Medicaid overhaul deal worth a record $63B

Documents reveal consulting firm's role

ILLINOIS (WCIA) -- Mere days after the state paid down roughly forty percent of its backlog of overdue bills, the Rauner administration finalized the largest vendor contract in state history. 

The $63 billion contract is $23 billion higher than early projections, and significantly higher than a variety of figures the Rauner administration gave out after the deal was finalized.

"These numbers are far, far higher than any previous number I have heard," Rep. Greg Harris (D-Chicago) told WCIA on Wednesday. "This adds more questions to this unaccountable process done with no independent oversight." 

House Republican David McSweeney chimed in too. "I'm very concerned that the Rauner administration's cost estimates keep increasing," he said, adding, "There should be an immediate full review of the MCO contracts, including with public hearings, by the House Human Services Appropriations Committee."

A public hearing is already scheduled for next Thursday, November 30th, in Chicago. 

In May, Comptroller Susana Mendoza testified before the House Human Services Committee that the restructuring deal would cost between $30 billion and $40 billion dollars and would qualify as the largest procurement in Illinois history. Chairman Greg Harris led the hearing claiming the procurement was a “monumental undertaking” that would cost $9 billion per year.

At the same hearing, Department of Healthcare and Family Services Director Felicia Norwood testified that “It’s the largest RFP (request for proposal) in the state of Illinois because the Medicaid budget is the largest budget in the state of Illinois. It represents resources that we spend today. Not new resources, but existing resources.”

At no time during her testimony did Director Norwood correct the record or dispute the figures presented by the Comptroller and the committee chairman. In an interview immediately after the hearing, she confirmed they were an accurate estimate but stopped short of giving an exact quote, citing an ongoing bidding process.

During her testimony, Norwood said the restructuring deal would expand managed care enrollment from roughly 2 million patients up to 80 percent of the state’s Medicaid population, which is approximately 2.56 million people.

Later, a spokesman from HFS pointed to a February article in Crain’s Chicago Business which listed the annual cost of the new managed care contracts at $15 billion. Those numbers appear to clash with figures HFS provided in an email last week, which said the yearly cost could range between $12.8 billion and $13.5 billion.

HFS has not yet responded to questions about whether or not they have calculated a per-patient cost estimate under this new plan. Their most current enrollment and total cost estimates seem to suggest the cost per patient would see a significant increase.

On Friday of last week, HFS quietly posted incorrect details of what appeared to be a six-year deal worth $5.26 billion on the state's procurement website. The workload is split between seven healthcare companies who met the state's criteria for a massive Medicaid overhaul. BlueCross BlueShield ($1.03B), County Care ($1.05B), Harmony Health Plan of Illinois ($685M), Illini Care Health Plan ($915M), Meridian Health Plan ($960M), Molina Healthcare of Illinois ($440M) and Next Level Health Partners ($180M) enlisted as Managed Care Organizations and, as agreed to under the terms of the deal, will combine to provide at least five coverage options for Medicaid patients in all 102 Illinois counties. 

Those numbers were initially portrayed as a six-year cost estimate. In truth, they were only for the first six months of the deal. The contract kicks in January 1st of 2018, and the fiscal year ends on June 30th. During the first six months of the fiscal year, the costs will be slightly lower as the state works to build up enrollment in the new managed care programs. 

Aetna Better Health and Humana are the two providers who lost out on their bids, according to documents posted on the state's procurement bulletin.

The Department of Healthcare and Family Services oversaw the controversial bidding process unfettered by the public scrutiny that would accompany most other large state contracts. Years ago, the General Assembly granted the Office of the Governor discretion to shop for 'Purchase of Care' contracts without all of the red tape and regulation that often besets otherwise eager state vendors. 

Governor Rauner vetoed a bill sponsored by Rep. Greg Harris (D-Chicago) that would have effectively stripped the 'Purchase of Care' privileges from the Executive Branch and subjected the deal to more stringent oversight.

"Since I introduced legislation to require more transparency and oversight into the largest procurement in Illinois history, I have known there would be problems," Harris said in a phone interview. 

Rauner called the process "competitive and transparent" in his October veto message which said, "Enactment of this legislation would needlessly cost taxpayers millions of dollars."

Last Wednesday, as required by a part of the new procurement code, the Rauner administration quietly published the first details of a new one-year consulting contract with McKinsey and Company worth up to $12.5 million. The sizable bid was awarded without any competition. HFS says the 'consent decree compliance' contract is exempt from competitive bidding rules. 

HFS spokesman John Hoffman said in a statement, "By Federal consent decree, the Department must design and implement significant changes to its delivery of medical services, including under the rebooted managed care program that will cover 80 percent of the state's Medicaid beneficiaries." 

Currently, 65 percent of Illinois' 3.2 million Medicaid patients are enrolled in managed care programs. HFS Director Felicia Norwood testified at a House Human Services Committee in May that the agency expects enrollment efforts will boost involvement up to 80 percent. 

"In retaining special expertise to achieve this goal," Hoffman's statement continued, "HFS has followed state procurement code. By helping to ensure that the Department is in compliance with the law, this contract is intended to ultimately prevent costly future litigation."

A source close to the governor's inner circle says McKinsey has been nurturing this deal from the beginning, often serving as a mediator between potential providers and the governor's office. The source, who asked not to be named in this report, says a partner at McKinsey maintains a direct line of communication with Deputy Governor Trey Childress. Calls placed to McKinsey were not immediately returned. Childress, who operates largely behind the scenes and coordinates business with state agency supervisors, is one of a select few top advisors who not only survived the governor's summer staffing purge of 2017, but also saw his responsibility and influence swell to new heights. 

In a March hearing, Norwood credited Rauner administration staffers Greg Bassi, Georgia Mann and Childress in particular, who she said “is always instrumental and really has lead the health and human services transformation for the Governor.”

However, in the May hearing, Norwood changed her story and omitted any reference to Childress, mentioning only Bassi and Mann’s involvement.

Harris asked her to clarify, “Those were the only two persons in the Governor’s office who participated in the preparation of the RFP?”  

"That is correct,” Norwood replied.

This first glimpse at the cost and scope of the McKinsey contract may provide insight into how this deal was crafted from the start. Any previous contract work with the state was not publicly disclosed as it was technically exempt from publishing requirements under the old procurement code. New orders filed under the Freedom of Information Act may soon yield further details about McKinsey's role in this process.

"Now we're seeing disclosure of contracts we didn't know about. I wonder who was involved in designing the criteria and deciding the selection and exclusion of winners and losers," Representative Harris wondered. "I think we have an interest in knowing these things." 

Harris filed two new health insurance bills on Thursday, one of which would prevent Central Management Services from slashing Medicaid services made available under the Affordable Care Act without the consent of the General Assembly. 

*This article has been updated to clarify Director Norwood's remarks on the cost estimate of the managed care contracts.


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