CMS Contracting
Issues Concerning Administrator's Decision to Exclude Subcontractor Gao ID: GAO-03-842 July 8, 2003In September 2002, the Centers for Medicare and Medicaid Services (CMS) awarded the RAND Corporation, with the University of Wisconsin's Center for Health Systems Research and Analysis as a subcontractor, a task order to study inconsistency in the nursing home survey process. Allegations were made that CMS directed RAND not to retain the Center as a subcontractor in retaliation for technical concerns that the Center's Director had raised about another CMS initiative. GAO was asked to examine these allegations. Specifically, GAO was asked to examine CMS's selection of RAND for this task order, the basis for CMS's decision to exclude the Center as a subcontractor, and whether the Center's exclusion extended to other CMS contracts.
CMS followed a competitive process in awarding the nursing home survey inconsistency research task order to RAND, with the Center as its subcontractor. RAND's proposal outlined a plan in which the Center would perform approximately half of the work, in terms of cost, in the first year and about 80 percent over a 3-year period, if the government exercised its options to extend the task order for 2 additional years. Based on four criteria, including an evaluation of personnel and experience and past performance, CMS awarded the task order to RAND on September 27, 2002. At virtually the same time as the award, the Administrator intervened to exclude the Center from the RAND task order. The Administrator provided several reasons to support his exclusion of the Center, including his conclusion that the Center had performed poorly on a number of ongoing CMS task orders, especially those related to nursing home survey and certification. He understood that contract provisions provided him the legal authority to direct RAND not to use the Center as a subcontractor. GAO reviewed each of the reasons provided by the Administrator and concluded that, in light of the evidence, the Administrator did not have a reasonable basis to direct RAND not to subcontract with the Center. For example, GAO's review of the evidence did not support the Administrator's assertion of poor past performance by the Center; in fact, its strong past performance was a key factor in the decision to award the task order to RAND. Instead, the Administrator's decision to exclude the Center from the RAND task order appears to have been retaliation for the Center Director's involvement in another CMS nursing home initiative. Because of technical concerns voiced about this separate initiative, the Administrator perceived the Center's Director to be obstructing CMS's implementation of the initiative in November 2002. Regardless of the merit of the Administrator's view of the Center's Director and concerns about his involvement in the other initiative, the Administrator was not authorized to effectively change the substance of the proposal on which the award to RAND had been based. Therefore, in GAO's view, the Administrator's action was improper and undermined the integrity of CMS's procurement process. Communications between the Administrator and the Center suggested that the Administrator's decision to exclude the Center was limited to the RAND task order. However, senior CMS staff understood the Administrator's instructions to exclude the Center to extend to other contracting opportunities and thus attempted to limit the involvement of the Center in other CMS contracts.
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Report to the Chairman, Committee on Finance, U.S. Senate:
United States General Accounting Office:
GAO:
July 2003:
CMS Contracting:
Issues Concerning Administrator's Decision to Exclude Subcontractor:
GAO-03-842:
GAO Highlights:
Highlights of GAO-03-842, a report to the Chairman, Committee on
Finance, U.S. Senate
Why GAO Did This Study:
In September 2002, the Centers for Medicare & Medicaid Services (CMS)
awarded the RAND Corporation, with the University of Wisconsin‘s
Center for Health Systems Research & Analysis as a subcontractor, a
task order to study inconsistency in the nursing home survey process.
Allegations were made that CMS directed RAND not to retain the Center
as a subcontractor in retaliation for technical concerns that the
Center‘s Director had raised about another CMS initiative. GAO was
asked to examine these allegations. Specifically, GAO was asked to
examine CMS‘s selection of RAND for this task order, the basis for
CMS‘s decision to exclude the Center as a subcontractor, and whether
the Center‘s exclusion extended to other CMS contracts.
What GAO Found:
GAO recommends that the Secretary of Health and Human Services take
appropriate action to remedy this situation. Such a remedy could
include permitting RAND to subcontract with the Center as RAND had
proposed or reopening the competition for the award of this task
order. Also, the Secretary should have CMS procurement decisions
affecting the Center since September 2002 reviewed to ensure they were
supported by a reasonable basis. HHS and CMS concurred with our
recommendations, although CMS disagreed with our conclusion that the
Administrator‘s action was improper.
What GAO Recommends:
CMS followed a competitive process in awarding the nursing home survey
inconsistency research task order to RAND, with the Center as its
subcontractor. RAND‘s proposal outlined a plan in which the Center
would perform approximately half of the work, in terms of cost, in the
first year and about 80 percent over a 3-year period, if the
government exercised its options to extend the task order for 2
additional years. Based on four criteria, including an evaluation of
personnel and experience and past performance, CMS awarded the task
order to RAND on September 27, 2002.
At virtually the same time as the award, the Administrator intervened
to exclude the Center from the RAND task order. The Administrator
provided several reasons to support his exclusion of the Center,
including his conclusion that the Center had performed poorly on a
number of ongoing CMS task orders, especially those related to nursing
home survey and certification. He understood that contract provisions
provided him the legal authority to direct RAND not to use the Center
as a subcontractor. GAO reviewed each of the reasons provided by the
Administrator and concluded that, in light of the evidence, the
Administrator did not have a reasonable basis to direct RAND not to
subcontract with the Center. For example, GAO‘s review of the evidence
did not support the Administrator‘s assertion of poor past performance
by the Center; in fact, its strong past performance was a key factor
in the decision to award the task order to RAND.
Instead, the Administrator‘s decision to exclude the Center from the
RAND task order appears to have been retaliation for the Center
Director's involvement in another CMS nursing home initiative. Because
of technical concerns voiced about this separate initiative, the
Administrator perceived the Center‘s Director to be obstructing CMS‘s
implementation of the initiative in November 2002. Regardless of the
merit of the Administrator‘s view of the Center‘s Director and
concerns about his involvement in the other initiative, the
Administrator was not authorized to effectively change the substance
of the proposal on which the award to RAND had been based. Therefore,
in GAO‘s view, the Administrator‘s action was improper and undermined
the integrity of CMS‘s procurement process.
Communications between the Administrator and the Center suggested that
the Administrator‘s decision to exclude the Center was limited to the
RAND task order. However, senior CMS staff understood the
Administrator‘s instructions to exclude the Center to extend to other
contracting opportunities and thus attempted to limit the involvement
of the Center in other CMS contracts.
www.gao.gov/cgi-bin/getrpt?GAO-03-842.
To view the full product, including the scope and methodology, click
on the link above. For more information, contact Kathryn G. Allen at
(202) 512-7118.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
CMS Selected RAND Following a Competitive Process but Excluded Proposed
Subcontractor:
Administrator's Decision to Exclude Center Was Improper:
Efforts to Exclude the Center Extended to Other Contracting
Opportunities:
Conclusions:
Recommendations for Executive Action:
Agency Comments:
Appendix I: Comments from the Centers for Medicare & Medicaid Services:
Table:
Table 1: Chronology of Key Events in 2002 Relating to Award of Task
Order to RAND with the Center as a Subcontractor:
Abbreviations:
CAHPS: Consumer Assessment of Health Plans
CICA: Competition in Contracting Act of 1984
CMS: Centers for Medicare & Medicaid Services
FAR: Federal Acquisition Regulation
HCFA: Health Care Financing Administration
HHS: Department of Health and Human Services
NQF: National Quality Forum
QI: quality indicator
RFP: request for proposals
RTI: Research Triangle Institute:
United States General Accounting Office:
Washington, DC 20548:
July 8, 2003:
The Honorable Charles E. Grassley
Chairman
Committee on Finance
United States Senate:
Dear Mr. Chairman:
Since 1997, considerable attention has been focused on the need to
improve the quality of care in the nation's 17,000 nursing homes. In a
series of reports and testimonies prepared at your request as the
Chairman of the Senate Special Committee on Aging, we found significant
weaknesses in federal and state survey and oversight activities
designed to detect and correct quality problems in nursing homes.
