Some Might Call It a Scandal

by Pejman Yousefzadeh on December 11, 2012

Jeffrey Anderson has a story which, if true, should prompt congressional hearings and the resignation in disgrace of Health and Human Services Secretary Kathleen Sebelius. According to Anderson:

. . . HHS has contracted with a subsidiary of a private health care company to help build and police the very exchanges in which that company will be competing for business. The person who ran the government entity that awarded that contract has since accepted a position with a different subsidiary of that same company. An insurance industry insider (speaking on the condition of anonymity) says that HHS, in an attempt to hide this unseemly contract from public view until after the election, encouraged the company to hide the transaction from the Securities and Exchange Commission.

According to my source (the basis for most of this account), in January, HHS awarded Quality Software Services, Inc. (QSSI) what the Hill describes as “a large contract to build a federal data services hub to help run the complex federal health insurance exchange.” At that time, the director of Obamacare’s newly established Center for Consumer Information and Insurance Oversight (CCIIO) — which the Hilldescribes as “the office tasked with crafting rules for the national exchange” — was Steve Larsen. Larsen had been the insurance commissioner for Maryland when Obama’s HHS secretary, Kathleen Sebelius, was the insurance commissioner for Kansas, and the two are reportedly close. The CCIIO awarded the Obamacare exchange contract to QSSI while Larsen was the CCIIO’s director, and he played a central role in planning the construction of the exchanges — although it’s not known whether he made the decision to award the contract to QSSI or not.

Under the contract that it signed with HHS, QSSI’s power would be substantial — as QSSI would shape, run, and affect companies’ ability to compete to sell insurance through Obamacare’s federal exchanges. The Hill writes, “A draft statement of work for the contract awarded to QSSI states the contractor should provide services necessary to acquire, certify and decertify health plans offered on a federal exchange.” Moreover, “It stipulates the contractor should monitor agreements with health plans, ensure compliance with federal standards and” — somewhat strikingly — “take corrective action when necessary.”

QSSI, apparently realizing what a valuable asset it had in the contract, started shopping itself around. Meanwhile, Larsen left the CCIIO and took a highly paid position with Optum, a subsidiary of UnitedHealth Group, in June. Sometime this summer, UnitedHealth Group bought QSSI.

The Hill writes that the “quiet nature of the transaction, which was not disclosed to the Securities and Exchange Commission (SEC), has fueled suspicion among industry insiders that UnitedHealth Group may be gaining an advantage for its subsidiary, UnitedHealthcare.” The Hill adds, “One critic familiar with the business rivalries of the insurance industry compared UnitedHealth Group’s purchase of QSSI to the New York Yankees hiring the American League’s umpires.” In other words, UnitedHealth Group, through QSSI, would be able to police the same field in which it would be a competitor.

Anderson goes on to note that because of the transaction, QSSI “would have access to valuable data,” which would “rais[e] extraordinary privacy concerns.” To call this arrangement unseemly would be to understate matters dramatically.

I would like to think that Anderson’s story is untrue. But if Anderson is mistaken in his allegations, then it would be nice if the administration shows why, instead of simply ignoring the story. And if the administration fails to offer a good explanation for why Anderson might be all wet, Congress should get those investigative hearings started.

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