Audit shows cost misappropriation, lack of oversight in Walker DHS privatization push

An audit of the state Medical Assistance Program(full report linked) conducted by the non-partisan Legislative Audit Bureau was completed in December 2011. The 100-page report was highly critical of the Department of Health Services’ unauthorized expansion of no-bid contracts, and lack of transparency in accounting practices. On March 30, 2012 DHS Secretary Dennis Smith sent a letter to Joint Finance Committee Chairs Alberta Darling and Robin Vos summarizing cost savings necessary to fill a $204.3 million deficit in the “All Funds” budget.

In the letter, Smith outlines cost saving measures the department will have to take – including Federal waivers to make cuts to Badger Care Plus, Childless Adult Special Terms and Conditions, Medicaid, and “the Departments’ Family Care sustainability plan.” All of these measures will result in dropping people off these programs during their greatest time of need – in a stagnant state economy with a long-term unemployment problem.

The audit is a clear demonstration that the Walker Administration’s push to privatize DHS services is leading to cost overruns, unauthorized no-bid contract expansion, and lack of legislative oversight. All of these spending issues more than make up for the funds necessary to bring the Medical Assistance (MA) program into the black – without cutting services.

The primary reason for MA cost increases, overall, is the increase in people on the plan – the greatest increase in children on Badger Care. It is striking that as unemployment increases, the MA recipients increases. In the past year, the number of participants has outpaced the unemployment rate – as more people drop out of the unemployment system, the divide grows between those unemployed and those receiving MA. More evidence of the longterm unemployment problem being ignored by the Walker Administration.

The increase in state costs (as a percentage of expenditures) in Program Administration (51.3%) far outpaces the state cost increase in patient services (16.1%). The reason? Increase in third-party contract payments.

In FY 2006/07, DHS spent $66.2 million on third-party contract administrative costs. In FY 2010/11, the cost has skyrocketed to $114.8 million - a cost increase of 73.4%. Third party contracts account for over 40% of all administrative costs to the MA program ($286.1 million). 

Two companies account for 75% of those third-party contracts – and they have had their contracts expanded with no oversight in the last 12 months. 

Hewlitt Packard Enterprise Services (HP) is the fiscal agent for the MA program. In 2006/07 , HP was paid $44.6 million for their services. In 2010/11, the HP contract was paid $64.7 million – a 32% increase in the contract (remember – patient services costs to the state only rose 16.3%). In 2008, the new system being installed for use by HP overran initial costs by $27.9 million. In June 2011, HP reported they had more than doubled staff levels on their Wisconsin contract. In 2010, there were 598.5 FTE positions under the contract, in June 2011, that number jumped to 1,127.5 FTE positions. This occurred without a bid, without legislative oversight, and without a supplemental budget request. As a thank you, HP PAC has contributed $5000 to the Scott Walker campaign fund for the recall.

Deloitte Consulting, LLP maintains the electronic system to determine MA eligibility. In 2006/07, Deloitte was paid $9.9 million. In 2010/11, the contract was worth $13.6 million – a 27% increase (again, compared to a 16.3% increase in patient services). In FY 2009/10, Deloitte was paid $90/hr. for its services. In FY 2010/11, Deloitte was paid $104/hr – a 13% increase. Any public workers receive a 13% increase last year? As a thank you, Deloitte employees reported over $6,000 in private campaign contributions to Scott Walker recently.

In addition, Deloitte is paid $170,000/month for “facility and equipment costs.” The audit sharply criticizes DHS for the “no bid contract expansion.” As state workers (who could have performed like work at a cost savings for taxpayers, according to the audit) were being forced to sacrifice furlough days and pay cuts (in the form of increased benefit contributions); HP and Deloitte were doubling the size of their workforce and expanding private contracts with no bids, and no budget authority from the legislature. DHS overspent its legislative authority by 27% on actuarial services alone through these private vendors.

The audit was also highly critical toward the lack of transparency in DHS bookkeeping practices. The bureau found $551 million in expenditures against General Program Revenue it could not attribute to any DHS account. These were payments made to private vendors toward contract work, but did not comply with any account in the DHS books. State Senator Kathleen Vinehout has asked for a Joint Finance Committee hearing on this matter – as of this writing, she has not received a response from either co-chair, Darling or Vos.

The inability of the Walker Administration to be fiscally responsible, for the sake of pursuing their ideological crusade is the great unreported story of this recall effort. It is not “sexy”, or sensational, but gets at the heart of the matter.

Scott Walker is not interested in responsibly managing Wisconsin government. He is only interested in “divide and conquer” for the corporate plutocracy he wishes to rule. His recall is not only justified, it is necessary.

Vote tomorrow. Solidarity.  

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3 thoughts on “Audit shows cost misappropriation, lack of oversight in Walker DHS privatization push

  1. The audit runs through the 2010-11 fiscal year. Contracts for HP and Deloitte were in place before Walker became governor (Jan 2011).

    • I am aware the contracts pre-date the Walker Administration. The point is the increase in taxpayer money going to those contractors on Walker’s watch…increases in staff and expenditures that occurred during 2011; all while slashing state employees, as well as the money that could have been saved for patient services. You will also never hear this writer defending the Doyle record. Thanks for reading and commenting.

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