Several others have also reported on these problems, including the
Institute of Medicine and the Office of Inspector General of the
Department of Health and Human Services (HHS). In 1998, the President
announced a series of initiatives intended to address many of the
weaknesses we identified. These initiatives covered several areas,
including the strengthening of states' periodic surveys of nursing
homes and improving federal monitoring of state survey activities. Also
in 1998, the Health Care Financing Administration (HCFA) launched a Web
site--"Nursing Home Compare"--that has progressively expanded the
availability of public information on nursing homes and the quality of
care provided.[Footnote 1] In April 2002, the agency began a pilot
project to augment the information provided on this Web site to include
quality indicators (QI) that allow consumers to make comparisons across
nursing homes. This project was expanded nationwide on November 12,
2002.
As part of its work to improve the nursing home survey process, in
September 2002, the Centers for Medicare & Medicaid Services (CMS)
awarded the RAND Corporation a task order to study the inconsistency in
nursing home survey results across states, based on a proposal that
included the University of Wisconsin's Center for Health Systems
Research & Analysis as a subcontractor.[Footnote 2],[Footnote 3]
However, CMS also instructed RAND not to subcontract with the Center.
Allegations were brought to you that CMS had inappropriately directed
RAND not to retain the Center as a subcontractor in retaliation for
technical concerns that the Center's Director, who was proposed by RAND
to be the co-principal investigator for the task order, made about
CMS's April 2002 nursing home QI initiative. As a result, you asked us
to examine these allegations. We agreed to examine (1) CMS's selection
of RAND for this task order, (2) the basis for CMS's decision to
exclude the Center as a subcontractor, and (3) whether the exclusion of
the Center extended to other CMS contracts. To do this, we reviewed
relevant contract files and other key documents. We interviewed CMS
staff, including the Administrator and one of his Special Assistants,
the Director and other staff of the Acquisition and Grants Group, the
Project Officer assigned to this task order, and the Director of the
Quality Measures and Health Assessment Group. We also interviewed RAND
contracting and program staff, and University of Wisconsin and Center
staff, including attorneys, contracting personnel, and the Center's
Director. We conducted our work from January 2003 through June 2003 in
accordance with generally accepted government auditing standards.
Results in Brief:
CMS followed a competitive process in selecting RAND, with the Center
as its subcontractor, for the task order to study inconsistencies in
the nursing home survey process. However, in our view, the
Administrator improperly intervened to exclude the Center from the task
order, thus undermining the integrity of the procurement process at
CMS. The Center was integral to the RAND proposal, with RAND indicating
that the Center would perform approximately half of the work, in terms
of cost, in the first year and about 80 percent--valued at about $1.6
million--over a 3-year period, if CMS exercised its options to extend
the task order for 2 additional years. Further, the Center's expertise
in the nursing home survey area was a key factor in CMS's decision to
select RAND's proposal over those submitted by two others. However, at
virtually the same time that CMS awarded this task order, the CMS
Administrator intervened without a reasonable basis to exclude the
Center as RAND's subcontractor. The Administrator's decision to exclude
the Center appears to have been retaliation for the Center Director's
expressed technical concerns about CMS's project to include nursing
home QIs on the "Nursing Home Compare" Web site. The Director's
comments did not affect the QIs CMS used or the timing of the national
rollout. However, the Administrator characterized the Center Director's
comments as obstructing the consensus-building process for the QI
initiative. Senior CMS staff understood the Administrator's
instructions to exclude the Center to extend beyond the RAND task order
and thus attempted to limit the involvement of the Center in other CMS
contracts.
In order to maintain the integrity of CMS's procurement process, we are
recommending that the Secretary of Health and Human Services take
appropriate action to remedy the situation. Appropriate remedies could
include permitting RAND to subcontract with the Center as RAND had
proposed or reopening the competition for the award of the nursing home
survey research task order. In addition, we are recommending that the
Secretary have CMS procurement decisions affecting the Center since
September 2002 reviewed to ensure that they were supported by a
reasonable basis. HHS and CMS concurred with our recommendations,
although CMS disagreed with our conclusion that the Administrator's
action was improper.
Background:
To facilitate the procurement of services quickly while obtaining the
advantage of competition, the Federal Acquisition Streamlining Act of
1994 authorized agencies to award task order contracts to multiple
sources.[Footnote 4] Task order contracts, which are also referred to
as "indefinite delivery/indefinite quantity contracts," "umbrella
contracts," or "master contracts," typically cover a range of services,
without specifying a fixed statement of work and deliverables. Instead,
orders are issued for the performance of specific tasks during the
period of the contract. Agencies using task order contracts are
required to provide contractors with "a fair opportunity to be
considered" in the award of the individual task orders issued to meet
agency needs. The Federal Acquisition Regulation (FAR) gives
procurement officials broad latitude in administering the "fair
consideration" process. The FAR requires them to consider price or cost
as one factor in the selection process; it also suggests that other
factors relevant to the award of a specific task order, such as past
performance, quality of deliverables, and cost control, be taken into
consideration.[Footnote 5] CMS's Office of Research, Development, and
Information is responsible for coordinating the agency's multiple-award
task order contracts, which the agency refers to as "master contracts,"
while its Acquisition and Grants Group is responsible for awarding
these contracts as well as subsequent task orders.
On February 24, 2000, HCFA issued a solicitation for master contracts
in five specialty research areas related to Medicare and
Medicaid.[Footnote 6] Fourteen contractors, including RAND and the
Center, were awarded master contracts in the specialty area of
"Medicare Research and Demonstrations." The master contracts provided
that contractors would be awarded at least $25,000 over the term of the
contract, including options. The master contracts also provided that
task orders would be awarded following a competitive process limited to
the 14 contractors.
On July 12, 2002, CMS sent a request for proposals (RFP) to the 14
contractors for a task order to study the inconsistency across states
in the nursing home survey process. Under contract with CMS, states are
required to conduct periodic surveys of nursing homes that participate
in Medicare and Medicaid to determine whether care and services meet
the assessed needs of the residents and whether homes are in compliance
with federal quality requirements, such as those regarding the
prevention of avoidable pressure sores, weight loss, or accidents.
Surveys must be conducted at each home on average every 12 months and
no less than once every 15 months. During a nursing home survey, a
state survey team that includes registered nurses spends several days
at a home reviewing the quality of care provided to a sample of
residents. Any deficiencies identified during routine surveys are
classified according to the number of residents potentially or actually
affected and their severity. Previous research has demonstrated
considerable differences among states in terms of survey findings.
