-insured plan is always going to cost more and OGB has some of the best contracts out there right now because of the network we’ve established over three decades.”

Teague questioned the intent of the administration when he said, “If you’re going to remain self-administered and the $520 million fund balance is staying as Mr. Rainwater claimed last week and if you’re looking for a TPA to administer the program, then why do we need an RFP to assess the benefits of OGB? It’s irrelevant. If you need a TPA, why do you need to know the net worth?

“The RFP attachments are all OGB financial statements. A TPA doesn’t need to know the financial statement. A TPA needs to know the monthly call volume, the monthly claim volume, monthly correspondence volume, how eligibility is transmitted, and the vendor payment schedule. The net worth is immaterial.”

“You would want to provide that if you were looking for a buyer,” Gautreaux interjected. “I asked Mr. Teague here today because I don’t understand why we need to hire a financial advisor to contract with a TPA.”

Teague also said one part of the RFP grading system for bidders said cost of services would be worth 25 points but in another section it said the lowest cost proposal would be awarded 30 points. “Which is it?” he asked.

He said the current RFP also left unanswered several questions about when proposals would or would not become public record and that the wording of the RFP would appear to prevent the legislative auditor from examining records for a period of three years following the signing of a contract with a financial advisor.

“It’s really not clear just when the legislative auditor would have immediate access to records,” he said.

Legislative Auditor Darryl Purpera last week testified that Rainwater had refused to provide documents that Purpera’s office is constitutionally entitled to have in order to conduct proper assessments.

The latest version of the RFP was written completely in-house with no assistance from outside as was the first version when Goldman Sachs was heavily involved in the drafting of that document.

The new RFP, however, contains no fewer than four separate references to the sale of OGB and bidders’ experience in sales.

It also provides that OGB’s acting actuary, personnel in the governor’s office, DOA, and the Office of Contractual Review may review any of the proposals and that if contract negotiations exceed 15 days, OGB may cancel the award and award the contract to the next-highest-ranked proposer. Extension of this and other deadlines may be extended at the discretion of OGB.

Conceivably, if the administration does not want the contract to go to the highest-ranked bidder, it could draw out negotiations beyond the 15-day limit as a ploy to awarding the contract to the next-highest-ranked bidder.

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Perhaps it’s only coincidence, but a trend seems to be developing in Baton Rouge and it’s not a very pretty one.

There is a condescending attitude of arrogance that permeates the Jindal administration from top to bottom and the day to day civil servants who work in the trenches are the ones who are feeling the brunt of the administration’s haughtiness.

The attack has been subtle but steady with no letup in sight.

Forget about Jindal’s campaign flyer four years ago in which he pretended to hold state employees in such high esteem (LouisianaVoice post of April 22). That was just political rhetoric that morphed into bitter irony.

State Employee Recognition Day? That was last Wednesday and for the third consecutive year, Jindal signed a proclamation in which he fawned over “dedicated state employees” even as he maneuvered behind the scenes to have legislation introduced last year to abolish Civil Service, to freeze merit pay increases for classified employees but not for unclassified employees (read: political appointees), and even as he moved to privatize everything in sight at the cost of putting mid-career employees on the streets who are not qualified for social security or Medicare. Some of those employees have life-threatening illnesses and will have no medical insurance.

One state employee, Melody Teague, was fired one day after she criticized Jindal during a forum held by the Commission for Streamlining Government. She won her job back but her husband recently evoked memories of the infamous “Saturday Night Massacre” of Oct. 20, 1973, when Richard Nixon fired Archibald Cox and abolished the office of Special Prosecutor.

Tommy Teague, by all accounts, had been doing a superb job as CEO of the Office of Group Benefits. OGB went from a $100 million deficit when he took over to a $500 million surplus and the agency was paying claims within 48 hours.

But on April 15, Jindal decided that Teague was somehow standing in his way of privatizing that agency and Deputy Commissioner of Administration Mark Brady was called on to fire Teague. Unlike Attorney General Elliot Richardson, who resigned rather than carry out Nixon’s orders to fire Cox, Brady was more than up to the task and Teague was shown the door.

All that’s old news. Last week a couple more events, though minor in the overall scheme of things, nevertheless strip away that veneer of piety behind which Jindal prefers to hide. Neither event directly involved Jindal but as was said earlier, it’s the arrogance from top to bottom that makes the latest occurrences seem so typical of this administration.

Let’s take the Office of Risk Management first. This agency was privatized last year at a cost of $68 million to the state with a promise of savings of $20 million per year. The first section to go was Worker’s Comp. That was last July. Less than nine months later, the company that took over ORM, F.A. Richard & Associates (FARA) requested and got approval for a $7 million amendment, bringing the cost to $75 million.

