SPRINGFIELD — An audit of the process that last year awarded $7 billion in state health insurance contracts shows a system fraught with shortcomings and failures, including problems at the ethics commission that was supposed to guarantee the fairness of the process.
The state health insurance procurement process caused a major furor throughout central Illinois last spring and summer after Urbana-based Health Alliance nearly lost its contract to provide coverage to thousands of state employees, dependents and retirees. It was only after a loud and persistent effort by legislators, Health Alliance and its customers that the state extended the insurer's contract to June 30, 2012.
Wednesday's release of a report by the state's auditor general, citing "serious deficiencies" in the health insurance procurement process, comes as the state Department of Healthcare and Family Services is about to release a new request for proposals from insurers, including Health Alliance.
"I think there's definitely a place for heightened scrutiny now," said Rep. Chapin Rose, R-Mahomet.
Any immediate scrutiny cannot come from Auditor General William Holland, however.
"My role is as an independent post-auditor. We're precluded by professional standards from getting involved in day-to-day, ongoing management decisions. That's the nature of my job," Holland said Wednesday. "It's going to be up to the executive ethics commission."
But the audit found several significant flaws in the ethics commission's oversight of the procurement process. "(O)versight of these procurements by the commission lacked adequate review prior to approving the award of the contracts," the audit said.
Among the findings:
— Its staff did not question the lack of compliance with evaluation procedures, including the failure of evaluation teams to meet.
— Staff responsible for the oversight of procurements did not question the violation of procedures, including the failure to provide thorough and appropriate comments to support scores given to bids.
— The state purchasing officer did not approve the awards for two contracts until after the awards were publicly announced.
— The commission failed to establish rules to guide its oversight responsibility, including rules on protest review.
Sen. Bill Brady, R-Bloomington, a member of the state's legislative audit commission, promised to hold hearings on the findings.
"I think it's appalling, and we're going to investigate," said Brady, who was the unsuccessful GOP candidate for governor in 2010. "To me this looks like either gross incompetence or great abuse."
Other area legislators welcomed the findings and said they hoped the agencies responsible for health insurance contracts had fixed their problems.
"It's my fervent hope that the department can do a much better job, because this is an instance where the public's best interest was not served," said state Rep. Chad Hays, R-Catlin.
"It now becomes absolutely clear with this report that there were major irregularities with how the contracts were awarded. It's nice to see a validation that we were on the right side all along," said Sen. Mike Frerichs, D-Champaign, another critic. "But I guess this calls into the question the ability of the department to award that new contract fairly."
Health Alliance was restrained in its response to the findings, saying it was not surprised, "since many were pointed out in our original protest of the procurement."
The company said it is "focused on submitting a competitive bid" for the new contract.
"We want to remain a strong presence and partner for state of Illinois employees and their families for years to come," the insurer said.
The findings against the DHFS included that it:
— Awarded contracts to Blue Cross Blue Shield in 20 counties that it did not even bid on, even though documents showed it had no primary-care physicians in 24 counties that it was awarded.
— Failed to include all relevant information, including the scoring evaluation criteria, in its request for proposals.
— Used a consulting firm (Mercer) in the development of RFP even though it had business relationships with all of the health insurance bidders, relationships that the department failed to identify.
— Failed to provide members of its evaluation team with all necessary materials to score bids and, once informed of the problem, failed to correct it and allowed the evaluation to continue.
— Allowed a member of its evaluation team to have communications with vendors, a violation of departmental procedures.
A spokesman for DHFS downplayed the audit findings.
"The technical issues identified in the audit did not affect the outcome of the procurement process, and the Department continues to believe that the overall procurement was executed in a fair and competitive manner," said department spokesman Mike Claffey. "This was both a complex procurement and the first use of the state's new procurement law for the group health insurance program. We will take into consideration the (auditor general's) input in future Department procurements, including finalizing long-term health insurance options for state employees and retirees."
Perhaps the most interesting finding was that between March 7, 2011, and April 6, 2011, the department director signed two different recommendations to award the state health care contracts.
"The Department took the first recommendation to a meeting with officials from the Governor's Office and the Governor's Office of Management and Budget in late March 2011," the auditor reported. "Sometime after that meeting and the date the awards were announced on April 6, 2011, the recommendation was changed. While the Department indicated that the Chief Procurement Officer (Matt Brown) could not support the initial recommendation, documentation did not support that position."
In the first instance, the audit says, a recommendation to award HMO contracts to Health Alliance and Blue Cross Blue Shield "was developed and signed" by DHFS Director Julie Hamos.
But in a later meeting, "which was not documented by any meeting minutes, a second recommendation was developed that was eventually announced April 6, 2011." It did not include an HMO contract for Health Alliance.
"That one is interesting to me," Rose said. "It definitely warrants further questions."