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Audit: State 'Inconsistent': Medicaid Contract Bids Draw Different Responses

Posted on: Wednesday, 5 April 2006, 03:01 CDT

By Ryan Alessi, The Lexington Herald-Leader, Ky.

Apr. 5--FRANKFORT -- The state was "inconsistent" when reviewing companies' applications for a sought-after contract to manage the $4.7 billion-a-year Medicaid program and may have hired a firm with a conflict of interest, a state audit report says.

The Health and Family Services Cabinet announced last summer that First Health Services Inc. of Virginia would oversee and streamline the Medicaid program, which covers medical bills for the state's poor and disabled.

But Auditor Crit Luallen noted in a broad statewide financial review that it "potentially could also have been a conflict of interest" to hire that company because it employs a former health cabinet division director.

Mary Rhodes led the Medicaid call center's division until July 30, 2004 -- two months after the cabinet announced that it would be seeking a private company to take over some management duties of the Medicaid program. Rhodes now serves as First Health's member services manager.

Kentucky Medicaid Commissioner Shannon Turner said the state's purchaser who worked on the contract consulted with the Executive Branch Ethics Commission about Rhodes' situation and received the go-ahead.

But it is inconsistent for the state to award the $113 million five-year contract to First Health after it disqualified another company, Kentucky Health Partners, for having a former Medicaid commissioner on its payroll, the audit added.

Kentucky Health Partners formally objected after the Finance and Administration Cabinet disqualified it from the bidding because it employed Russ Fendley, who was Medicaid commissioner until October 2004. The firm got its own opinion from the ethics commission that would allow it to bid for the contract as long as Fendley didn't lobby or deal with the cabinet directly.

Turner, the current Medicaid commissioner, said the health cabinet will work with the finance cabinet and ethics commission to further examine whether any conflict exists, but said that she doesn't think there is a problem.

The audit also recommended the finance cabinet review all future bids for potential conflicts of interest and require firms to identify any former state employees on their payroll -- suggestions that the cabinet said it will follow.

In addition, the annual statewide audit found a host of record-keeping discrepancies and potential misuse of state credit cards, funds or work time in other agencies. Some highlights of the audit's recommendations:

-- Cracking down on paid leave time for state workers to vote.

The report followed-up on a review from the 2003 and 2004 elections in which hundreds of state workers took a four-hour leave time to vote even though some never made it to the polls. For example, as many as 535 of the 5,649 Transportation Cabinet employees who took paid time off didn't vote. An additional 39 weren't even registered.

The audit recommended that the Personnel Cabinet provide instructions to employees, ask them to sign an acknowledgement of understanding those rules and match up employee payroll records with voter history files to find those who might have broken the rules.

-- Increasing disclosure about decisions for Homeland Security grants.

The report, which reviewed a sample of 29 grant applications, found that 13 of those received high scores but weren't awarded money. The Homeland Security office responded that scoring is only one criterion.

Homeland Security officials acknowledged that they can keep better written records of the reasons for grant decisions and should be more consistent in notifying communities turned down for grants.

-- Investigating the spending of nearly $560,000 in a Whitley County highway project.

The audit highlighted "significant financial irregularities" with the use of federal funds in an I-75 project to clear rock from hills along the highway. The report says only that certain payments to contractors "may constitute fraud," particularly on the part of an unnamed local official. No other details were released.

The Transportation Cabinet says it is working on an internal audit of its own and is awaiting the results of an FBI investigation as well.

Reach Ryan Alessi at (859) 231-1303 or 1-800-950-6397, Ext. 1303, or ralessi@herald-leader.com [mailto:ralessi@herald-leader.com].

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Copyright (c) 2006, The Lexington Herald-Leader, Ky.

Distributed by Knight Ridder/Tribune Business News.

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Source: Lexington Herald-Leader (Lexington, Ky.)

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