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Baton Rouge law firm with $3 million in state contracts faces legal sanctions over evidence manipulation in Angola lawsuit

Posted in Contract, Contracts, Courts, Ethics, Judges on January 3, 2014| 7 Comments »

State and national media recently devoted major coverage to a federal district judge’s ruling that death row inmates at Louisiana State Penitentiary in Angola are being subjected to cruel and unusual punishment, but an accompanying court ruling leaves open the possibility that attorneys representing the state could be sanctioned, suspended and even disbarred for their activity in the lawsuit.

The sanctions ruling just happens to involve one of Baton Rouge’s major law firms, Shows, Cali and Walsh, which has at least 16 active contracts with various state agencies worth a combined $3 million.

Besides the $30,000 contract dated July 1, 2013, to defend the state in the Angola litigation, the firm currently has:

  • A contract for $640,000 with the Louisiana Attorney General for legal services in the Deepwater Horizon oil spill (April 1, 2013 to Mar. 31, 2016);
  • A contract for $600,000 with the Division of Administration’s Office of Community Development for legal services to review and analyze Road Home files for overpayments, ineligible grantees and to negotiate and collect funds due the state (May 21, 2013 to May 20, 2016);
  • A contract for $500,000 with the Louisiana Workforce Commission (LWC) to provide legal counsel and representation to LWC’s Louisiana Rehabilitation Services Program paid at a rate of $15,000 per month (Feb. 16, 2011 to Feb. 15, 2014);
  • A contract for $375,000 with the Louisiana State Board of Nursing to provide legal counsel (July 1, 2013 to June 30, 2014;
  • A contract for $300,000 with the Attorney General’s office to provide legal services in the Tobacco Arbitration Funding (April 1, 2013 to Mar. 30, 2016).

The sanctions ruling is significant not only in the identity of the firm and the attorneys involved, but also because it is a reflection of lengths to which the state apparently is willing to go to protect its interests—even to the point of evidence manipulation and an attempted cover up of that activity.

Inmates Elzie Ball, Nathaniel Code and James Magee, who were convicted for the murders of six persons in three separate cases, filed the suit last July, claiming that extreme heat and a lack of cool water in their unventilated cells constituted a health risk. Their petition named as defendants the Department of Corrections, Corrections Secretary James LeBlanc, Angola Warden Burl Cain and Assistant Warden Angelia Norwood.

While death row inmates generally are not sympathetic figures—they’re there, after all, because they killed someone—Judge Brian A. Jackson nevertheless said in a 102-page ruling that conditions violated the 8th Amendment rights of not only the three plaintiffs but all 82 inmates housed on Angola’s death row tiers.

His 51-page ruling on a motion by plaintiffs for sanctions of attorneys representing the state, however, received scant attention, warranting only brief mentions in most news accounts.

His ruling called for a hearing for plaintiff attorneys to show cause why they should not have sanctions imposed for their failure to provide timely discovery to defendants and for a “lack of candor” to judges and to opposing counsel.

And while Judge Jackson declined to impose sanctions for spoliation of evidence in the case, he did order that Shows, Cali and Walsh reimburse plaintiffs for their legal costs for preparing their motion for spoliation “as well as any cost of discovery or fees attendant to the preparation of those filings.”

One of the more egregious sins was that of firm partner Wade Shows who told Judge Jackson that Magistrate Judge Stephen Riedlinger had approved measures taken by plaintiffs to lower temperatures at two of the tiers of death row. Those measures included the installation—under cover of night—of awnings over windows to reduce the intensity of the afternoon sun and of attempts to lower temperatures by installing soaker hoses.

Both steps were taken after Judge Jackson had ordered data collection to measure temperatures and the heat index on death row and were interpreted by the judge as a deliberate attempt to undermine the accuracy of the data collection in defendants’ favor.

Cain, in his deposition, even admitted as much: “We are actually misting the walls of the building to try to see if we can get the cinder blocks to be cooler so then they won’t conduct the heat all the way through.”

But even worse, Shows “asserted that Magistrate Judge Stephen Riedringer ‘knew’ that defendant planned to take such actions, and also asserted that counsel informed Judge Riedlinger of defendants’ intentions during the parties’ settlement conference on July 25.”

