FBI at Health Commission Asking About 21CT Deal

Contract High

Contract High is an occasional series looking at how Texas outsourced crucial state services for two decades — and got smoked.

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FBI agents have interviewed employees at the Texas Health and Human Services Commission about its problematic contract with Austin firm 21CT, Executive Commissioner Kyle Janek told The Texas Tribune, marking the first time an official with direct knowledge of the federal probe has confirmed it.

“I can tell you what I know. I’ve heard they were here talking to people. They have not talked to me," Janek said late Thursday.

How little-known 21CT landed a $20 million Medicaid fraud tracking software deal with HHSC, a whale of a state agency that spends billions each year on contracts, has become the center of three very public investigations launched since December. 

The probes began after news reports detailed how the commission failed to seek competitive bids before awarding the contract to 21CT, and how the commission's then-deputy inspector general, Jack Stick, was once a business partner of the company's lobbyist, James Frinzi.

HHSC had selected 21CT from a centralized list of approved state vendors, the Texas Department of Information Resources Cooperative Contracts program. Nearly all the money used to pay 21CT came from the federal Centers for Medicare and Medicaid Services, which was told the contract was awarded through competitive bidding.  

The commission later confirmed it was not.  

In December, a $90 million contract extension between the commission and 21CT was scuttled, and Stick, who had been promoted to chief counsel for the agency, was forced to resign, along with his former boss Inspector General Doug Wilson. 

Janek has said he was misled in staff briefings on the 21CT deal. 

In mid-January, the Austin American Statesman, citing unidentified sources, reported that an FBI investigation had been launched into the 21CT deal.

But it was not until Thursday, when Janek and his newly hired procurement director, Ron Pigott, discussed the FBI interviews with the Tribune, that any state official with first-hand knowledge of the federal probe confirmed it was active.

"I had staff that had to go get interviewed by the FBI," Pigott said. "The FBI was at our offices, and they wanted to see files. It was all 21CT related.”

The FBI declined to provide further details.  

"We can neither confirm nor deny the existence of an investigation at this time," said Michelle Lee, spokeswoman for the FBI in San Antonio. 

A 21CT official said the company knows nothing about the FBI's involvement.

"They haven't contacted us," said Mike Rosen, 21CT's spokesman. 

Pigott, who joined HHSC in February, said HHSC has improved its safeguards to prevent any other contract like the one crafted with 21CT from slipping through the system.

The agency now competitively bids out any purchase it makes through DIR's Cooperative Contracts program. If such a protocol had been in place for the contract 21CT was granted, there might have been hundreds of possible contenders, and 21CT would not have won it, Pigott said.

Two of the three state investigations launched since December are expected to yield reports next month. The Texas State Auditor's Office and a team handpicked by Gov. Greg Abbott headed by an executive vice chancellor and chief financial officer of the Texas A&M University system are both looking into the commission's procurement practices.

The state's public integrity unit, based out of the Travis County district attorney's office, is also conducting an investigation that is ongoing and could result in criminal charges.

Janek said he will be watching all the investigations closely.

“Whatever took place, the story will end up being probably cemented by state auditor’s report, Billy Hamilton’s task force, PIU if they say anything," Janek said. "Whatever the story is that people look back on in five years, it’ll be molded by what these outside groups have to say about it.”