Nebraka advocacy group calls for end to privatization

LINCOLN — A Nebraska advocacy group called Wednesday for the state to halt its controversial effort to privatize child-welfare services.

The Nebraska Appleseed Center for Law in the Public Interest made the recommendation after a blistering state audit of the privatization initiative.

"It's time to say enough is enough," said Sarah Helvey, an Appleseed attorney. "There is a growing body of evidence now that this reform is failing."

Helvey spoke to the Legislature's Health and Human Services Committee, which is investigating the state's move to turn over to private contractors the bulk of the duties for ensuring the safety and well-being of abused and neglected children.

Earlier in the day, State Auditor Mike Foley reported on an audit his office undertook as part of the legislative investigation.

It found that the privatization effort has been plagued by escalating costs, lack of documentation, lost records and overpayments. He also cited numerous failures by state officials to cooperate with the audit.

"This audit points to a critical lack of accountability," Foley said. "The consequence to the Nebraska taxpayers has been dramatic, including tens of millions of dollars in increased costs for child welfare services and a conspicuous lack of financial accountability that effectively frustrates any hope of transparency with regard to the expenditure of related public funds."

Gov. Dave Heineman had not seen the audit yet and declined to comment immediately, his spokeswoman said.

State Sen. Kathy Campbell of Lincoln, the committee chairwoman, called it "depressing" and "sobering" to hear the auditor's report and the complaints of those who testified later about a system that has such poor outcomes despite the injection of an additional $30 million in taxpayer funds.

"It's disheartening and it's sad to hear children and families experiencing really difficult upheaval in their lives," she said.

But Campbell wasn't ready to conclude what direction the state should go with child welfare. Nor was Sen. Amanda McGill of Lincoln, who called the audit "scathing."

"Based on what I heard here this morning, I don't know that I trust putting it back under HHS," she said.

Among Foley's findings:

» Nebraska's child welfare costs have increased by about 27 percent since the state began the privatization initiative.

» HHS failed to bid publicly the multimillion-dollar contracts with private service providers, resulting in many amendments and increased costs with no effective oversight.

» An Omaha-based service provider, Visinet, was overpaid by millions of dollars. The provider filed for bankruptcy within six months of contracting with the state.

» HHS spent thousands of dollars on both duplicate claims and payments to the wrong contractors.

» HHS failed to secure possession of important, as well as potentially confidential, documents relating to client services after terminating its contract with Visinet.

» HHS failed to reconcile provider billings in N-FOCUS, the agency's main computer system, which prevented effective agency oversight of both service expenditures and the welfare of children in state custody.

» Service providers failed to meet client service coordination and delivery benchmarks required by the service contracts with HHS.

» HHS failed to prevent former employees of service providers from gaining access to confidential client information in N-FOCUS, and at least one continued to access those records.

» HHS failed to approve subcontractors used by service providers or to ensure that such subcontractors were appropriately compensated for their services. Subcontractors in three service areas have not been paid for services provided last year.

State officials disputed the findings and questioned Foley's authority to examine issues that don't relate to fiscal accountability.

"There are a number of recommendations with which we strongly and fundamentally disagree," said Kerry Winterer, CEO of the department.

HHS officials said that Visinet was not overpaid and that the department has legal authority to award contracts without competitive bidding. Contractors were chosen following a request for proposals.

Winterer characterized the cost increases as management decisions made to protect the overall integrity of the child welfare and juvenile services system.

Todd Reckling, director of the department's Division of Children and Family Services, said changes have already been made to strengthen oversight of contractors and of financial matters.

He cited a personnel change in June, in which Vicki Maca was appointed as an administrator to provide full-time oversight of the initiative. Over the past several months, additional financial oversight has been implemented, according to Reckling.

Nebraska undertook the privatization effort in November 2009.

Initially, the contracts covered the entire state, but three of the five original contractors have since lost or dropped their contracts because of financial and management problems.

A former HHS administrator who once led the overhaul testified Wednesday that the effort was undertaken without strong financial expertise. Jeff Schmidt said it also was based on what he now considers a faulty premise — "that private contractors, because they are businesses and have to make money, would do the job better and more efficiently than government."

Winterer said he could not comment on the effort's initial premises because he was not at HHS then.

Schmidt said his directions were to come up with a plan that could be done without additional funds.

He said he was "stunned" to get a Saturday evening call from Reckling and another HHS official, about one year into the contracts, saying the department had found more money for the remaining two contractors.

Those contractors are the Omaha-based Nebraska Families Collaborative, which handles one-third of the cases in the eastern area, and the Kansas-based KVC, which handles another third of the cases in the eastern area, which consists of Douglas and Sarpy Counties.

State workers resumed responsibility for cases in the central, western and northern areas of the state, as well as one-third of the cases in the eastern area.

HHS recently announced that the Nebraska Families Collaborative will take over the state's one-third of eastern area cases in October.

An analysis by The World-Herald in July found that the state paid contractors 50 percent more than planned and overspent its budget by $30.5 million for the fiscal year that ended June 30.

HHS made three unplanned infusions of money and repeatedly front-loaded payments to contractors, a practice that optimistically anticipates costs going down as the months go by, the analysis found.

World-Herald staff writer Paul Hammel contributed to this report.

Contact the writer:

402-473-9583, martha.stoddard@owh.com

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