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January 5, 2009

Health-care law had revolving door spinning

Many who helped craft 2003 bill went on to serve firms
that benefited from legislation
Staff Writer
Dallas Morning News
Texas will pay private companies billions of dollars this year to provide health and human
services to its neediest residents. Contractors will coordinate care and process benefits, operate
call centers for welfare applicants and cut checks for state health workers.
The national economy may be collapsing, but it's another boom year in the state's effort to
outsource functions it once performed.
Government outsourcing in Texas expanded dramatically with 2003 legislation that crunched 12
health and human services agencies into five, negotiated lower prices with drug companies and
replaced state workers with private contractors to screen and administer welfare benefits. It has
since grown to include such functions as data management across state agencies and payroll
processing for state employees.
"Anytime state government can provide the same or better services more efficiently and costeffectively, the citizens benefit," said Allison Castle, spokeswoman for Gov. Rick Perry.
Some have benefited more than others: Former Perry aides, state agency staff and legislators
have gone to work for private companies that have profited from the outsourcing.
The architect of the landmark legislation, for example, has earned between $1 million and $2
million as a lobbyist specializing in health care over the past four years.
Former state Rep. Arlene Wohlgemuth said the result of her legislation, known as House Bill
2292, has been smaller government that still served the needs of vulnerable Texans.
"By reducing administrative costs, more money was available for social services programs, the
benefits of the poor were protected and funding for foster-care programs actually increased,"
Wohlgemuth said.
The revolving door from public to private sector does more than enrich former public officials,
critics contend.
"It undermines public faith in government when they see that kind of thing happening," said
Andrew Wheat of Texans for Public Justice, a liberal group that tracks lobbying and campaign
contributions. "It reconfirms the sense that these people are operating on the take and not in the

public's best interest."

Policies and profits
The state Health and Human Services Commission reported more than $15.5 billion in contracts
in fiscal year 2007, according to the most recent figures available from the Legislative Budget
Board, the Legislature's fiscal and budgetary office. That was 58 percent of overall state
spending on health and human services and an 11 percentage-point increase over fiscal year 2003
This year's health and human services budget is $29.3 billion. Commission spokeswoman
Stephanie Goodman said nearly $25 billion was for contracts, including payments to doctors,
pharmacies, hospitals and private companies.
The belief that outsourcing promotes efficiency and cost savings is one that conservative activists
and corporate interests have promoted in Austin over the last decade. It shaped HB 2292.
Gregg Phillips had a foot in both the corporate and political worlds that produced the legislation.
He was hired as a senior official at the Health and Human Services Commission just as
Wohlgemuth was introducing the first draft of HB 2292.
As a deputy executive commissioner at Health and Human Services, Phillips played a leading
role in shaping the legislation and promoting some of its more controversial elements. When
state Rep. Brian McCall, a Plano Republican, expressed concerns about the plan to replace state
welfare administrators with privately run call centers, Wohlgemuth arranged for him to tour an
Austin call center that was handling applications for another state program. Phillips was his
guide, McCall said.
Later, Phillips directed the agency's business case analysis, which predicted that the call centers
would be cost-effective. (The call center program has cost taxpayers more than $250 million and
is still not fully functional three years after its launch.)
Phillips was a former Republican Party fundraiser who presided over privatization initiatives as
Mississippi's human services chief in the 1990s. A Mississippi legislative committee concluded
in 1995 that Phillips had created "an appearance of impropriety" by going to work for a company
after awarding it a $557,000 contract while in his state job.
From 1997 until August 2002, Phillips worked on health-care contracts for Deloitte Consulting
LLP, a major government outsourcing firm, according to his state personnel file.
Chris Britton, a former Republican legislative aide who had worked for Wohlgemuth and had
advised Perry on health and human service issues when he was lieutenant governor and
governor, was also heavily involved in the legislation.
Just weeks after leaving the governor's staff in late 2002, Britton was hired by Wohlgemuth to
perform budget and legislative policy analysis, Britton said in an e-mail response. State