Rep. Jim Fannin (D-Jonesboro) apparently wasn’t too pleased that FARA was seeking more money or that the Division of Administration approved the amended contract. He has placed ORM on the agenda for Tuesday’s meeting of the House Appropriations Committee which he chairs.

But that’s not the story. ORM Director J.S. “Bud” Thompson sent out word to his troops on Thursday that no one from ORM was to attend the meeting.

That is in direct violation of Civil Service rules. In fact, a very recent memorandum just went out to all Civil Services employees from the Department of Civil Service that addresses that very issue.

General Circular No. 2011-009 reminds state employees that the 2011 Regular Session of the Legislature will be taken up mostly with budget issues. “As classified state employees, some of these issues may have a direct impact on you (and) about which you may wish to speak,” the circular said. “Classified employees are prohibited from engaging in efforts to support a candidate, party, or political faction in an election.

“These restrictions do not prohibit classified employees from expressing themselves either privately or publicly on issues that may be pending before the legislature.”

The circular also said state employees who attend legislative hearings must be on approved leave.

Thompson did not respond to an email inquiry from CNS about his new policy—new, because a year ago, ORM employees were allowed to attend Joint Budget Committee hearings on the privatization—but on Friday he did amend his policy to allow one employee from the agency to attend Tuesday’s hearing.

His Friday email, sent to all ORM employees, attempted to justify his decision to limit attendance. “Because of the need to continue our preparations for the July 1st transfer of handling of General Liability claims to FARA and the concern that rising river levels next week might cause us problems in accessing our office, we will allow only one employee to attend that meeting,” he said.

Other lines, or units, will not be involved in preparations for transferring the General Liability line to FARA any more than other lines were involved in last July’s transfer of Worker’s Comp to FARA. In that case, claims adjusters came to work one day and the Worker’s Comp adjusters simply were gone. No pomp, no fanfare, just gone and no one else’s work was disrupted in the least, so the General Liability excuse is a smoke screen easily recognized as such by ORM workers.

Again, though, he is in violation of Civil Service regulations; there is nothing in the regulations that allow him to restrict the number of employees who may attend.

But not to worry: streaming video of the hearing can be accessed by logging onto http://www.legis.louisiana.gov/ and navigating to the proper committee room (5). Thompson’s Friday email also instructed employees they watch the video playback at home but to refrain from viewing it at work. Of course, an enterprising employee could simply plug in his or her headphones and minimize the video and continue working on claims while listening to Thompson’s testimony.

The other event is totally void of any semblance of subtlety.

CNS received an anonymous letter on Friday that contained an email sent from the iPhone of Nick Gautreaux, erstwhile state senator from Abbeville, not to be confused with current Sen. Butch Gautreaux of Morgan City. Nick Gautreaux is the current Commissioner of the State Office of Motor Vehicles.

Dated March 17, the email was addressed to all OMV employees and consisted of only five sentences but it was the third sentence that appeared to hold true to the philosophy of superciliousness that has become the hallmark of the Jindal tenure.

“I am proud of our teams (sic) hard work this past week,” the email began. “All of you have shown a willingness to progress to a higher level of production and customer service.”

Then came that third sentence: “I must say that the individuals who continue to defy change will suffer the wrath of my management team.”

He closed by saying, “I want everyone to know that I have an open door policy. Thanks for the hard work.”

It’s pretty evident that Gautreaux didn’t go to the Zig Ziglar School of Employee Relations. If he did, he was absent on Motivation Day.

Defy Change? Management wrath? Could OMV be next? Holy Privatization, Batman!

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When a state audit of the Governor’s Office of Homeland Security and Emergency Preparedness (GOHSEP) turned up a number of deficiencies, GOHSEP Director Mark Cooper, judging from his response, must not have gotten the message from Gov. Bobby Jindal.

Among the shortcomings found by the audit were;

Inadequate preparation of the annual fiscal report—for the fourth consecutive year, no less;

Understating the amount reported for the Public Assistance Program by $120 million;

Inaccurate Federal Financial Reports, including a $25 million understatement of the federal authorized amount on the Public Assistance Report for Hurricane Katrina;

Untimely draws and inaccurate reporting of draws to Office of State Reporting and Accounting Policy resulting in delays in state reimbursements and potential lost interest revenue;

The audit report made numerous recommendations to remedy the shortcomings and Cooper responded in classic fashion:

“I have reviewed the finding(s) in (the audit report) which covers activities of the Governor’s Office of Homeland Security and Emergency Preparedness for Fiscal Year 2010,” Cooper wrote.

“Additional staff has been hired and additional training is planned to ensure that multiple layers of review are implemented,” he said.
Wait. What?

“Additional staff?”

What was it that Jindal said a few months back about doing more with less?

