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September 19, 2013 07:00 AM

A tale of Questionable Dealings and Taxpayer Risk

Read original, full investigation post here:​ay-melchior?splash=

Bollywood performers, a Boston boat cruise with an open bar, gifts of cigars and wine — the vendor working on Illinois’s expensive new Medicaid information-technology system entertains public officials in style, according to sources in the Illinois government.

These whistleblowers tell National Review that when Client Network Services, Inc., was seeking the Medicaid contract, it wined and dined state officials, who then circumvented Illinois’s standard procurement procedures in order to outsource the multimillion-dollar contract to CNSI, which is currently under criminal investigation in Louisiana. CNSI, headquartered in Maryland, has a history of work of questionable quality, overrun project budgets, delays, and litigation in several other states.

Documents procured by, a national transparency organization based in Illinois but involved in all 50 states, have raised questions about the close relationship between Illinois state officials and CNSI. Several whistleblowers tipped off about what records to request, and National Review spoke to some of them. These sources within the Illinois government allege unethical and potentially unlawful behavior.

It looks like pure Chicago politics, but taxpayers both in Illinois and across the United States may end up footing the bill, since the federal government will pay for 90 percent of Illinois’s system upgrade. The Centers for Medicare & Medicaid Services (CMS) has approved an upgrade costing as much as $190 million, though the state claims that because it is partnering with Michigan on the project, it will cost only $85 million.

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In late August 2012, private- and public-sector workers gathered in Boston from across the United States to attend the Medicaid Enterprise Systems Conference, an annual event focused on the IT systems that support Medicaid.

They found time for fun. According to sources within the Illinois government, CNSI rented a two-story boat to cruise Boston Harbor for a private party. The 50 or so guests included several officials from Michigan, as well as employees of the Illinois Department of Healthcare and Family Services (HFS). CNSI outsources some work to India, and that night, Indian as well as American food was served. Liquor flowed freely from an open bar, and CNSI staff clinked glasses with Illinois HFS employees with whom they hoped to work, a whistleblower says, alleging that "the only people on that boat were people who were being solicited by CNSI."

In addition to the boat party, CNSI hosted a bigger event in the ballroom of the conference hotel, also attended by Illinois officials. That party, too, had an open bar and buffet tables, as well as Bollywood performers for the guests’ entertainment, according to a source close to the project.

Another source within the government claims that CNSI also hosted a private party in a hotel suite that night, inviting only people it wanted to do business with, including Illinois officials. HFS spokeswoman Kelly Jakubek denies that allegation.

That entertaining may have violated the Illinois State Officials and Employee Ethics Act, which forbids officials to accept refreshments or gifts worth more than $75 per person. National Review was not able to confirm which boat company provided the cruise. But Boston Harbor Cruises reports that its fee for boat rental alone for 50 people is $1,000 for three hours; a buffet costs around $80 per person, and an open bar costs an additional $42.67 per person. Other companies offering cruises would not quote a specific price, or had not returned calls.

Illinois HFS responded to an information request by government-accountability blog Edgar County Watchdogs, confirming that at least six state employees, several of whom were positioned to make key decisions regarding the upgrade contract, were on a boat in the Boston harbor with CNSI representatives, though "HFS does not know who paid for the boat trip." (1)

HFS’s Jakubek says CNSI did not solicit Illinois government employees on the boat. In an e-mail, she told National Review that ten HFS employees were at the conference, and "they attended various events/activities that were offered to all attendees as part of the conference and they complied with all state ethics rules."

A whistleblower says that after and Edgar County Watchdogs broke the story about Illinois officials’ partying in the Boston Harbor, several of those officials removed photos of the event from their Facebook pages and office desks.

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To prevent fraud and abuse, the federal government requires states to send specific data about Medicaid payments and beneficiaries to CMS. The amount of information required was expanded under the Affordable Care Act.

States should already have this information on hand in their Medicaid databases, but Illinois’s system, which processes $14 billion in annual payments, (2) was created in 1982 and had continued to run through a series of patchwork fixes, which had become increasingly cumbersome.