campaign finance records show Wohlgemuth paid him $10,000 from campaign funds in 2003.
Britton now works for Accenture LLP, another big outsourcing firm that along with Deloitte won
contracts with the state after the passage of HB 2292.
Deloitte and Accenture also may have been involved in discussions about the outsourcing
legislation. Phillips' office calendar shows that he met repeatedly with representatives of the two
companies during the time he was working on the legislation. The Houston Chronicle first
reported those meetings in 2005.
In a recent telephone interview, Phillips told The Dallas Morning News that he had "a lot of
interaction with a lot of folks" but could not remember whether he met with Deloitte and
Accenture while working on the bill.
Deloitte spokeswoman Melissa Norcross Wolf said the company "had no involvement in the
drafting of HB 2292."
Health and Human Services Executive Commissioner Albert Hawkins said Accenture and
Deloitte were among many parties interested in HB 2292. He defended the involvement of
private contractors in discussions regarding the legislation.
"There's all kind of input that is provided into the legislative process from people who have
expertise or those that might be interested in some business opportunity down the road," he said.
Hawkins said he was confident that Deloitte and Accenture did not improperly influence the
"The drafting process is under the control of the Legislature," Hawkins said. "While we share
information about it, it's up to the author and the legislative committees as to what to include in
their bills."
In this case, Wohlgemuth and her colleagues included the prevailing orthodoxy on outsourcing
state health services, including the use of call centers to process applications for Medicaid, food
stamps and cash assistance.
Supporters said that would save time and millions of dollars by eliminating the jobs of thousands
of state workers who accepted benefit applications in offices around Texas.
From March 11, 2003, when Wohlgemuth filed HB 2292 in the Texas House, until it was signed
three months later, the bill grew from 20 pages to 300 pages, including more than 150
Wohlgemuth told colleagues the bill would "cut out inefficient bureaucracy, streamline programs
that belong together, delete the duplication of services provided by the state and make
government more user-friendly to the citizens of Texas." It would also save the state $1.1 billion,
she said.

That was an irresistible pitch for lawmakers facing a $10 billion budget shortfall.
Landing contracts
Once signed, the law set in motion another high-stakes competition as companies vied for
contracts, drawing on well-established ties to key lawmakers.
Texas law bans contributions to lawmakers while the Legislature is in session and generally
prohibits corporations and labor unions from directly contributing to politicians. But they are
allowed to give money through political action committees, or PACs, registered groups set up by
corporations, labor unions, professionals and others to accept and make campaign contributions.
The money given to officeholders by the Deloitte & Touche Texas Political Action Committee
typifies the sort of targeted contributions made to advance a corporation's interests in Austin.
Since 2002, the Deloitte PAC has contributed more than $270,000 to political candidates and
causes in Texas, according to state records. The largest contributions typically go to top
officeholders - it has contributed more than $30,000 to Perry since 2004 and $17,500 to House
Speaker Tom Craddick, who wields vast influence over legislation. Dozens of other contributions
have gone to lawmakers on committees that deal with issues and legislation of interest to
In July 2003, the first month that Deloitte could resume contributions to lawmakers following the
end of the legislative session, the Deloitte PAC made only one donation: $1,000 to Wohlgemuth,
at the time a member of the powerful House Appropriations Committee and chairwoman of its
subcommittee on health and human services.
In September 2003, the Deloitte PAC contributed $1,000 to Rep. Dianne Delisi, then
chairwoman of the State Health Care Expenditures Select Committee. She is also the mother-inlaw of Deirdre Delisi, the governor's then-deputy chief of staff.
The next month, Deloitte Consulting won the first contract resulting from Wohlgemuth's
legislation. The Health and Human Services Commission chose Deloitte as the lead consultant in
the consolidation of agencies, a contract worth more than $1.8 million. A $1.2 million consulting
contract went to Accenture. And Virginia-based Maximus Inc., another outsourcing firm that has
since become a major player in Austin, won a $712,000 contract.
HB 2292's grand prize, however, was a contract to outsource the screening process for welfare
benefits and to create call centers for accepting applications. The competition pitted outsourcing
rivals Accenture and IBM, both of which hired a well-connected cast of lobbyists that included
former legislators or executive branch staff.
In 2005, Health and Human Services awarded the $899 million call center contract to Accenture.
IBM formally protested and later sued the state, alleging contract irregularities.
IBM later withdrew the lawsuit. It declined to discuss its decision with The News, and Hawkins

said IBM's complaints "were unfounded."