The Center, which is one of the 14 master contract holders, has worked
with CMS and other entities to conduct research on a range of health
care issues, particularly in the area of nursing homes and the
regulatory survey process. Over the past 15 years, the Center has been
a prime contractor or subcontractor on 20 individual agency projects
whose value to the Center totals over $41 million.[Footnote
7],[Footnote 8] Beginning in 1994, the Center assisted the agency in
its efforts to (1) monitor the implementation of a revised long-term
care survey process and (2) identify possible reasons for variations in
survey findings among states.[Footnote 9] The Center's survey work on
this project was discussed in a July 1998 HCFA report to Congress and
helped reveal a general problem of underidentification of regulatory
deficiencies in nursing homes.[Footnote 10]
The Center has a particularly extensive background in the development
and use of QIs for nursing homes, which are essentially numeric warning
signs of potential care problems, such as greater-than-expected
instances of weight loss, dehydration, or pressure sores among a
nursing home's residents. HCFA began contracting with the Center in
1988 to develop, test, and implement QIs as a way to improve the rigor
of the survey process. As part of this effort, the Center developed a
national automated system to provide to states and to HCFA assessment
information on every nursing home resident in the United
States.[Footnote 11]
CMS recently undertook an effort to publicly report nursing home QIs on
the agency's "Nursing Home Compare" Web site. This effort, which began
in April 2002 with a pilot program in six states and was expanded
nationwide on November 12, 2002, is intended to help consumers choose a
nursing home. To develop and help select the QIs for this initiative,
CMS contracted with two organizations with expertise in health care
data and quality measurement--Abt Associates, Inc., and the National
Quality Forum (NQF).[Footnote 12] Abt identified a list of potential
QIs--including some of those developed by the Center--as being suitable
for public reporting, and NQF was tasked with reviewing Abt's work and
making recommendations to CMS regarding the QIs for the pilot and
national implementation. To accomplish this task, NQF established a 12-
member steering committee, which included the Center's
Director.[Footnote 13]
The NQF Steering Committee differed with CMS on several aspects of the
agency's QI initiative, including the risk-adjustment methodology,
selection of QIs, and the time frame for publishing the data.[Footnote
14] For example, NQF concluded that some of the QIs required further
review and that CMS's QI initiative would have benefited from a
postponement of 3 to 4 months. We also evaluated CMS's QI initiative,
and on October 31, 2002, reported that its plan to publicly report QI
data had considerable merit.[Footnote 15] However, we also raised
concerns about the agency's moving forward with its initiative without
resolving a number of important open issues on the appropriateness of
the QIs chosen for national reporting and the accuracy of the
underlying data. For example, CMS planned to proceed with the national
rollout without waiting for the advice it sought on the QIs from
NQF.[Footnote 16] In addition, we reported that CMS's planned November
2002 implementation did not allow sufficient time to ensure that the
indicators it published were appropriate and useful to consumers. We
recommended that the CMS Administrator delay the initiative to resolve
outstanding issues and thoroughly evaluate the results of the six-state
pilot. Such a delay, we concluded, would allow CMS to assess both how
the information should be presented and how it could improve assistance
to consumers. CMS implemented its QI initiative in November 2002 as
planned but committed to continually improve the QIs and to work to
resolve the issues discussed in our report.
CMS Selected RAND Following a Competitive Process but Excluded Proposed
Subcontractor:
CMS followed a competitive process in awarding a task order for nursing
home survey inconsistency research work to RAND under the Medicare
Research and Demonstrations master contract. RAND's proposal, which
explicitly included the Center as a subcontractor, outlined a plan in
which the Center would perform approximately half of the work, in terms
of cost, in the first year and about 80 percent over a 3-year period,
if the government exercised the options of extending the task order for
2 additional years. On the basis of four criteria---statement of the
problem and technical approach, personnel and experience, management
plan, and past performance---CMS awarded the task order to RAND on
September 27, 2002. At virtually the same time, however, the CMS
Administrator instructed agency staff to inform RAND that it could not
subcontract with the Center. RAND continues to believe that the Center
is the most qualified subcontractor available and as of June 23, 2003,
had not conducted any substantive work under the CMS task order.
CMS Followed a Competitive Process to Select the Proposal Submitted by
RAND:
CMS issued an RFP on July 12, 2002, to the 14 holders of Medicare
Research and Demonstrations master contracts for a project to assess
inconsistencies in the application of the nursing home survey process
across states and to develop specific policy and programmatic options
for improvement.[Footnote 17] To improve survey consistency among
states, the RFP listed four objectives for the task order: (1)
distinguish variability in the survey measurement findings that is
appropriate (that is, the result of real quality variations among
nursing homes) from variability that is inappropriate (that is, the
result of surveyor inconsistency), (2) identify the aspects of survey
inconsistency that are cited by key stakeholders, (3) identify the most
important causes of inconsistency, and (4) develop policy and
programmatic options for improvement. The RFP specifically identified
the need for a major fieldwork effort to collect primary data to
compare state survey team decisions with those of an independent and
expertly qualified research team.[Footnote 18] Proposals were to be
evaluated on the basis of four criteria, with a total possible score of
100. These criteria and their associated point totals were (1)
statement of the problem and quality of technical approach (35 points),
(2) personnel and experience (30 points), (3) management plan and
facilities (10 points), and (4) past performance (25 points). The RFP
specifically included subcontractors among those whose background,
experience, and accomplishments would be reviewed as part of the
evaluation process.
Three of the 14 eligible entities submitted proposals to CMS, including
RAND with the Center as its subcontractor. RAND's proposal was prepared
jointly with the Center and was premised on collaboration between RAND
and the Center during the project. Center staff were to conduct the
majority of the fieldwork, relying on their researchers' survey
experience. RAND indicated that the Center would perform approximately
50 percent of the work in terms of cost during the first year. If CMS
decided to exercise its options for years 2 and 3, RAND estimated the
total cost of its proposal at $2.0 million, of which the Center was
expected to receive about $1.6 million. The tasks to be performed
during the first year consisted largely of design preparation
activities, with major fieldwork efforts and report writing occurring
during the option years.
A review panel, composed of CMS staff with different areas of expertise
and chaired by the Project Officer for this task order, was convened to
evaluate the three submitted proposals based on the four criteria
described above. To assign scores in the first three areas--statement
of the problem and technical approach, personnel and experience, and
management plan--panel members generally relied on information
contained in the proposals. With respect to past performance, the RFP
instructions required each offeror to submit a list of recent and
related projects with CMS and other entities, and the Project Officer
gathered past performance data on some of these projects by asking
panel members and other individuals familiar with the offerors to
complete a survey. The results of these surveys, as well as comments
solicited from others who had worked with each of the offerors in the
past, were shared and discussed by the panel, after which the
individual panel members assigned a past performance score to each
offeror. On the basis of its initial evaluation, the panel found each
of the three submitted proposals to be acceptable.
The review panel chair then sent a series of questions to the three
offerors to gain additional information about their proposals. The
three entities responded to these questions, submitting their best and
final offers. RAND's best and final offer proposed that the Center
would perform more than 50 percent of the work during the first year,
in terms of cost. The same panel again met to evaluate and score the
best and final offers, and the RAND proposal received the highest
number of points. The panel members specifically cited the Center's
expertise in the area, particularly among its surveyors, as a reason
for RAND's high score. CMS sent a letter to RAND on September 26, 2002,
to notify the firm of its selection, and the CMS Contracting Officer
signed the task order to RAND for $248,355 on September 27, 2002. The
task order stated that "[c]onsent is hereby given" for a subcontract to
the Center and expressly provided for the Center to receive
$134,706.[Footnote 19]
CMS Administrator Intervened to Exclude Subcontractor:
At virtually the same time that CMS awarded the task order to RAND, the
CMS Administrator, who told us he had received advice that he had the
legal authority to do so, directed staff from the Acquisition and
Grants Group to inform RAND that it could not subcontract with the
Center. Accordingly, on September 27, 2002, the same day that CMS
awarded the task order to RAND, a CMS contract specialist left a
voicemail message with RAND's Contract and Grant Administrator, with
the following instructions:[Footnote 20]
—[The] subcontract with University of Wisconsin—must be deleted at this
time from your task order—.I'm not sure exactly what the issues are but
upper management has directed us not to award any—contracts or
subcontracts with the University of Wisconsin until further notice.
An e-mail message dated September 26, 2002, from the Director of CMS's
Acquisition and Grants Group to a Special Assistant to the
Administrator demonstrates that CMS was contemplating this action
before the award was made:
I just wanted to confirm our discussion last night—.We are also going
to award the Rand contract under which Wisconsin is a subcontractor.
However, we can explore the possibility of requesting that Rand remove
Wisconsin as a subcontractor after award.
The Center's Director, who learned of the agency's action from RAND on
October 8, 2002, attempted to determine the status of the Center's role
on the task order first through telephone calls to officials in CMS's
Acquisition and Grants Group and then through e-mail communications
with the Administrator. The Center's Director met with the
Administrator and one of his Special Assistants on October 18, 2002.