About five months before the boat party, Michigan had approached Illinois to discuss the possibility of sharing a Medicaid Management Information System (MMIS), a complex program that stores data about beneficiaries and providers and processes claims and payments. Michigan’s own system had been built by CNSI. The contract was awarded in 2006 at $51.5 million but has grown to a current aggregate value of over $227 million.

Illinois would normally go through a highly competitive procurement process to find a vendor for a project such as the MMIS upgrade. That process typically includes soliciting and evaluating multiple bids, vetting possible contractors for compliance with Illinois state law, and negotiating a contract.  For a project as big as this one, procurement could take between 18 months and two years, Matt Brown, Illinois’s chief procurement officer, said in an interview with National Review.

But contracts between governments are exempt from the Illinois procurement code,(3) and in December 2012, Illinois signed an intergovernmental agreement to enter formal planning discussions to share Michigan’s Medicaid IT system. (4) Under the agreement, Illinois will write a check to the state of Michigan, and then Michigan will collaborate with CNSI to deliver the system, paying the company and managing its work.

Brown says the intergovernmental agreement was "where a lot of the state’s policies start to be tested: What does it mean to access resources through the state of Michigan? Was that a no-bid contract with the state of Michigan’s contractor? Well, no, because we don’t contract with the state of Michigan’s contractor. We contract with the state of Michigan." He adds that after reviewing the transaction thoroughly, he "did not find any circumventing of competitive practice," and that "the state of Michigan and the state of Illinois both have something to gain in this partnership."

But Adam Andrzejewski, founder of, says via e-mail that "Illinois has now set a precedent to purchase anything it wants without a competitive bid process as long as they can find a state to resell the product or service to Illinois."

Jakubek says the intergovernmental agreement is "fully consistent with Illinois law. The purpose of the Procurement Code is to enable the state to get the best possible price while ensuring integrity and ethical conduct. We have worked diligently with the state’s Chief Procurement Officer from the beginning to ensure full compliance with Illinois’ procurement laws."

However, one of the whistleblowers tells National Review that Illinois "did not have to go this route." It "could have easily procured this the right way and put it out for a bid, but the time frame and the excuse they were looking for was Obamacare’s October deadline," even though enhanced federal funding would have extended beyond October 1. Jakubek says the upgrade project is "not related to the Oct. 1 launch of the Health Insurance Marketplace and the Affordable Care Act."

Since the intergovernmental agreement was signed, CNSI has hosted a lavish dinner party in Michigan for Illinois officials, according to a source close to the Illinois government. Furthermore, a whistleblower says that CNSI sent bottles of wine and a box of Cuban cigars to HFS officials who would be working on the upgrade.

Edgar County Watchdogs sent a public-information request about these allegations to HFS, asking for information about gifts given to its employees. "We assume you mean gifts given by CNSI," responded Kiran Mehta, the Freedom of Information officer. The agency confirmed that one employee, who was close to the upgrade, had "received two cigars, although she does not know what kind of cigars they were." A whistleblower says that more than one employee received gifts, and that the gifts were well in excess of two cigars.

National Review asked Jakubek whether CNSI had sent bottles of wine and a box of Cuban cigars to employees who would be working on the MMIS upgrade. "No," she wrote back in an e-mail. "To be clear, your allegations listed above are false."

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National Review’s interviews with whistleblowers also raise questions about the working relationship between Illinois officials and CNSI. A source close to the upgrade project says the HFS’s chief information officer, Stephen DePooter, and others on the team have corresponded copiously with CNSI, sometimes sharing information that would give the company an unfair advantage. The whistleblower said DePooter was one of the key people gunning for the collaboration with Michigan and CNSI. And e-mails obtained through a public-records request appear to show that DePooter coached CNSI on how to respond to CMS, which must sign off on the project at the federal level. HFS says the project did not receive federal CMS approval until May 2013.


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