Changes in contract lead to DHS firing; deal related to nonprofit, Medicaid

FILE — The Arkansas Department of Human Services at Donaghey Plaza in Little Rock is shown in this 2019 file photo.
FILE — The Arkansas Department of Human Services at Donaghey Plaza in Little Rock is shown in this 2019 file photo.

One Arkansas Department of Human Services official has been fired and another suspended amid an inquiry into a contract between the department and a Little Rock organization.

Tami Harlan, former director of the department's Division of Medical Services, was fired Aug. 9 after officials faulted her handling of the contract with the Arkansas Foundation for Medical Care. The contract pays the foundation to approve and review procedures and other services performed by health care providers.

The contract calls for the foundation, a nonprofit that provides a variety of services for the state Medicaid program, to be paid about $7.5 million from Jan. 1 of this year through June 30 of next year.

According to her termination letter, Harlan failed to follow the normal process for making changes to the contract and agreed to a "supplemental contract" without consulting department Secretary Cindy Gillespie and other officials.

Margaret Newton, the Medical Services Division's business operations manager, was suspended without pay for 10 days as a result of the inquiry, department spokeswoman Amy Webb said.

Newton declined to comment about her suspension. Harlan didn't respond to messages seeking comment.

The supplemental contract, which Gillespie didn't sign, would have allowed the foundation and the department to work out differences between bid documents and the contract that could not be worked out in time to meet a legislative review deadline, according to foundation officials and the department's internal inquiry.

The state office of Medicaid inspector general is conducting a follow-up investigation at Gov. Asa Hutchinson's request, the department's chief counsel David Sterling told lawmakers last month.

"Currently that investigation is ongoing, and DHS is cooperating fully with the office of inspector general," Sterling said at a Sept. 17 meeting of the Legislative Council's Review Subcommittee.

Sterling mentioned the investigation and the disciplinary actions while presenting an amendment to the contract to the subcommittee. Sterling did not name the officials who had been disciplined.

He told the subcommittee that the internal inquiry started after the department "noticed an irregularity" while preparing the contract amendment, which extended the agreement's end date by six months and more than doubled the amount of money to be paid.

The supplemental contract "doesn't have any force or effect," he said, because the proper procedures weren't followed in signing it.

Medicaid Inspector General Elizabeth Smith said last week that she doesn't comment on ongoing investigations. Her office was created in 2013 as an independent agency in charge of fraud and abuse investigations.

Hutchinson's state government reorganization, passed by the Legislature this year, placed the office within the newly created Department of Inspector General, which Smith also heads.

Hutchinson said in a statement that he asked for the review based on "discrepancies" in the contract.

"This is an example of how transformation is useful in managing state government," Hutchinson said. "The creation of the office of inspector general allows for an independent review when questions come up about contracts and how they are handled."

'CHANGES IN SCOPE'

As director of the Medical Services Division, Harlan was in charge of the day-to-day operations of the state Medicaid program, which pays for the health care of about 900,000 low-income Arkansans.

The 61-year-old Navy veteran and attorney had worked for the Human Services Department for more than 30 years.

Her firing came about six months after she was reassigned to be an assistant director over the Adult Protective Services unit within the department's Division of Aging, Adult and Behavioral Health Services. As a result, her salary dropped from $121,559 to $97,247.

When the change was announced in late January, the Human Services Department said the new job was a better fit for Harlan's skills.

Janet Mann, the new Medical Services Division director, discovered the irregularities with the Arkansas Foundation for Medical Care contract after she took over the post in February, Webb said.

The foundation previously held a similar contract to provide the services, which included approving providers' requests to perform certain procedures and other services, and to review whether services that were provided were medically necessary and appropriate.

That contract expired Dec. 31. The foundation was awarded a new contract to continue providing the services this year after submitting the lone bid for it last year.

For the new contract to start Jan. 1, the department needed the Legislative Council's Review Subcommittee to approve it at the panel's meeting last December. The subcommittee reports its recommendations to the council, which under state law must be allowed to review contracts for $50,000 or more worth of services.