About 16 months later, IBM won an $863 million contract to manage state data for Texas.
Supporters said the contract would save the state $159 million over seven years. (In October,
after the state had already fined IBM $900,000 for failing to complete timely backups, Perry
suspended further data transfers to IBM.)
Delayed care
When Accenture's four call centers began taking social services applications in January 2006,
delays immediately plagued the system. Thousands of applications piled up, and by May the
state halted further rollout of the call centers.
In 2007, the state canceled the contract at Accenture's request. A report by the Health and Human
Services inspector general later criticized the agency for a flawed bid evaluation and inadequate
contract oversight. It also found the Deloitte-designed software was significantly slower than the
old state-run system.
Hawkins had supported the call centers as a way to save $600 million over five years. But
problems have indefinitely delayed the system's statewide rollout, and so "we didn't achieve the
savings," agency spokeswoman Goodman said.
Instead, Texas spent $30 million dealing with various problems with the Accenture contract and
another $10 million on retention bonuses to keep experienced staff from leaving. For less than
two years of work on the project, Accenture and its subcontractors were paid about $210
The state paid Deloitte $116.6 million before the company turned the new computer system over
to Accenture in 2005, even though there were still more than 500 defects, the inspector general's
office later noted. After Accenture gave up the call centers contract, the state hired Deloitte back
and is paying the company $115.6 million to help maintain the system through 2010.
Texas hired Maximus to take over operation of the four call centers and to perform other health
and human services work. It has paid Maximus $141.2 million over the last two years.
Those who rely on health and human services programs, and their advocates, say the state has
saved money through outsourcing but in a way that is seldom discussed: by delaying or denying
care to people in need, inadvertently or by design.
Roxanne Anderson, 39, a part-time library aide for the city of Grand Prairie, said she couldn't
afford to take her three children - ages 7, 9 and 11 - to the doctor if they weren't covered through
the subsidized Children's Health Insurance Program for working-poor families. Anderson said
she liked the convenience of a call center in applying for benefits, but lost paperwork at one of
the centers resulted in her children losing their coverage for a month in early 2008. Front-line
staff at the call centers also don't know much about the program, she said.

"It takes them a long time to find out answers to questions, and quite often I have to get
transferred to a second layer," Anderson said.
Celia Hagert, an expert on state social programs at the nonpartisan Center for Public Policy
Priorities in Austin, said these are common complaints since the state began outsourcing
applicant screening.
Outsourcing this work raises a potential conflict between a private company's need to maximize
profits and the state's emphasis on providing benefits to qualified applicants, regardless of the
time or effort required, she said.
Whether that conflict has cost Texas taxpayers is not fully known. Government oversight
agencies - particularly the state comptroller and auditor - have analyzed only a few troubled
contracts to determine what, if anything, was saved by shifting government functions to private
A 2006 federal review found that Accenture's call center workers performed so badly that a "high
percentage of cases" had to be returned because of missing information and other errors.
A Texas comptroller's office review that same year said the call center project was a case study in
poorly executed outsourcing.
"Successful outsourcing relies on two things: well-written contracts that base payment on the
contractor's good performance, and strong contract management practices to oversee the
contractor's work," the review concluded. "The Accenture arrangement has neither of these.
HHSC's lack of proper contracting practices has led directly to project delays, cost overruns and
failed service to Texans."
Last month, after 20 months of negotiations, the Health and Human Services Commission
announced that the Accenture team had agreed to forgo $70.9 million in payments it was seeking
from the state. The team also agreed to repay $20 million and provide a $10 million credit
against future work performed by Maximus.
Winners and losers
Health and human services officials said taxpayers have profited from HB 2292, specifically
$962 million in savings from the consolidation of state agencies and workforce reductions, as
well as the introduction of a preferred drug list for Medicaid patients.
"More importantly, I think, for the long run, we have put in place a more rational structure and
way of providing those services that will be cost-effective over years to come," Hawkins said.
Lawmakers, lobbyists, former health and human services staff and former Perry aides have
profited in various ways, as well.
Craddick, who became House speaker after the 2003 Republican takeover of the Legislature,