Although the Director and the Administrator both characterized the
meeting as productive, on October 22, 2002, the Administrator sent an
e-mail message to the Center's Director, reiterating his decision to
direct RAND not to use the Center as a subcontractor. The University's
Vice Chancellor for Research and Dean of the Graduate School sent a
letter to the CMS Administrator on November 15, 2002, asking for the
rationale for the agency's action.[Footnote 21] On December 4, 2002,
the University filed a bid protest with GAO's Procurement Law Group
requesting that CMS be required to rescind its order to RAND barring
the Center as a subcontractor.[Footnote 22] However, GAO dismissed the
bid protest on December 16, 2002, explaining that (1) it does not
consider protests from subcontractors, and (2) the protest was not
submitted within the appropriate time frame.[Footnote 23] On December
18, 2002, CMS modified the RAND task order and formally withdrew its
consent for the Center as a subcontractor. (Table 1 contains a summary
of the dates on which these and other related events occurred.):
Table 1: Chronology of Key Events in 2002 Relating to Award of Task
Order to RAND with the Center as a Subcontractor:
July; Date: July 12; Action: CMS sends RFP to 14 contractors.
August:
Date: Aug. 8; Action: Three offerors submit proposals in
response to the RFP. RAND proposes to use the Center as a
subcontractor.
Aug. 20; Action: September: CMS panel conducts initial
review of proposals.
September:
Date: Sept. 6-10; Action: CMS conducts discussions with
three offerors and requests best and final offers.
Sept. 17; Action: CMS panel reviews best and final offers.
Panel recommends RAND for award.
Sept. 26; Action: CMS sends letter to RAND stating that it
had been selected for the task order. RAND signs the task order and
sends it to CMS.
Sept. 27; Action: CMS signs the task order and instructs RAND
not to subcontract with the Center.
Sept. 30; Action: October: At the request of CMS, RAND
sends two e-mails to CMS indicating that RAND will not subcontract with
the Center.
October:
Date: Oct. 7; Action: CMS Project Officer, unaware of the
decision regarding the Center, e-mails Center's Director reiterating
that RAND has been awarded the task order.
Oct. 10; Action: Center's Director e-mails CMS Project
Officer that RAND has been instructed by CMS not to subcontract with
the Center.
Oct. 14-17; Action: CMS Administrator and Center's Director
exchange e-mails regarding the basis for the Administrator's decision
to exclude the Center from the RAND task order.
Oct. 18; Action: CMS Administrator and a Special Assistant
meet with Center's Director to discuss CMS decision about the Center.
Oct. 22; Action: Center's Director e-mails CMS Administrator
and a Special Assistant as a follow-up to meeting and asks about moving
forward on project; CMS Administrator e-mails Center's Director that he
is not changing his mind about the Center as a subcontractor.
Oct. 23; Action: Center's Director e-mails CMS Administrator
to ask why he refuses to reverse his decision.
Oct. 25; Action: November: CMS Administrator e-mails
Center's Director indicating no change in his decision.
November:
Date: Nov. 15; Action: University sends a letter to CMS
Administrator requesting clarification of his decision. CMS did not
respond.
December:
Date: Dec. 4; Action: University files bid protest with GAO.
Dec. 16; Action: GAO dismisses bid protest without addressing
issues presented.
Dec. 18; Action: CMS signs a task order
modification withdrawing its consent for the Center as a subcontractor
and the Center's Director as the co-principal investigator.
Sources: HHS, RAND, and University of Wisconsin.
[End of table]
Task Order Work on Hold 8 Months After Award:
Given the uncertainty surrounding the use of the Center as its
subcontractor, RAND had not conducted any substantive work under the
task order as of June 23, 2003, over 8 months after the task order was
awarded. RAND officials told us that they had initially perceived that
concerns about the Center's participation would be quickly resolved,
with the Center reinstated as the subcontractor. As a result, RAND's
response for several months was to request extensions from CMS on
performing the work. On February 25, 2003, however, an official from
CMS's Acquisition and Grants Group requested that RAND provide the
agency with a course of action for performing the work without the
Center. RAND provided CMS with three options on March 14, 2003, all of
which envisioned RAND performing as the prime contractor but
potentially using another subcontractor. RAND's letter emphasized that
it continued to believe that the Center was the most qualified
subcontractor and that the options were only to be used if CMS
continued to withhold its consent for the Center. On May 15, 2003, CMS
asked RAND to delay its work under this task order until we had
completed our investigation. However, on June 12, 2003, CMS's
Acquisition and Grants Group sent a letter to RAND requesting the
termination of the task order by mutual consent. On June 19, 2003, RAND
responded that it agreed with the agency's earlier suggestion to wait
for our report before taking further action.
Administrator's Decision to Exclude Center Was Improper:
The Administrator informed us that a number of factors supported his
exclusion of the Center from the RAND task order. First, he stated that
the "subcontract consent" clause in the master contract authorized CMS
to direct RAND not to use the Center as a subcontractor. A second
factor the Administrator identified was the desire to award work to
"new" contractors with "fresh" approaches and ideas in areas such as
nursing home survey and certification. Third, the Administrator told us
that he and his staff had assessed the Center's performance on a number
of ongoing CMS task orders and determined that the Center had performed
poorly on several of them, especially those related to nursing home
survey and certification. Finally, the Administrator stated that during
the development and implementation of the nursing home QI initiative,
the Center's Director had worked against consensus and was unwilling to
compromise, which generated significant problems for the agency. We
have reviewed each of the reasons provided by the Administrator and
conclude that, in light of the evidence, the Administrator did not have
a reasonable basis to direct RAND not to subcontract with the
Center.[Footnote 24] Rather, the Administrator's decision appears to
have been in retaliation for the Director's comments on CMS's QI
initiative. As a result, we believe that the Administrator's action was
improper.
Neither the Subcontract Consent Clause Nor CMS's Interest in New
Contractors Provided a Reasonable Basis for the Administrator's
Decision:
Two of the reasons cited by the Administrator--the subcontract consent
clause and a desire to obtain work from new contractors--do not provide
reasonable bases for excluding the Center from the RAND task order. The
Administrator's reliance on the subcontract consent clause is
inappropriate because the task order award was largely based on the
integral role of the Center in the work to be performed. Further, both
the use of a task order competition limited to the 14 holders of master
contracts and the RFP for this task order undermine the Administrator's
second reason--an interest in working with new contractors.
Subcontract Consent Clause:
The Administrator asserted that the subcontract consent clause
contained in the master contract authorized him to disapprove RAND's
use of the Center as a subcontractor under the task order. The
subcontract consent clause requires the contracting officer to review
requests for approval of subcontractors submitted by a prime contractor
and advise the contractor of the agency's approval or disapproval in
writing. While a subcontract consent clause generally provides an
agency with broad authority to accept or reject proposed
subcontractors, the Administrator's reliance on the clause in this
context is inappropriate for a number of reasons.
As a preliminary matter, the subcontract consent clause cited by the
Administrator is typically applicable after contract award, as a matter
of contract administration, rather than at contract award.[Footnote 25]
Here, the Administrator's decision to exclude the Center as a
subcontractor related to the award of the task order, rather than to
CMS's administration of the task order. RAND had identified the Center
as a subcontractor in the proposal it submitted to CMS, and the
Administrator required RAND to remove the Center at essentially the
same time as CMS awarded the task order to RAND.
