Louisiana Voice

BATON ROUGE (CNS)—The crown jewel of Gov. Bobby Jindal’s privatization drive has taken yet another bizarre turn.

Well, maybe the Office of Risk Management (ORM) is not the crown jewel, but it his first effort at a move toward privatizing any state agency that shows up on his radar.

And if the path that ORM has followed since being taken over by private industry little more than a year ago is a fair example, legislators would do well to take a long hard look at any future moves in that direction—particularly as it might pertain to the Office of Group Benefits (OGB).

The $400 million agency, it was recently learned, will be transferred to its third operating company within 15 months. This time ORM is going to be run for a while by York Claims Service of New York City.

York operates as an independent adjustment company and third party administrator and is a subsidiary of York Insurance Services Group of Parsippany, New Jersey.

On March 15, 2010, ORM Director J.S. “Bud” Thompson, in a gathering of agency employees, broke the news that the agency was to be taken over by F.A. Richard and Associates (FARA) of Mandeville. It was at that same meeting that he laughingly informed his subordinates, “I still have my job.”

It wasn’t his last attempt at inappropriate humor. During a legislative committee hearing held to consider the approval of the transfer, he joked that he deserved a raise. That remark drew a sharp rebuke from State Sen. Ed Murray (D-New Orleans) who reminded Thompson that a serious matter was being considered and that he should treat it as such. Thompson did not return for the afternoon committee session.

Under terms of the contract that went into effect on July 1, 2010, the state was to pay FARA an amount “not to exceed” $68.2 million. FARA was to phase in its takeover over a five-year period.

The actual transfer began in September of 2010 when ORM Loss Prevention and Worker’s Compensation sections went over to FARA.

In May of 2011, less than eight months after the first units were transferred, FARA and Thompson were back before the committee seeking an additional $6.8 million that would bring the new contract to “a maximum amount” of $74.9, according to language in the amendment document.

Committee members were surprised to learn that the amendment was actually already a done deal because under law, the Office of Contractual Review may approve contract amendments of up to 10 percent one time without legislative approval and the amendment was exactly—10 percent.

Both ORM and the Office of Contractual Review are under the supervision of Commissioner of Administration Paul Rainwater.

Rep. Jim Fannin was somewhat miffed that the House Appropriations Committee, which he chairs, was circumvented by the 10 percent rule. It didn’t help that Patti Gonzales, assistant director of ORM informed Fannin that the full $6.8 million wasn’t really necessary because it was expected that only about $2 million of that would actually be spent.

Left unasked was the question of why it was deemed necessary to ask for the full $6.8 million.

The nearest thing to an explanation was a memorandum to Rainwater dated Feb. 28, 2010, in which Thompson requested Division of Administration (DOA) approval of the contract amendment.

“Since the implementation (of the FARA takeover) began, ORM has begun experiencing difficulty in retaining our experienced adjusters, as many are seeking employment elsewhere in state government,” Thompson said. “We are currently utilizing contract adjusters to supplement our in-house staff for lines not yet transitioned to FARA, at considerable expense to the state and with a significant loss of efficiency.”

Only about a week after Thompson weathered that committee hearing and the $6.8 million amendment was approved (the committee legally had no choice), it was learned that FARA had been sold to Avizent, a national claims and risk management company in Columbus, Ohio, that had an office in Baton Rouge staffed by only one employee.

Considering the complexities involved in such a transaction, it would seem reasonable to think negotiations had been ongoing for some time before the $6.8 million amendment was approved. Yet, not once was the pending sale revealed to committee members.

FARA’s senior management, including CEO Todd Richard “will also assume executive leadership positions in the parent company,” according to an announcement on FARA letterhead dated May 20, 2011.

On Oct. 26, an email from Gonzales to remaining ORM personnel announced that Cherie Pinac, manager of FARA’s Baton Rouge office, had submitted her resignation to accept a position with Hammerman and Gainer Claims Adjusters.

Now, less than month later, it has been learned that FARA has been sold to York and ORM will be handed off to yet another third party administrator.

This could mean one of two things:

• Private firms are finding that they cannot run the agency more cost efficiently than can the state;

• Once privatization takes place, the state loses all control of what happens to the agency down the road.

Or it’s entirely possible that both could—and will—occur.

This should be something for the Jindal administration to ponder carefully and with all due caution before plunging headlong into additional moves at privatization of OGB, prisons, public schools and Medicaid.

But don’t bet on it.