secured a call center and a document processing center for the entire system for his hometown,
Britton, the former Perry aide who now works for Accenture, got part of a state contract awarded
to a company founded by Phillips, the former Health and Human Services official.
Britton's wife, Tiffiny, a former Texas House and Senate staffer, works for Wohlgemuth's Austin
lobbying and consulting firm, Three Point Strategies, according to the firm's Web site. Like
Wolhgemuth, her clients are mainly in the health-care sector, Texas Ethics Commission records
Since leaving his Health and Human Services Commission position in 2004, Phillips has won
government outsourcing contracts from Texas and other states. In 2007, he hired Wohlgemuth for
up to $25,000 to lobby for one of his firms, GHT Development Corp.
Wohlgemuth, in turn, persuaded a former House colleague to insert an amendment in a bill that
would have steered a state contract to GHT Development. That former colleague was
Appropriations Committee Chairman Warren Chisum, who 18 months earlier had received a
$9,000 contribution from a Wohlgemuth campaign fund, according to Texas Ethics Commission
After questions were raised by lawmakers, the amendment was stripped from the final budget
Phillips denied any attempt to steer a contract to his firm.
"I guess I don't understand what's inappropriate about a private business person hiring someone
who's able to help them in the Legislature," he said. "Neither we nor she have violated any rules,
laws or anything else."
Wohlgemuth didn't respond when asked about the amendment recently, but in 2007 she told The
News: "I was trying to advantage my client."
GHT Development won a $275,000 no-bid contract in 2007 to supply the Texas Youth
Commission with an automated placement system for juvenile inmates, state records show.
Wohlgemuth had recommended Phillips, according to Jay Kimbrough, who was brought in to
reform TYC and now serves as Perry's chief of staff.
A staff report in November by the Legislature's Sunset Advisory Commission found that Phillips'
system had experienced such "significant problems" that TYC was still operating its old system.
Wohlgemuth ran unsuccessfully for a seat in the U.S. Congress in 2004 and resurfaced two
months later as a lobbyist. One of her first clients was the Texas Optometric Association. Two
years earlier, while still a legislator, Wohlgemuth had voted to cut optometry benefits for the
children of working poor. The 2005 Legislature restored them.

Wohlgemuth's daughter, Cristen, a former lobbyist, served on the governor's staff from January
2007 until June 2008 when, the governor's office said, she went to work for Chisum.
"Former legislators who lobby do not violate either the spirit or the letter of Texas ethics laws,"
Arlene Wohlgemuth told The News in an e-mail. "People ... know that when I talk with them on
behalf of a client they can rely on two things: first that what I tell them is absolutely truthful, and
second that I bring to them only those ideas I believe are in the best interests of the State and her
Texans for Public Justice, which is critical of lobbyists and the influence of corporate money in
state politics, said former lawmakers who use their legislative contacts and expertise for later
profit erode confidence.
"Not many of these lawmakers remain there for life, and a shocking number of them wind up in
the lobby," Wheat said. "If you have that in the back of your mind, you don't want to offend the
biggest lobby interests in the state."
Staff writer Ryan McNeill contributed to this report.
Top contributors to health panel members
Members of the House Human Services Committee have collected at least $23 million in
contributions from 2000 through July 30, 2008. Top contributors to those members are listed
below, based on reports made to the Texas Ethics Commission:*
1 Texans for Insurance Reform $875,757
2 Bob and/or Doylene Perry (Houston homebuilder, owner of Perry Homes, and his wife)
3 Texans for Lawsuit Reform PAC $450,843
4 Republican Legislative Campaign Committee $442,170
5 Williams Bailey Law Firm (Houston-based personal injury law firm) $301,000
6 Republican Party of Texas $266,017
7 Texas Trial Lawyers Association PAC $261,591
8 SBC/AT&T/Bell PACs $218,671
9 Charles C. Butt (CEO, H.E. Butt Grocery) $204,075 10 Watts Law Firm (Corpus Christi-based