More importantly, even if the subcontract consent clause was
applicable, the Administrator's exercise of his authority under this
clause was not reasonable. CMS selected RAND in large part because of
the strengths of its proposed subcontractor, after reviewing the
Center's past performance, the role it would have under the task order,
and the time Center personnel would devote to the project. Moreover,
the agency consented to the RAND subcontract with the Center in the
task order itself, explicitly endorsing this element of the RAND
proposal. If the Administrator acted properly in excluding the Center-
-which we do not believe is the case--the award to RAND would no longer
be supported because it was largely based on RAND's subcontract with
the Center.[Footnote 26]
Agency's Interest in New Contractors:
Given the terms of the solicitation, the Administrator's stated
preference for CMS to work with new contractors with fresh approaches
to the nursing home survey and certification area did not provide a
reasonable basis for his decision to exclude the Center as a
subcontractor. The solicitation did not state that being new to the
area of nursing home quality review was a selection criterion. To the
contrary, the competition for the nursing home research task order was
limited to the 14 entities that were eligible to compete under the
master contract.[Footnote 27] In addition, much of the solicitation's
discussion of the agency's need for work in this area was based on the
Center's prior efforts, which were repeatedly referenced. If the
Administrator believed there was a need to involve "new" researchers in
the nursing home survey and certification work, he could have directed
agency officials to amend the solicitation to reflect this criterion
and request revised proposals.
Assertion of Center's Poor Past Performance Not Supported:
The evidence also does not support the Administrator's statement that
poor past performance by the Center justified his decision to exclude
it from the RAND task order. As noted above, "past performance" and
"personnel and experience" accounted for 25 and 30 percent,
respectively, of the evaluation score, and officials from CMS's
Acquisition and Grants Group told us that information about the past
performance of a contractor or subcontractor--either positive or
negative--would be in the contract file. Our review of the file for
this task order, however, shows no record of poor past performance by
the Center. The scores that the RAND proposal received for both of
these criteria were high, and the contract file included several
examples of the Center's strong past performance and unique
qualifications. CMS acquisition and grants and program staff we
interviewed also were not aware of any documentation suggesting poor
performance by the Center. The selection panel assessed the Center's
past performance as very satisfactory and pointed to the central role
of its staff in the proposed fieldwork as a key factor in the decision
to award the task order to RAND. In response to one offeror's post-
award request for information about weaknesses in its proposal, CMS
officials identified the absence of staff with extensive survey
experience, like that of the Center.
Our review of other sources of performance information also yielded a
high level of praise for the Center's prior work. For example, as part
of the agency's review of proposals for its 2000 master contract, CMS
requested evaluations from managers in CMS and other entities on
projects that were either ongoing or completed within the past 3 years.
CMS staff collected 18 such past performance evaluations for the Center
on a mix of CMS and non-CMS projects.[Footnote 28] For these
evaluations, reviewers rated the Center in six categories, including
performance. The majority of evaluations completed for the Center were
positive. While a few of the reviewers gave the Center lower scores in
some categories than in others, all but one indicated on the evaluation
that they would contract with the Center again. The remaining reviewer
gave an "unsure" response.
In addition, the Administrator's assessment of the Center's performance
on ongoing projects as a prime contractor or a subcontractor is not
persuasive and therefore does not support his assertion that the
Center's past performance was poor. This assessment, which was
documented in an e-mail message dated February 4, 2003, from a Special
Assistant to the Administrator to senior CMS contracting and other
officials--over 4 months after the decision was made to exclude the
Center as a subcontractor--contains an unsupported statement that most
of the work managed by the Center "did not produce favorable results."
For the six task orders cited in this assessment, the vast majority of
the funds--about 83 percent--were directed to two task orders in which
the Administrator determined that the Center performed well.[Footnote
29] With respect to the remaining four projects, the assessment
characterizes the Center's performance as poor but does not provide
specific examples of poor performance. For example, in reference to the
Center's work on two survey and certification task orders, the
assessment states that "this program/process [survey and certification]
has been very problematic for CMS—. [I]t continues to be an area that
generates great concern—. This doesn't mean that all of the problems
are the responsibility of this contractor - but CMS would certainly
benefit from a fresh approach - old ideas from this contractor and
others are not working." The assessment does not go on to specify
examples of the Center's poor performance on the projects and does not
explain why the Center, which is one of several contractors to have
performed work in the area, would be responsible for weaknesses in the
nursing home survey and certification process.[Footnote 30] The
assessment also does not explain why the other contractors involved in
the nursing home survey process were not excluded from survey-related
task orders on a similar basis.
The Administrator's negative view of the Center's work on these four
task orders identified in the summary assessment document also is not
consistent with the master contract performance evaluations completed
by CMS project managers, who a CMS official said are in the best
position to comment on the performance of a contractor. For example,
with respect to the two survey and certification projects referred to
above, the respective CMS project officers gave high marks to the
Center in all applicable categories on the performance evaluations.
While there are some negative statements, most of the other documents
related to these four task orders are positive.
The Administrator's October 17, 2002, e-mail message to the Center's
Director also contradicts his assertion that the Center's past
performance was poor. In this e-mail message, the Administrator stated,
in part:
I am sure your work with us will continue—. If you do good work--as you
apparently do--and deal with us fairly--you will get the same treatment
from me.
Evidence Suggests that Administrator's Decision Was Retaliation for the
Center Director's Comments on QI Initiative:
The evidence suggests that the Administrator's decision to exclude the
Center from the RAND task order was in retaliation for the Center
Director's comments about CMS's nursing home QI initiative, including
the Director's provision of technical information that we requested
during our review of the effort. Although these comments did not affect
the QIs CMS used or the timing of the national rollout, the Center's
Director was perceived by the Administrator as obstructing the
consensus-building process for the QI initiative by being unwilling to
compromise. Having received advice that he had the legal authority to
exclude the Center from the RAND task order and understanding (although
erroneously) that the task order was valued at $30,000, the
Administrator directed CMS staff to exclude the Center. Acknowledging
that he was not familiar with the agency's contracting process, the
Administrator told us he believed it was appropriate for him to
intervene in this instance given the Center Director's position on the
QI initiative. Regardless of the merit of the Administrator's view of
the Center's Director and concerns about the Director's capacity to
build consensus, the Administrator was not authorized to effectively
change the proposal on which the award to RAND had been based. As
explained earlier, the award to RAND was no longer supported once the
Administrator excluded RAND's proposed subcontractor.
The Administrator's frustration with the Center's Director regarding
the QI project is demonstrated in e-mail exchanges between the two. For
example, in an e-mail message on October 16, 2002, referring to the QI
initiative, the Administrator wrote:
—Your problem with the agency is me--and I have discussed that with the
Secretary at some length. I am happy to talk to you--but if you want to
continue to yank my chain--I will continue to disconnect you from this
agency. And I am happy to discuss this in front of the Secretary,
either of your Senators--or anyone you like. There is no entitlement to
government contracts--especially when you try to sandbag the agency you
contract with--and I have NO doubt they would all agree with me if I
have to discuss it in more detail.
When asked by the Center's Director on October 17, 2002, why the Center
was excluded from the RAND task order, the Administrator responded, in
part:
I gave you every shot in the world to get your views in—. We have
worked hard to build that consensus in the last year, and are not
interested in having it erode before the November 12th publication—.
You were part of a fair, thorough and unbiased process. I don't think
it is too much to ask the participants in that process not to rip it
apart when it is put in place. The RAND subcontract is a very very
small part of your work. I am sure your work with us will continue. But
the government has no requirement to contract with anyone.
The timing of certain events relating to the Administrator's decision
to exclude the Center from the RAND task order and the involvement of
the Center's Director in commenting on the QI initiative further
suggest that the Administrator's directive was retaliatory in nature.
For example, on September 25, 2002--roughly 6 weeks before the national
rollout and 2 days before the task order award--the Center's Director
met with CMS's Project Director for the QI initiative, at which time
the Center's Director provided a position paper that identified several
technical issues that he believed the agency needed to address prior to
the national implementation. Although the CMS official characterized
the meeting as productive, she also told us that CMS and the Center's
Director had a fundamental disagreement over certain technical aspects
of the initiative, and she believed that the Center's Director would
not be satisfied unless CMS changed course and included the QIs that
the Center's Director supported in its public reporting program. On the
same day as this meeting, September 25, 2002, this CMS official
contacted a Special Assistant to the Administrator to brief him on the
substance of the discussion. The same evening, the Special Assistant
and the Director of CMS's Acquisition and Grants Group also discussed
the status of the RAND contract and the possibility of excluding the
Center, which occurred 2 days later on September 27, 2002.