Newton told Harlan in an email in November that the contract had to be submitted to the state Department of Finance and Administration by Nov. 30 for it to be presented to the subcommittee in December, according to a report of the department's internal inquiry.

Two days before that deadline, the department sent draft copies of the contract documents to the foundation.

The next day, Nov. 29, Catherine Bain, the foundation's chief administrative officer, said in an email to the department that the foundation had noticed "changes in the scope of work" from what was listed in the bid documents.

In an email to Harlan, Newton wrote that making changes to the contract to respond to Bain's concerns would require going "through the entire process again," including consulting with the department's offices of procurement and chief counsel.

"In short, this process cannot be accomplished even if AFMC returns changes today," Newton wrote. "As a consequence, this contract will not [be] ready to start on 1/1/19."

Harlan responded that she would call Bain.

Hours later, Bain sent a copy of a proposed supplemental contract, signed by foundation Director Ray Hanley, to an administrative assistant with the Medical Services Division.

Harlan agreed in the supplemental contract that the department would work with the foundation to make changes to the main contract so that it would conform to the bid documents.

In a recent phone interview, Hanley and Breck Hopkins, the foundation's general counsel, said the supplemental contract was meant to address the discrepancies between the bid and the proposed contract, as well as services that the foundation had agreed to perform that weren't listed in the main contract or bid documents.

For instance, the foundation had agreed to temporarily continue operating an online portal to allow electronic submission of doctors' requests for approval to perform procedures.

The department had hoped to start receiving the requests through its own claims processing system, operated by DXC Technology of Tysons, Va., but that feature wasn't active until May of this year.

The additional services are included in the contract amendment that lawmakers reviewed last month. It includes almost $2.4 million to pay for services and extra costs from January of this year through June 30, 2020, that weren't part of the original contract.

At the time the initial and supplemental contracts were signed, "there was not time to delineate all of [the extra services and costs] and work out a detailed agreement, and so the proper course I think is what happened," Hanley said.

"We signed an agreement to negotiate a final contract at a later date, once we got through the immediate need to get it reviewed" by the subcommittee.

According to the department's inquiry report, Harlan "stated that if AFMC needed additional money later, the Supplemental Contract could be used to say AFMC did the work."

"Ms. Harlan explained that 'we were over a barrel,'" according to the investigation report. "She stated that there had been an issue before with AFMC not getting paid for performing additional work outside the scope of their contract."

Gillespie signed the main contract on Nov. 28, but did not sign the supplemental contract.

"There is no evidence to support that the Supplemental Contract was discussed with Deputy Director [Dawn] Stehle, the Office of Procurement, the Office of Chief Counsel, or Secretary Gillespie," department officials said in the report of the internal inquiry.

The report is dated Aug. 9, the same day Harlan was fired.

Sarah Linam, the department's chief procurement officer until early August, "explained that there should have been no amendment to the contract [in November] because there was no executed contract at the time," according to the investigation report. "[Linam] said that if there were issues with the contract, those issues should have been communicated to her office so that her office could work with the vendor."

Linam left the Human Services Department to become general counsel with the Department of Education.

In an Aug. 1 email to Human Services Department officials, Harlan said she tried, during a weekly meeting, to tell Stehle, her supervisor, about the supplemental contract soon after signing it but was interrupted.

She said she later told Stehle that the foundation had agreed to electronically process the approval requests until DXC was ready to handle the task.

"I remember telling her AFMC told us it would cost $60-95,000 per month, that AFMC thought they had the money under their current contract to cover it, and we could add the money later and have it reviewed by the legislature as an amendment if they needed it," Harlan said in an email to officials conducting the internal inquiry.

She said she didn't remember if she ever told Stehle she had signed a supplemental contract or if she gave her a copy.

Stehle said she didn't remember that conversation and "emphasized that she would have not agreed to any contract terms as she does not have the authority to do so," according to the investigation report. "Further, she stated that Ms. Harlan never spoke with her about a Supplemental Contract or contract amendments."

Metro on 10/13/2019

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