firm) $194,433
Members of the Senate Health and Human Services Committee have collected more than $44
million in contributions from 2000 to July 30, 2008. (Before 2001, the committee's work was
split between the Senate Public Health Committee and the Senate Human Services Committee.)
Top contributors to members on both committees are listed below, based on reports made to the
Texas Ethics Commission.
1 Texans for Lawsuit Reform PAC $1,737,124
2 Bob J. and/or Doylene Perry (Houston homebuilder, owner of Perry Homes, and his wife)
$1,002,000 3 David Sibley campaign account (former Waco senator who left the Senate in 2003)
4 Friends of Frank Madla (former San Antonio senator who died in 2006) $971,400 5 Texas
Association of Realtors PAC $512,644
6 Williams Bailey Law Firm (Houston-based personal injury law firm) $436,500 7 Texas
Medical Association PAC $426,146
8 Texas Dental Association PAC $383,250
9 Provost & Umphrey Law Firm LLP (Beaumont-based trial lawyers) $366,500
10 Texas Association of Mortgage Attorneys PAC $366,000
* The Texas Ethics Commission does not require filers to report the names of donors with
uniformity or consistency. Nor does it routinely monitor reports for accuracy. Consequently,
misspellings are common and contributors' names can be presented inconsistently. The variations
in information make it impossible to know with absolute certainty the total amount of money
received by a lawmaker.
SOURCES: Texas Ethics Commission, Texas Legislature
Analysis: Staff writer Ryan McNeill
Texas campaign finance rules
-Texas does not limit the size of campaign contributions to nonjudicial candidates.
-Corporations and labor unions may not give to candidates. They can give to political parties for
administrative costs, spend on ballot measures and pay overhead of political action committees,
which collect donations and give to candidates.

-Legislators and top state officials cannot take contributions during the Legislature and for 30
days before and after, or inside the Capitol or its annex. Both restrictions came from a 1989
incident in which poultry magnate Lonnie "Bo" Pilgrim passed out $10,000 checks on the Senate
floor during a workers' compensation debate.
-Limits on judicial candidate contributions vary by office. For a Texas Supreme Court candidate,
limits are $5,000 from an individual and $30,000 total from a law firm or its members. A
Supreme Court candidate can take a total of $300,000 from all general-purpose political action
committees. Judicial candidates may raise money from seven months before they file until four
months after election day.
STATE OF NEGLECT Series at a glance
Privatizing state health and human services was supposed to be cheaper and more efficient, but
private companies, lobbyists and former government officials were the big winners.
Sunday: Evercare of Texas promises "the care you deserve," but it hasn't quite worked out that
Today: Texas will pay private companies billions of dollars this year to provide help for its
neediest residents.
Tuesday: While most states and the federal government make former lawmakers take a break
before becoming lobbyists, Texas doesn't.
Records of complaints against Texas hospitals are secret because the hospitals want it that way,
and the Legislature has obliged.
When heavy industry goes up against public interest before the state's environmental agency,
political influence gives one side an edge.
Five years after legislative reforms of homeowners insurance, Texans have less coverage but still
pay some of the highest premiums in the country.
Web of influence: Public and private connections
House Bill 2292, influenced by political and business relationships, reshaped health and human

services policy in Texas.