Efforts to Exclude the Center Extended to Other Contracting
Opportunities:
Although communications between the Administrator and the Center
suggested that the Administrator's decision to exclude the Center was
limited to the RAND task order, other evidence we reviewed indicated
that senior CMS officials intended to exclude the Center from other CMS
contracting opportunities based on their understanding of the
Administrator's direction. Most notably, internal CMS communications
suggest that agency officials had essentially barred the Center from
participating as a prime or subcontractor on other task orders.
However, CMS's treatment of the Center under other task orders has
varied since its exclusion from the RAND task order. While CMS denied a
request submitted in December 2002 to provide additional funds to the
Center as a subcontractor, the agency recently decided to exercise an
option to extend another task order on which the Center is the prime
contractor.
Staff Understood Instructions to Exclude the Center to Extend to Other
CMS Contracting Opportunities:
On January 30, 2003, CMS sent a letter to the Center advising it that
the agency and the Center no longer had a contractual relationship
because of the Center's insistence on certain changes to the master
contract that CMS considered unacceptable.[Footnote 31] As a result,
the Center was no longer eligible to compete for task orders issued
under the master contract. Center officials told us that they were
surprised and confused by CMS's letter since they believed that their
concerns regarding the master contract had been resolved. Therefore,
the Center requested clarification in a February 7, 2003, letter to
CMS. On April 30, 2003, CMS advised the Center that it continued to
find the Center's proposed changes unacceptable, but offered to
reinstate the Center's master contract under the original terms.
Regardless of the dispute concerning the master contract, a January 29,
2003, internal CMS e-mail message suggests that the Center would not
have been considered for task order awards despite the existence of a
contractual relationship with CMS. Describing the context in which the
ongoing dispute between the Center and CMS had arisen, the Director of
CMS's Acquisition and Grants Group wrote to a Special Assistant to the
Administrator, in part:
In September, we sent [the Center] a modification to extend its current
[master] contract for Medicare research activities. We have no
intention of awarding it work under the contract based upon [the
Administrator's] instructions. But, we felt we had to exercise the
option to extend the base contract for legal reasons.
Earlier e-mail and voicemail messages also suggest that, as a practical
matter, the Center had been barred from serving as a prime contractor
for task orders under the master contract as well as a subcontractor to
other entities. For example, the Director of CMS's Acquisition and
Grants Group e-mailed the following direction concerning the Center to
some of his staff in November 2002:
—The Administrator's Office has directed us not to make awards to [the
Center]—. If [the Center] is the apparent successful offeror for any
competed task order, do not make an award until we have had the chance
to raise the matter with the Office of the Administrator—.
In the same e-mail message, the Director of CMS's Acquisition and
Grants Group also directed a senior member of his staff to pursue
acquisition strategies, including competing work under other master
contracts and awarding task orders to small businesses, designed to
limit the Center's participation in CMS procurements. A later internal
e-mail message emphasized that the instructions regarding awards to the
Center extended to subcontracts and funding transfers as well.
An intent to exclude the Center from CMS procurements could constitute
an improper de facto debarment.[Footnote 32] A de facto debarment
occurs when an agency excludes a potential contractor from government
contracting or subcontracting without following the procedures set
forth in the FAR, which requires agencies to notify contractors of the
reasons for proposed debarments and provide them with an opportunity to
respond.[Footnote 33] During the course of our review, we found no
evidence that the agency had followed these procedures with respect to
the Center.
CMS's Treatment of Center on Other Task Orders Varied:
CMS's unfavorable treatment of the Center was apparent in another CMS
task order under a separate master contract where the Center is one of
four subcontractors to the Research Triangle Institute (RTI).[Footnote
34] In this project, the Center and another subcontractor are charged
with leading a multiphase project to test and implement the use of QIs
in the long-term care survey process.[Footnote 35] The Center's
Director is the principal investigator on the Center's subcontract with
RTI. In late December 2002, the Project Officer for this task order
submitted a request to adjust subcontractor funding levels, including a
relatively small addition for the Center.[Footnote 36] This request was
not approved by CMS's Acquisition and Grants Group, based on the
staff's understanding of the Administrator's instructions regarding the
Center. A CMS official confirmed that there were no additional reasons
the request was not approved, and when the reference to the Center was
deleted, the request, which included additional adjustments to other
subcontractor funding levels, was approved.
On June 9, 2003, the Director of CMS's Acquisition and Grants Group
told us that CMS had recently decided to exercise an option to extend a
task order on which the Center is the prime contractor but which does
not involve the Center's Director.[Footnote 37] The extension through
September 30, 2004, is valued at $3.3 million, with the overall task
order valued at approximately $15.6 million. A task order modification
for this extension was provided to the Center for signature on May 29,
2003. A CMS official told us that the agency would sign the
modification once it receives a signed copy from the Center.
Conclusions:
Consistent with the "fair consideration" requirements of the Federal
Acquisition Streamlining Act of 1994 and the terms of the master
contract, CMS conducted a competitive process for the award of a task
order for nursing home survey work. Although the resulting award to
RAND was based largely on the identity and past performance of its
proposed subcontractor--the Center--the Administrator intervened in
the procurement by directing RAND to exclude the Center from serving as
a subcontractor. The Administrator's action was not supported by any
reasonable basis, including a reasonable exercise of authority under
the subcontract consent clause contained in the master contract.
Rather, the action appears to have been taken in retaliation for the
Center Director's technical concerns about another CMS initiative. The
Administrator's action thus was improper and undermined the integrity
of the procurement process at CMS. Moreover, the Administrator's
exclusion of the Center was understood by senior CMS officials to
extend to other CMS procurements in which the Center might play a role
as a prime contractor or subcontractor.
Recommendations for Executive Action:
In order to maintain the integrity of CMS's procurement process, we
recommend that the Secretary of Health and Human Services take
appropriate action to remedy the Administrator's improper decision to
exclude the Center from the RAND task order. Such a remedy could
include permitting RAND to subcontract with the Center as RAND had
proposed or reopening the competition for the award of the nursing home
survey research task order. We further recommend that the Secretary
have CMS procurement decisions affecting the Center since September
2002 reviewed to ensure that they were supported by a reasonable basis.
Agency Comments:
We provided a draft of this report to the Secretary of Health and Human
Services and the Administrator of CMS, as well as relevant excerpts to
RAND and the University of Wisconsin. The Office of the Secretary
provided oral comments and CMS provided written comments (reproduced in
app. I). RAND and the University of Wisconsin provided technical
comments, which we incorporated as appropriate.
In its written comments, CMS disagreed with our conclusion that the
Administrator's decision to exclude the Center as a subcontractor from
the RAND task order was improper and undermined the integrity of CMS's
procurement process. CMS asserted that the Administrator had a
reasonable basis to instruct RAND not to subcontract with the Center,
reiterating the reasons described earlier in this report without
providing any new information. For example, CMS restated the view that
the Center's past performance on nursing home survey and certification
initiatives was problematic. We did not find evidence to support this
view. Rather, the evidence pointed to a record of strong performance in
this area. Nonetheless, CMS concurred with our recommendation
concerning the need to take action to remedy the situation with regard
to the Center's exclusion from the RAND task order award. CMS commented
that the Administrator acknowledged that the subcontractor work under
the RAND task order may have been more significant than he had
initially understood and stated that the issue may be best rectified by
recompeting the work, with the clear expectation that the agency is
looking for new ideas with a strong results orientation. According to
the written comments, the Administrator has directed staff to rebid the
work as quickly as possible. Any such solicitation must include the
actual selection criteria that CMS intends to apply.
