Firm hired to find Kansas efficiencies has track record of cost overruns, mixed results
Topeka ? A New York-based consulting firm that is being awarded a $3 million contract to perform an efficiency study for the Kansas Legislature has a track record of billing states more than originally planned and producing reports that some critics find questionable, according to independent observers and press reports in those states.
The firm, Alvarez & Marsal, completed a similar study for the state of Louisiana last year in which it claimed to have identified ways that state could save $2.7 billion in savings over five years, although the study itself ended up costing more than twice what Gov. Bobby Jindal’s office had originally planned.
And in North Carolina, A&M was awarded a $3.2 million no-bid contract that ended up costing more than $9 million to reform management of that state’s Medicaid program. That contract is now one focus of a federal grand jury investigation, according to reports in the Raleigh News & Observer.
Louisiana efficiency project
“A lot of things they come up with will be old laundry lists,” said Robert Travis Scott, president of the Public Affairs Research Council of Louisiana, a nonprofit policy think tank. “But that doesn’t mean they shouldn’t have it in their package of suggestions. But a lot of their ideas have been explored before and decisions were made not to go forward with them.”
Officials at A&M did not respond to numerous phone calls requesting comment, and Scott said that’s not unusual for the firm.
“A&M is not very good at communicating with the public and the media,” he said. “They don’t make themselves accessible to help explain things.”
Scott said some of the projected savings that A&M said could be realized were highly speculative, such as the idea the state could save $1.5 million a year in transportation costs by installing GPS devices on all state vehicles to ensure state employees were always using the most efficient and direct routes.
Others, he said, raised eyebrows at first, although there may have been some merit to them.
For example, A&M said the state could save $137,000 a year by allowing pregnant women on Medicaid the option of giving birth at home or at non-hospital birthing centers, using midwives and doulas instead of limiting payment to hospitals and licensed doctors.
The firm noted in its report, though, that the federal Affordable Care Act now requires state Medicaid programs to pay for maternity care at free-standing birth centers. It also noted that Louisiana has the lowest rate of home births, roughly one in 500, a rate 10 times lower than Oregon’s and 13 times lower than Montana.
“In Louisiana, hospital and facility costs account for 59 percent of the average cost of a vaginal birth and 62 percent of the cost of a C-section,” the firm said in its report.
Another recommendation that stirred controversy was the suggestion that the Louisiana Department of Transportation and Development save millions of dollars a year by applying thinner asphalt overlays to its highways, using a different, stronger type of asphalt.
“That one turned out to be a lot more complicated than it appeared to be at first,” Scott said, noting that it generated some “interesting discussion.”
But Scott said it’s difficult to tell how many of the recommendations were actually implemented and, of those, how much money they actually saved. Nevertheless, he said, Louisiana legislators built into their budget many of the savings that the firm said the state could expect.
The New Orleans Times Picayune reported recently that the state ended the last fiscal year with a deficit of around $50 million, a shortfall that will have to be made up with midyear spending cuts in the current fiscal year.
“I think it’s probably a healthy exercise to do,” Scott said of the efficiency review process. “But be careful about exaggerating how much of it is real. Look out for the speculative savings that may or may not come to fruition. Look out for budget tricks.”
North Carolina Medicaid
In February 2014, the state of North Carolina awarded A&M a $3.2 million no-bid contract to turn around the state’s troubled Medicaid program. By September of that year, the contract had grown to nearly $7 million, according to local news reports.
It was extended at least twice, according to information on the Department of Health and Human Services’ website, and ended up costing a total of $9.7 million through June 30, 2015.
Adam Linker of the North Carolina Justice Center, a left-leaning research and advocacy group, said the state’s Department of Health and Human Services, which manages the Medicaid program, had suffered from a high turnover rate among its staff and lack of experienced management.
“The governor (Republican Pat McCrory) appointed a director who didn’t have much experience,” he said. “There was a lot of turnover at the top of the Medicaid program. They didn’t have the staff to run it.”
But Linker said his group now relies heavily on A&M for information and data about the state’s Medicaid program that the group uses in its health care advocacy projects.
One of the things A&M did was to install one of its own consultants, Rudy Dimmling, as the state’s Medicaid finance director, at an annual salary of $175,000.
According to the News & Observer, A&M’s contract is just one of several high-dollar contracts that are now the subject of a federal grand jury investigation.
The newspaper reported that the subpoenas were issued in late July and that DHHS Secretary Aldona Wos announced her resignation about a week later.
A spokeswoman for the state agency was not available last week for comment.
In Kansas, it was the Legislature, not the governor’s office, that decided to hire a consultant for an efficiency study, and A&M was selected over three other firms through a competitive bidding process.
Kansas State Sen. Ty Masterson, R-Andover, who is vice chairman of the Legislative Budget Committee that reviewed the proposals and made the selection, said a final contract has been negotiated and signed by legislative leaders.
But state officials on Friday would not release a copy of that contract, saying it still has not been signed by A&M.