Perry has received $30,000 from a Deloitte PAC since 2004.
RICK PERRY As Texas's longest-serving governor, presided over sweeping government
outsourcing initiatives.
A global data processing giant with extensive state and federal government contracts. Lost HB
2292's major outsourcing contract to Accenture in 2005; sued Texas alleging irregularities in the
contracting process; later withdrew the lawsuit and won an $863 million state contract to manage
government data.
Texas House speaker, has wielded vast influence over legislation. Secured call center and
document processing headquarters for his hometown, Midland.
Craddick has received $17,500 from a Deloitte PAC since 2004.
Author of HB 2292 in 2003, which expanded outsourcing of health and human services. She is
currently a lobbyist who worked for Gov. Perry before taking a job with the state House of
Representatives in 2008.
Week after leaving governor's staff in late 2002, Britton was hired by Wohlgemuth as a
consultant on HB 2292. He received $10,000 from her campaign funds in 2003.
Fromer health policy adviser to Gov. Rick Perry and Republican legislators, including former
state Rep. Arlene Wohlgemuth.
Texas paid Deloitte LLP $117 million for a new health and human services computer system. A
state review later found there were more than 500 defects inthe system. Deloitte's political action
committee has contributed more than $270,000 to political candidates and causes in texas since
Phillips hired Arlene Wohlgemuth in 2007 for up to $25,000 to lobby for one of his firms, GHT
Development, which won a $275,000 no-bid contract with the Texas Youth Commission.
In 2003, Britton's BTC Consulting was hired by Accenture. The company hired Britton as a staff

employee in 2006.
Phillips worked on health-care contracts for Deloitte Consulting LLP from 1997-2002. In 2007 three years after he left Texas state government - on of his companies won a $275,000 state
Hired in March 2003 as a senior official at Texas Health and Human Services Commission;
helped shape HB 2292; former GOP fundraiser who spearheaded outsourcing as Mississippi's
human services chief.
In 2004, Britton's Employee Partners firm was hired by Enterject Inc. - a company founded
by Phillips - to work on a state contract.
Won the major outsourcing contract resulting from HB 2292; the $899 million contract called for
Accenture LLP to establish call centers to screen welfare applicants.
TROY OXFORD/Staff Artist
Call center program hasn't paid off
Texas launched the nation's most ambitious attempt to outsource state-delivered health and
human services in 2005, under landmark legislation known as House BIll 2292. Outsourcing
giant Accenture LLP was contracted to streamline the welfare screening process. The "integrated
eligibility and enrollment services" project envisioned a network of call centers to screen aid
applicants. The Texas Health and Human Services Commission projected the new system would
save $646 million over five years. Instead, it has cost taxpayers more than $250 million and still
hasn't been fully implemented. State reviews and audits have exposed the system's failings and
questioned the commission's endorsement of the project.
This Business Case supports the view that it is both cost-effective and operationally feasible for
the State to operate a converged call center to consolidate the eligibility determination function
as mandated in HB 2292. As described in the Business Case, the proposed model for integrated
eligibility represents a tremendous opportunity for the State and its taxpayers...
- Texas Health and Human Services Commission business case analysis on the use of call centers
to screen and process benefits applications, March 2004, sponsored by Deputy Executive
Commissioner Greeg Phillips
Although audit testing identified no significant errors in eligibility determination and benefit
calculation performed by TIERS, poor architectural design and chronic problems hinder the
ability of TIERS to process and maintain the integrity of data. As a result, TIERS is cumbersome,
is not as efficient as it should be, and still has problems with system performance and data

... Clients sometimes wait more than 100 days for a final determination of their eligibility for
public assistance programs
- State Auditor John Keel, October 2007 Audit Report on the Health and Human Services
Commission's Texas Integrated Eligibility Redesign System (TIERS)
... We concur with the 2006 federal Single State Audit finding that 'the eligibility process
supported by TIERS (Texas Integrated Eligibility Redesign System) is not appropriately
designed and/ or operating effectively to enforce the respective eligibility decisions necessary to
ensure clients are eligible and receive proper benefit amounts.'
... State authorities decided that no alternative to TIERS would be explored, unless after it was
first determined that TIERS could not work in a call center environment. This decision was
driven, at least in part, by the fact that a large amount of taxpayer dollars had already been
invested in TIERS.
The nalysis by state authorities, that determined privatization would be cost effective, relied only
on historical data metrics from cases not worked in tiers. However, TIERS has been in operations
for seven months preceding the release of the analysis.
State management had no single person running the IEES project, and state authorities
interpreted the 'performance-based' nature of the IEES contract to mean they had little or no
vendor oversight responsibilities.