Steady stream of state officials joining HMOs create concerns about conflict of interest
HMO Conflict
June 30, 1997
Colorado’s former Medicaid director, David West, is only one of a stream of state officials around the country who have left their regulatory jobs recently for more lucrative positions in managed care firms.
While no one begrudges the right of a dedicated state official to make a good career move, experts in business ethics, consumer advocates and fraud investigators say job switches between state health agencies and the industry need to be scrutinized more closely for potential conflict of interest. With the brisk business in multi-million-dollar Medicaid contracts, these job changes raise many questions about real or imagined conflicts and unfair market advantages.
I was in a high visibility position. Making the move to private industry did raise some eyebrows,'' says Mr. West, who is executive director of Colorado Access, the state's largest Medicaid plan. I was never terribly threatened because I strictly adhered to a code of ethics.''
Colorado legislators felt nervous enough, however, to demand an ethics investigation last year. The audit committee concluded that Mr. West had not breached state rules, which require an official to wait six months before taking a job "in which he will take direct advantage, unavailable to others, of matters with which he was directly involved during the term of his employment.''
As soon as Mr. West, a state employee for 14 years, told his supervisors of his plans to take a position in the private sector, he was removed from all matters related to managed care," an inquiry found. Mr. West "had no contact" with his former coworkers for six months after his departure, and there was no evidence Colorado Access received special treatment, states the report to the Legislative Audit Committee.
J.B. Silvers, director of the Health Management Center at Case Western Reserve University in Cleveland, says regulators who move to private industry cross the line if there's any action they engaged in that would benefit their employer. That's a real problem,'' he says. But requiring employees to sign non-compete clauses'' could prevent good people'' from going to work for the states, he adds. It's a real catch-22.
"You will see Medicaid directors getting hired by HMOs all the time. These folks are very valuable,'' says Mr. Silvers. This industry is booming and there are not enough people who know what they're doing to take these jobs.''
Ethics rules vary widely across the states. In California, Department of Health Services professional staff must wait a year before joining a health plan with a Medicaid contract, and can't work for any HMO if they signed a contract to benefit it. In contrast, legislators in Tennessee, an early convert to Medicaid managed care, have declined since 1994 to adopt a bill that would require TennCare employees to wait six months before accepting jobs with the program's contractors. Current Illinois Medicaid contracts forbid HMOs from hiring state employees without the consent of the Department of Public Aid.
Restrictions in 40 states
About 40 states impose some restrictions on former government workers taking jobs with firms they once regulated, typically requiring them to wait a year, according to the 1996 Public Integrity Annual published by the Council of State Governments.
But, Steven Wiggs, director of the Medicaid Fraud Unit at the Arizona Attorney General's Office, says even a one-year waiting period is "not much" for officials who award multi-year contracts to HMOs. " There seems to be a revolving door," he says. "There should be tighter laws about what's permitted so that some of these HMOs don't get an unfair advantage. You want people who will be objective as regulators."
Health fraud expert Malcolm Sparrow says former state regulators might try to use their old contacts to win state contracts.'' Mr. Sparrow, a lecturer at the John F. Kennedy School of Government at Harvard University and author of License to Steal: Why Fraud Plagues America's Health Care System, (Westview Press 1996), says: "There ought to be reasonable statutes to prevent this. It ought to be carefully monitored by the public." Jim Duffett, director of the consumer advocacy group, Campaign for Better Health Care in Champaign, IL, argues for a two-year waiting period.
But Paul Langevin, president of the New Jersey Association of HMOs, warns against making "carte blanche'' judgments that the movement of former state officials to private health-care companies necessarily results in a conflict of interest. Medicaid employees are most familiar with the program and are very dedicated,'' he says. I think they understand what they are trying to achieve and can be an ideal hire for an HMO.''
Some state officials have expressed interest in weakening conflict of interest rules. Last fall, according to the Commercial Appeal in Memphis, TN, Gov. Don Sundquist considered removing conflict-of-interest provisions from TennCare contracts, which barred state employees or lawmakers from profiting financially from the program. At the time, the Appeal reported, Deputy Gov. Peaches Simpkins was seeking to invest in an obstetrical services company that planned to negotiate a contract with TennCare. She resigned Jan. 1, 1997 and, a month later, was elected vice chairman of Women’s Health Partners, Inc.
One of the more flagrant cases of HMO s trying to get a market advantage with state employees was the June 1995 prosecution of two dozen state and HMO employees in Maryland. All were convicted of accepting or paying bribes in exchange for the names and addresses of newly-eligible Medicaid clients, says Maryland Assistant AG Carolyn J. McElroy.
In the scheme, ex-welfare case workers hired by HMOs funneled cash to their former co-workers. One case worker seeking HMO employment wrote on his application that he had ''good sources'' for sales leads, Ms. McElroy says.
''When they (HMOs) hired these people they knew they had more access than anyone else,'' she says. Maryland banned Medicaid HMOs from marketing in the aftermath of the scandal. While Ms. McElroy says most state employees make the transition to private sector careers with few problems, she suggested a six-month ''cooling off'' period.
The Agency for Health Care Administration in Florida has tried to deal sternly with employees lured away by managed care companies, with mixed results. In July 1995, the agency warned six former employees, mostly contract managers or field supervisors, that they may have violated ethics laws forbidding employment at firms with which they had participated personally and substantially.''
But the state ethics commission cleared the employees. The panel found that an ex-employee who had reviewed a contract application submitted by the Medicaid HMO that later hired her was not sufficiently involved to violate the law.
However, two Florida health agency staffers were fired and charged in April with official misconduct, a felony, after they signed consulting contracts worth more than $90,000 with two Medicaid HMOs while working for the state. The state also revoked the Medicaid contracts of both HMOs.
Allegations of conflict interest are made frequently by losing bidders for state contracts. In one of the more high profile cases, First Health Service Corp. sued several years ago to overturn a controversial $45 million contract to process Medicaid claims in Virginia. Electronic Data Systems, Inc. won the contract in 1994, after hiring the state’s Medicaid managed care director, even though it bid $15 million more than First Health, court records state. A Richmond judge ruled in November 1994 that EDS’ hiring of the ex-regulator, Thomas Bone, did create "an appearance of impropriety."
While Circuit Court Judge Randall C. Johnson found that EDS used Mr. Bone to work on its bid proposal, he concluded that Mr. Bone’s involvement was minimal and declined to throw out the contract. State officials have since soured on EDS. Citing poor performance, they revoked the EDS contract in April. —Fred Schulte
Contact Mr. West at 303-333-0900; J.B. Silver at 216-368-2143; Ms. McElroy at 410-576-6521; and Mr. Wiggs at 602-542-3881.
Fred Schulte, investigations editor at the Fort Lauderdale Sun-Sentinel, is studying the shift to Medicaid and Medicare managed care under a 1997 Alicia Patterson Foundation Fellowship.
Steady stream of state officials joining HMOs create concerns about conflict of interest
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