In oral comments, the Office of the Secretary concurred with our
recommendation concerning the need to review CMS procurement decisions
affecting the Center since September 2002. We were informed that the
Assistant Secretary for Administration and Management will perform an
independent review of all CMS procurement activities involving the
Center. In its comments, CMS emphasized that the Administrator did not
intend for his decision concerning the Center on the RAND task order to
extend to other work for CMS and that, upon learning of this
possibility, the Administrator took immediate action instructing
appropriate staff to "set the record straight." CMS said the Center is
to be treated no better or worse than any other prospective contractor,
with a completely level playing field for all contractors that want to
offer new ideas to improve the nursing home survey and certification
process.
As agreed with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days
after its issue date. At that time, we will send copies of this report
to the Secretary of Health and Human Services, the Administrator of
CMS, and appropriate congressional committees. We will also make copies
available to others upon request. In addition, the report will be
available at no charge on the GAO Web site at http://www.gao.gov.
If you or your staff have any questions, please call Kathryn G. Allen
at (202) 512-7118. Major contributors to this report include Susan
Anthony, Helen T. Desaulniers, Laura Sutton Elsberg, and Behn M. Kelly.
Sincerely yours,
Kathryn G. Allen
Director, Health Care--Medicaid and Private Insurance Issues:
Dayna K. Shah
Associate General Counsel:
Signed by Kathryn G. Allen and Dayna K. Shah:
[End of section]
Appendix I: Comments from the Centers for Medicare & Medicaid
Services:
DEPARTMENT OF HEALTH & HUMAN SERVICES:
Centers for Medicare & Medicaid Services office of strategic
Operations and Regulatory Affairs:
200 Independence Avenue SW:
Washington, DC 20201:
DATE: JUN 25 2003:
TO: Kathryn G. Allen:
General Accounting Office Director, Health Care-Medicaid And Private
Health Insurance Issues:
FROM: Jacquelyn Y. White:
Office of Strategic Operations and Regulatory Affairs:
SUBJECT: General Accounting Office (GAO) Draft Report, CMS CONTRACTING:
Issues Concerning Administrator's Decision to Exclude Subcontractor
(GAO-03-842):
We appreciate the opportunity to review and offer comments on the
above-referenced report. The Centers for Medicare & Medicaid Services
(CMS) is the agency that purchases healthcare for 40 million Medicare
beneficiaries, and partners with states to purchase healthcare for
another 40 million people with Medicaid. As such, we take very
seriously our charge to assure that we use every strategy available to
us so that taxpayer dollars are used to finance continued improvements
in the quality of healthcare.
The report deals with an issue very important to CMS and the American
public - the Nursing Home Quality Initiative (NHQI) - and specifically
about CMS's actions in dealing with a contractor who was part of an
effort to improve the survey and certification process. We believe the
quality measurement information we are sharing with the public and the
provider community is reliable, valid, accurate, and useful. The CMS is
committed to continually improving the quality measures and working to
resolve the issues discussed in GAO's report Nursing Homes: Public
Reporting of Quality Indicators Has Merit, But National Implementation
Is Premature, (GAO-03-187). This contract, to study inconsistencies in
nursing home survey results is also related to the agency's overall
efforts to improve quality throughout the nursing home industry.
In the subject report GAO examined the actions taken by the CMS
Administrator regarding a contract awarded to the RAND Corporation in
September 2002, specifically as regards the subcontract to the
University of Wisconsin's Center for Health Systems Research & Analysis
(the Center). The GAO's goal was to determine if actions taken by the
Administrator in denying this subcontract to the Center were
appropriate. GAO concluded that, although the Administrator had the
authority to take this action, the Administrator should also have a
reasonable basis to direct RAND not to subcontract with the Center. The
GAO believes that the Administrator's decision appears to have
been retaliation for the Center Director's involvement in another
nursing home initiative. The GAO believes the Administrator's action
was improper and undermined the integrity of CMS's procurement process.
The CMS disagrees and asserts that the Administrator did have a
reasonable basis to instruct RAND not to subcontract with the Center.
The Administrator was very direct with GAO in stating his concern
regarding the inappropriate actions of the Center's Director regarding
the nursing home quality initiative. The Administrator had good reason
to believe that the Center's Director was obstructing and deterring the
consensus building process for the NHQI by being unwilling to
compromise and unwilling to work cooperatively with the broad group of
stakeholders in addressing a delicate issue related to risk-adjustment.
Although, the Administrator had good reason to be concerned about the
contractor's performance under a different contract, other factors were
considered by the Administrator, when he decided to restrict the Center
from subcontracting with RAND for survey and certification work.
As GAO documents in the opening paragraphs of this report, the nursing
home survey and certification process has been criticized for a number
of years. The GAO as well as the Institute of Medicine, and the Office
of the Inspector General of the Department of Health and Human
Services, have reported on problems with this process. The
Administrator was concerned with the constant criticism of the survey
and certification process and, consequently, he was not satisfied with
the work produced by the contractors that had been advising CMS on this
issue. As this contract was being awarded to the RAND Corporation, the
Administrator believed it was time to take a new approach. While the
Center had performed reasonably well on some contracts in the past (not
related to survey and certification), the Administrator decided that it
was time for a change in this particular area. The Center, due to the
body of work it had performed over the years had become part of the
problem, not the solution.
The Federal Acquisition Regulations encourage agencies not only to
consider past performance information submitted as part of a technical
proposal, but to also consider relevant information from other sources.
In this case, due to his past dealings with the survey and
certification program, the Administrator would be an appropriate source
from whom to obtain relevant information for purposes of evaluating the
Center's experience in the area of survey and certification area. The
Agency notes that considering relevant information from other sources,
including high level officials, is appropriate.
The GAO asserts that the exclusion of the Center from this contract
essentially changes the nature of RAND's proposal and may invalidate
the award to RAND. The Administrator acknowledges that the
subcontractor work under this contract award may have been more
significant than he had initially understood. After a meeting with the
GAO staff and consultation with CMS staff on this issue the
Administrator agreed that this issue may be best rectified by
recompeting the work, with the clear expectation that the agency is
looking for new ideas - with a strong results orientation. Accordingly,
the Administrator directed staff to rebid the work described above as
quickly as possible. CMS believes the scope of work will be similar
though not exactly the same as the
current task order due to changing CMS requirements and due to a clear
focus on new ideas. All of this information was provided to GAO and
their report should be modified to reflect these facts.
The GAO also contends that, due to the Administrator's actions, some
CMS staff may have been left with the impression that the Center should
be excluded from other contracting opportunities. This impression is
totally false and the Administrator made clear to GAO that he never
discussed this contractor with staff. He did not intend any impact on
other work the contractor was doing for CMS. Upon learning of this
possibility the Administrator took immediate action instructing
appropriate staff to set the record straight. The Center is to be
treated no better or worse than any other prospective contractor - with
a completely level playing field for all contractors that want to offer
new ideas to improve survey and certification. This fact was also
explained to GAO and the report should be amended accordingly.
We appreciate the work completed by GAO. Their efforts helped us to
identify potential problems that allowed the Administrator to take
appropriate and immediate action. We respectfully request that the
report be amended accordingly.
[End of section]
FOOTNOTES
[1] In June 2001, the agency's name was changed from the Health Care
Financing Administration (HCFA) to the Centers for Medicare & Medicaid
Services (CMS). In this report, we continue to refer to HCFA where our
findings apply to the organizational structure and operations
associated with that name.
[2] This task order was issued under a CMS contract for Medicare
Research and Demonstrations.
[3] The Center is the University of Wisconsin component that had been
designated to perform work under the University's proposed subcontract
with RAND and that carries out health care research under the
University's contracts with CMS. Therefore, we refer to the Center
rather than the University as the contracting entity throughout the
report.
[4] Pub. L. No. 103-355, § 1054(a), 108 Stat. 3243, 3261-3265 (codified
at 41 U.S.C. §§ 253h-253k (2000)).