Perhaps that doesn’t apply to certain agencies.

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Some would call it bureau-speak but to those sitting through Monday’s Senate Retirement Committee hearings on the privatization of the Office of Group Benefits, it was more like gooney-babble.

Commissioner of Administration Paul Rainwater, just as he did last week, tried to convince legislators of the wisdom of privatizing the agency that has amassed a $500 million surplus and which has an administrative cost of only 3.5 percent.

As if that were not enough, Legislative Auditor Daryl G. Purpera testified that Rainwater has refused to provide documents that his office is constitutionally entitled to have in order to conduct proper assessments. “We requested certain documents, particularly those pertaining to the Chaffe contract we were told by Mr. Rainwater that those documents would not be provided,” Purpera said.

“We also tried to get specifics of the proposal but I received a letter from Mr. Rainwater saying those would not be provided under exceptions. My office cannot do its job if we have scope limitations,” he said.

The proposal to which he alluded was the proposal submitted by Goldman Sachs to conduct a financial assessment of OGB and to market the agency for a buyer, according to the RFP. The Chaff contract was a $49,999.99 contract with Chaffe and Associates of New Orleans to conduct an interim assessment. The contract amount was one cent less than the amount that would have required concurrence by the Office of Contractual Review.

Rainwater started his testimony by comparing Louisiana to other states, zeroing in on the staff sizes of the other states as compared to OGB’s 300 employees.

At times appearing to talk down to committee members and once even admonishing committee Chairman Sen. D.A. “Butch” Gautreaux (D-Morgan City) to not interrupt while he was speaking, Rainwater said the $500 million surplus “is not for sale. It will not be diverted for any other use other than to pay claims.”

What he did not say on Monday but did say a week ago was that while the surplus would indeed be used to pay claims, it would no longer be OGB surplus funds paying the claims because the surplus would go over to the buyer who would use the fund to pay claims.

It was only a couple of weeks ago that Rainwater said the OGB $500 million reserves are an attractive selling point because the private company that ultimately purchases the agency would not have to dip into its own capital to pay claims. His own office’s press release of April 26 describing his appearance before the Retirement Committee repeatedly alluded to his testimony on the “potential sale and privatization of the state’s Office of Group Benefits” and of the procurement of a financial advisor “to help the state evaluate a potential sale of OGB….”

On Monday, however, a casual observer would have had difficulty in believing Rainwater was talking about the same proposal. Suddenly, it turns out that OGB is not for sale after all, that the RFP will instead be for a third party administrator of the state’s PPO (Preferred Provider Organization).

“At the end of the day,” he told the committee, “we will still have the Office of Group Benefits with 149 employees.”

“I’m not getting answers to my questions here,” Gautreaux said.

“You are getting answers,” Rainwater shot back.

Gautreaux said if the agency is privatized, “There will have to be rate increases and/or benefit reductions. There’s no way to avoid that with a private company trying to turn a profit.”

Division of Administration (DOA) Chief of Staff Dirk Thibodeaux, who had earlier promised the committee that a new RFP would be completed by week’s end, said Gautreaux was incorrect. “The legislature will have to approve any contract” for a third party administrator, he said, so lawmakers would have the opportunity to examine the rate structure.

Rainwater said there would be a five-year contract with a third party administrator. “At the end of the five years, we’ll take a look at it.”

“What’s going on here?” Gautreaux demanded. “Last week we were talking about selling OGB and now we’re talking about a contract with a third party administrator. You three (Rainwater, Thibodeaux, and OGB newly-appointed CEO Scott Kipper) may know what you’re talking about but the rest of us surely don’t.”

Rep. Hollis Downs (R-Ruston), sitting in as a guest for the second week in a row, said, “The state’s HMO is self-insured but administered by a third party, in this case, Blue Cross/Blue Shield, am I correct?”

“That’s correct,” Rainwater said.

“The state’s PPO is now self-insured and self-administered with the state paying all claims but you’re proposing that it become self-insured but administered by a third party?”

“Yes, sir.”

“And my understanding is you may combine both the HMO and PPO into one, am I correct again?”

“Yes, we could conceivably bundle the two for greater efficiency.”

“So, you’re just selling a block of business and the state would continue to have oversight?” Downs asked.

“That’s correct,” Rainwater said.

Following Rainwater’s departure from the committee room, Travis McIlwain, director of the General Government Section of the Legislative Fiscal Office spoke briefly on efforts by his office to analyze the administration’s proposal.

“Frankly, we have nothing in hand that would allow us to analyze this proposal,” he said. “Until today, we have heard only that the administration wants to sell OGB and now, Mr. Rainwater says it’s not for sale but is for lease to a third party administrator. I’m as confused as you, Mr. Chairman,” he said to Gautreaux.

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