Judge Jackson added that defendants’ counsel, in a memorandum opposing plaintiffs’ motion for sanctions, said Riedlinger “endorsed defendants’ modifications to the death row tiers.”

Defendants’ co-counsel Amy McInnis on Aug. 5 “persisted in her position” that Riedlinger “tacitly approved defendants’ actions even after this court cautioned about relating the contents of confidential settlement discussions.”

The biggest problem with Shows’ representation was that it was so easy to ascertain the veracity of his claim. Judge Jackson did, and what he learned must have sent chills down the spines of the state’s attorneys:

“I have conferred with the Magistrate Judge,” Judge Jackson told McInnis. “And he has made it very clear to me, and if necessary, I will produce evidence, that he gave no party any approval to make any material changes.”

Judge Jackson said he felt “it is the case that to the extent there were discussions of the installation of awnings and other devices, that it was …contingent upon a settlement in the case.”

Then, giving McInnis some wiggle room, he said, “So, I want to ask you to be very, very careful, Ms. McInnis. Because if you tell me, as Mr. Shows told me, that the Magistrate Judge knew it and at least tacitly approved it, I am obligated then to verify that.

“And if the one person who is in position to verify that doesn’t verify it, then I’m in a position to impose not just sanctions on the parties. I may have to impose sanctions on counsel.”

Later, in issuing his ruling, Judge Jackson was adamant in his dissatisfaction with defense counsels’ behavior in the matter.

“…This court takes a moment to address its grave reservations regarding defense counsels’ conduct in the course of this litigation. In assessing plaintiffs’ motions for sanctions, it appears that defendants’ counsel deliberately dodged requests for information related to the cost of installing air conditioning; avoided turning over to plaintiffs information regarding defendants’ installation of soaker hoses; and when confronted with information regarding defendants’ willful attempts to manipulate data collection in the death row tiers, excused defendants’ behavior by creating the impression that remedial measures were approved and encouraged by Magistrate Judge Riedlinger. In light of defense counsel’s various representations to opposing counsel and this court—particularly those (who) suggested that the magistrate judge endorsed and approved defendants’ attempts to manipulate data collection in the death row tiers when in fact, no such approval was given—there appears to be a basis to sanction defendants’ counsel individually for lack of candor to the tribunal and lack of candor to opposing counsel.

“The court further finds that sanctions are appropriate based on defendants’ failure to supplement their responses to plaintiffs’ interrogatories with information regarding the installation of soaker hoses on the selected death row tiers.”

In granting plaintiffs’ motions that they seek reimbursement of attorney’s fees and costs, Judge Jackson ordered that plaintiffs file a motion for attorney’s fees and costs from Shows, McInnis and a third attorney.

“It is further ordered, in light of the court’s serious concerns regarding defense counsel’s lack of candor, that defendants’ counsel E. Wade Shows, Amy L. McInnis and Jacqueline B. Wilson show cause why sanctions should not be imposed against each personally…possible sanctions to include, but not limited to, reprimand, ethics training, suspension, disbarment and/or the payment of attorneys’ fees to cover the cost of motions and discovery to this proceeding.”

Just another day of openness, accountability and transparency for the gold standard of ethics in this administration.

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Conflicting hire dates, hyping of state vendor by legislator at Florida conference, strategy meetings all par for OWC course

Posted in Attorney General, Civil Service, Contract, Contracts, Courts, Ethics, House, Senate, Judges, Legislature, Legislators, Public Records on December 5, 2013| 8 Comments »

Something’s not quite right over at the Louisiana Workforce Commission (LWC).

Conflicting dates of employment of an unclassified employee, the awarding of a contract to a vendor whose bid was nearly twice that of two competitors, and appearances on behalf of a state contractor at a Florida convention by a state legislator have flown under the radar until now.

Wes Hataway is Director of the Office of Workers Compensation Administration but the question is just when did he join LWC?

Department of Civil Service records and minutes of the Worker’s Compensation Advisory Council simply do not match up.

Civil Service records indicate that Hataway was hired as an unclassified Assistant Attorney General on Jan. 25, 2010 at $93,600 per year and 13 months later, on Feb. 21, 2011, moved over to LWC as an unclassified Assistant Secretary to then advisory council Chairman Chris Broadwater at an annual salary of $105,000.