[5] See 48 C.F.R. § 16.505(b) (2002).
[6] The solicitation referred to these contracts collectively as
Research, Analysis, Demonstration, and Survey Design Task Order
Contracts.
[7] Six of these projects valued at about $32.2 million are ongoing.
Approximately $10.7 million of the $41 million is attributable to
projects specifically related to the nursing home survey process.
[8] For Wisconsin's state fiscal year 2002, the Center's funding for
CMS and other projects totaled approximately $13.8 million, and its
total staff consisted of approximately 65 faculty, researchers,
programmers, and support personnel.
[9] "Consultation in Analysis of Long-Term Care Survey Process,"
Contract No. 500-94-0075, from September 1994 through August 1998.
[10] HHS, HCFA, Report to Congress, Study of Private Accreditation
(Deeming) of Nursing Homes, Regulatory Incentives and Non-Regulatory
Initiatives, and Effectiveness of the Survey and Certification System
(Washington, D.C.: July 1998).
[11] Effective July 1999, HCFA instructed states to begin using QIs
derived from these data to review the care provided to a nursing home's
residents before state surveyors actually visit the home to conduct a
survey. Surveyors use the QIs to help select a preliminary sample of
residents and preview information on the care provided to these
residents prior to the on-site inspection. QIs are derived from data
collected during nursing homes' assessments of residents, called the
minimum data set.
[12] NQF is a nonprofit organization created to develop and implement a
national strategy for health care quality measurement and reporting.
NQF participants include government and private entities as well as
entities from all sectors of the health care industry.
[13] The Steering Committee of 12 included health services researchers,
geriatricians, state survey agency personnel, state Medicaid directors,
health systems representatives, and others.
[14] Risk adjustment is important because it provides consumers with an
"apples-to-apples" comparison of nursing homes by taking into
consideration the characteristics of individual residents and adjusting
QI scores accordingly. For example, a home with a disproportionate
number of residents who are bedfast or who present a challenge for
maintaining an adequate level of nutrition--factors that contribute to
the development of pressure sores--may have a higher pressure sore
score. Adjusting a home's QI score to fairly represent to what extent a
home does--or does not--admit such residents is important for consumers
who may wish to compare one home to another.
[15] See U.S. General Accounting Office, Nursing Homes: Public
Reporting of Quality Indicators Has Merit, but National Implementation
Is Premature, GAO-03-187 (Washington, D.C.: Oct. 31, 2002).
[16] Although the NQF Steering Committee had originally planned to
complete its review of potential indicators using its consensus process
by August 2002, in June 2002 CMS asked NQF to delay finalizing its
recommendations until 2003.
[17] "Improving the Consistency of the Nursing Home Survey Process,"
RFP No. CMS-02-017/JB, issued July 12, 2002. Nursing home deficiency
rates and scope and severity determinations vary substantially among
states. For example, according to the RFP, the percentage of nursing
homes with no health deficiency citations in 2000 ranged from 2.3
percent in Arizona to 37.8 percent in Virginia. The RFP explained that
although some of these differences might be accounted for by real
quality-of-care differences among nursing homes, it also is extremely
unlikely that average differences of this great a magnitude for entire
states can be explained by real quality-of-care differences.
[18] The RFP repeatedly cited the previous survey work done by Center
staff and attributed some improvements to the nursing home survey
process to the Center's findings.
[19] The task order also incorporated RAND's technical proposal by
reference.
[20] A RAND official provided us with an electronic copy of the
recorded voicemail message as well as a written transcription of the
voicemail message that included the date and time it was received. We
have corrected the transcription of this voicemail message and e-mail
quotations throughout this report for spelling errors. Except where
otherwise indicated by bracketed material or ellipses, they are
verbatim.
[21] As of June 20, 2003, CMS had not responded to this letter.
[22] Under the Competition in Contracting Act of 1984 (CICA), GAO
considers protests of solicitations for contracts and awards or
proposed awards of contracts by federal agencies. See 31 U.S.C. §§
3551-3556. CICA and GAO's implementing regulations generally define the
scope of GAO's bid protest jurisdiction. GAO's authority to hear bid
protests is distinct from its authority to conduct audits, evaluations,
and investigations of federal programs and activities.
[23] B-291751, Dec. 16, 2002.
[24] Contracting agencies are afforded broad discretion in their
procurement decisions. Maintenance Engineers v. United States, 50 Fed.
Cl. 399, 412 (2001); Preferred Systems Solutions, B-291750, Feb. 24,
2003, 2003 CPD P 56 at 4. Accordingly, when those decisions are
challenged, they are generally reviewed only to ensure that they are
consistent with the solicitation's stated terms and applicable
procurement statutes and regulations, and that they have a reasonable
basis. Halter Marine v. United States, 56 Fed. Cl. 144, 156-59 (2003);
TLT Construction Corporation v. United States, 50 Fed. Cl. 212, 215
(2001); Sams El Segundo, LLC, B-291620.3, Feb. 25, 2003, 2003 CPD P 48
at 8.
[25] The language of the clause (referring to requests by the
"contractor," not offerors competing for a contract), as well as the
FAR provision governing its use, support the view that its
applicability is limited to post-award modifications or the approval of
subcontractors that the agency had not otherwise agreed to prior to
award. See 48 C.F.R. § 52.244-2.
[26] It is well established that the selection of a proposal for award
of a federal contract must be based on the proposal as it was submitted
by the offeror and evaluated against the selection criteria in the
solicitation. Cf. 41 U.S.C. § 253b(a); Bionetics Corp., B-221308, Dec.
24, 1985, 85-2 CPD P 715 (pertaining to competitive procedures under
CICA).
[27] CMS was not required to satisfy its research needs by awarding a
task order under the master contract. A provision in the master
contract suggests that an entity other than one of the 14 master
contract holders could have met CMS's need for nursing home survey
research through a separate contract.
[28] The 2000 master contract solicitation instructed offerors to
provide a list of contracts and subcontracts completed during the past
3 years and ongoing contracts and subcontracts similar in nature to the
scope of the solicitation.
[29] These two projects involved examinations of the (1) Implementation
of Medicare Consumer Assessment of Health Plans (CAHPS) Disenrollment
Survey and (2) National Implementation of Medicare CAHPS/Fee-for-
Service Survey.
[30] While the Center has performed work on several projects related to
the survey and certification process, there are other contractors with
similar levels of CMS contracting experience in this area.
[31] Negotiations over information disclosure provisions in the master
contract had been ongoing since October 2000, during which time CMS had
twice exercised options to extend the contract. CMS officials told us
that negotiations after contract award are common and that the Center
had been eligible to compete for task orders under the master contract
notwithstanding the ongoing negotiations.
[32] Debarment refers to the formal exclusion of a prospective
contractor from government contracting. The FAR identifies various
reasons for debarment. Among other things, a contractor may be debarred
for a conviction of or civil judgment for fraud, violation of federal
or state antitrust statutes related to the submission of offers, or
commission of other offenses indicating a lack of business integrity
that seriously and directly affects the contractor's present
responsibility. See 48 C.F.R. § 9.406-2.
[33] See 48 C.F.R. § 9.406-3; Quality Trust, Inc., B-289445, Feb. 14,
2002, 2002 CPD P 41 at 4 (noting that a necessary element of a de facto
debarment is that an agency intends not to do business with the firm in
the future).
[34] Contract No. 500-96-0010, Task Order 3, "Evaluating the Use of
Quality Indicators in the Long Term Care Survey Process."
[35] The other subcontractor is the Division of Health Care Policy and
Research within the University of Colorado's Health Sciences Center.
[36] This request included the transfer of $20,000 from one of the
other subcontractors to the Center. The Center's budget for the RTI
task order is approximately $2.3 million.
[37] "Implementation of Medicare CAHPS Fee for Service," Contract No.
500-95-0061, Task Order 7. The task order was awarded to the Center in
August 2000.
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