Health Chief Says He Was Misled on No-Bid Deal

^{*Editor's note: This story has been updated throughout.}

Texas Health and Human Services Commission chief Kyle Janek said Tuesday he was misled in briefings on a no-bid, $110 million deal handed to an Austin company for unproven software to detect Medicaid fraud.

Janek said the Office of Inspector General, the commission’s audit arm, should have alerted him that its contract with 21 Century Technologies Inc., also known as 21CT, “proceeded outside the normal channels” for approval.

“I think that is a difference worth mentioning to the person who is the head of the organization,” he said.

Janek’s comments came during his first news conference — a nearly two-hour-long sit-down with reporters — following months of speculation about the contract.

Questions have been swirling since August about how 21CT came from nowhere when it landed a $20 million contract with the Office of Inspector General two years ago.

Irene Williams, the CEO of 21CT, has said that the company welcomes any review of its work and that she has not broken any rules.

Numerous news stories, particularly a series from the Austin American Statesman, reported exactly how 21CT was selected.

Instead of competing with other companies for the multimillion-dollar contract, the little-known company was selected by the commission from the state’s computer services catalog managed by the Texas Department of Information Resources. Because 21CT appeared in the department's list of pre-approved vendors, it was able to circumvent the competitive bidding process.

Janek said Tuesday that it was “dubious” the company was qualified to be on that list.

“And if that were done purely to get out of the necessity of having an open procurement where anyone can come forward, then I’m very uncomfortable with that,” he said.

21CT’s ties to the No. 2 employee at the commission's Office of Inspector General, Jack Stick, have also raised eyebrows. The company secured that contract as well as a $452,000 deal signed last September with the commission's sister agency, the Texas Department of Family and Protective Services, for an unproven data tool to help child abuse investigators. Both contracts were canceled two weeks ago.

The Statesman’s stories detailed how Stick, while the commission's deputy inspector general, would travel to conferences and tout the software that has pinpointed $200 million in state overpayments to Medicaid providers. Stick is a former state lawmaker.

Reached by phone on Tuesday, Stick said, “I’m not going to give you any comment."

Janek said Tuesday the commission was adopting reforms to ensure better transparency in the contracting process, including a policy change that requires the commissioner or chief deputy commissioner to sign off on any contracts for $1 million or more.

Last week, state Sen. John Whitmire, D-Houston, filed a complaint to the state’s public integrity unit to investigate whether laws were broken when 21CT was selected.

Janek said Tuesday the project first came across his desk in November 2012 — after the contract had already been approved by the Office of Inspector General — when he signed a request to increase its state funding from $15 million to about $20 million.

The Health and Human Services Commission has so far paid 21CT $20 million for the Medicaid fraud software. Another $90 million was to go to the company when the commission approved an extension to the contract later this month. But Janek canceled the extension.

"We are working with HHSC on the close out of our work," 21CT's Williams said in a statement on Tuesday.

When asked whether the commission would demand a refund of those funds from 21CT, Janek said that would depend on further investigation of how it got approved.  

“If it’s the fault of the company – if they misrepresented something that caused our contracting procedures to go awry or to miss something — then yes, we would demand accountability from them,” Janek said, adding that it was still unclear whether that was the case.

So far, it is not clear whether 21CT’s Medicaid fraud software will actually lead to be collection of overpayments to Medicaid providers.

Late Monday, 21CT filed a lawsuit against James Frinzi, Stick's former business partner and, until last week, a lobbyist for 21CT. The suit, which seeks unspecified damages for "business disparagement," claims Frinzi made "false, malicious and damaging statements" against 21CT that caused it to lose its contract with the commission. 

Frinzi said he's not concerned about the lawsuit.

"I didn’t make any false statements or disparaging statements. I’m not worried at all," he said. "To me, it’s kind of an ignorant statement because it brings out more information about the company." 

On Dec. 12, Janek announced that 21CT’s contract extension was canceled and that the commission would no longer purchase technology through the Department of Information Resources. Janek also accepted Stick’s resignation, but in the week that followed, Stick was allowed to remain on staff to finish projects.

Stick wasn’t forced to leave the commission for good until after Whitmire filed his complaint last week.

Gregg Cox, director of the public integrity unit, has said an investigation, which could result in criminal charges, is likely.

Within hours after Whitmire’s move, Janek issued a statement saying he had asked State Auditor John Keel to investigate the 21CT contract award. 

Then last Friday, Gov. Rick Perry stepped in, requesting and accepting the resignation of Doug Wilson, inspector general for the Health and Human Services Commission and Stick’s former boss. 

Janek then announced that to guard against any further allegations of conflicts, his own chief of staff — Stick's wife — and Wilson's wife, who works for the Department of Family and Protective Services, will be on paid leave until the state auditor’s office has completed its review.

Wilson’s replacement will be appointed by Gov.-elect Greg Abbott once he takes office; in the interim, Quinton Arnold, HHSC's director of risk and control analysis, will lead administrative operations at OIG. 

As to whether he would step down himself, Janek said Tuesday that he would like the chance to finish cleaning up the commission.

"I would always rather stay and fix a problem,” he said. “Especially if it occurred on my watch.”