Here is what we received from the Department of Civil Service:

“See information below on Wes Hataway. Let me know if you have any questions or need more information.”

Begin Date End Date Agency Job Title Annual Pay Rate
1/25/2010 2/20/2011 Office of the Attorney   General Unclassified Asst Attorney   General 90,000.04 (begin)93,600.26 (end)
2/21/2011 Present LWC-Workforce Support &   Training Unclassified Assistant   Secretary 104,998.40

And indeed, there is a paper trail that appears to support that time frame. A two-page score sheet that evaluated proposals for a fraud detection contract with LWC dated June 22, 2010, includes the signature of Hataway and identifies him as one of the four-member team that evaluated and made recommendations for the contract. It also identifies him as representing the Attorney General’s Office—six months after he was ostensibly named as legal council for the Office of Workers’ Compensation (OWC).

(To enlarge, left click on image):

PTDC0124

PTDC0125

But another document dated Jan. 28, 2010, casts doubts as to Hataway’s status at LWC.

Minutes of the Jan. 28, 2010, meeting of the Workers’ Compensation Advisory Council contain an entry on the fourth and final page which says, “Director Broadwater introduces newly hired AG attorney, Wes Hataway. Wes will serve as General Counsel, and also work on the prosecution of fraud cases.”

MinutesAdvisoryCouncilJan2810

Hataway has since replaced Broadwater as Director of OWC but he regularly consults with Broadwater on pending matters coming before him, according to court documents, according to legal documents.

Broadwater, a Republican from Hammond, was elected to the Louisiana House of Representatives in 2011 but continues to represent workers’ comp insurance companies before the Office of Workers’ Compensation, the agency he once ran.

Broadwater also appeared in a four-minute video at an SAS Institute conference in Orlando, Florida. In that video, he praised the work of the company, which won that 2010 contract with a high bid of nearly $4.3 million.  http://www.allanalytics.com/video.asp?section_id=3427&doc_id=269491#msgs

The three-year contract, which was officially approved on Oct. 7, 2010 retroactive to Aug. 31, 2010, ended last Aug. 30.

The SAS bid was nearly double the bids of IBM and Ultix, each of whom had bids of $2.2 million.

Broadwater, Vice Chairman of the House Labor and Industrial Relations Committee, said in a letter to LouisianaVoice, “My service as vice chair of the Labor & Industrial Relations Committee in no manner alters my duties or the constraints placed upon me under the Code of Governmental Ethics.”

And while claiming that he is prohibited from receiving compensation “from a source other than the legislature for performing my public duties,” he admitted in a legal deposition that he represented insurance clients before OWC and he even admitted that he discussed with Hataway the pending appointment of his former law partner and that he has discussed with Hataway on several occasions matters pending before OWC.

Broadwater also related that Hataway had sought his advice on whether or not he (Hataway) had the authority as director to issue a stay of pending cases without involving the judges to whom the cases were assigned. Broad said in his deposition that he was of the opinion that Hataway did have such power.

Broadwater and Hataway are friends of long standing but that does little to explain why Broadwater would introduce him to council members as a new hire a full year before Civil Service Records and the RFP evaluation and recommendation form reflect any change from his employment status at the Attorney General’s office.

Calling the conflicting dates a clerical error doesn’t fly but then again, it could be just another aspect of the current administration that defies explanation.

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Jindal and Rainwater, preoccupied with OGB privatization, missed or chose to ignore obvious CNSI contract red flags

Posted in Contract, Contracts, Ethics, Governor's Office, OGB, Office of Group Benefits, Privatization, Public Records, RFP, Request for Proposals, Transparency on December 1, 2013| 13 Comments »

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. https://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.

https://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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State Treasurer John Kennedy adds his voice to concerns over questonable LSU hospital privatization saving claims

Posted in Contract, Contracts, Guest Columnist, Health Care, Higher Education, LSU, Privatization on October 18, 2013| 7 Comments »

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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False prophets, false profits—and false reasons to privatize LSU Hospital System (or trolling for more Medicaid dollars)

Posted in ALEC, American Legislative Exchange Council, Boards, Contract, Contracts, Governor's Office, Health Care, Higher Education, House, Senate, Legislature, Legislators, Privatization, Public Records, Transparency on September 29, 2013| 12 Comments »

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 https://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 https://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 https://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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