Economic Development

Lone Star Contract Less

A privatization program unravels in its first year and raises questions about how it could go so far south so fast.
by | May 2007

Everything went wrong: Calls were dropped and applications lost.

Unwarranted layoffs were followed by panicked retention maneuvers. Misinformation was magnified by bureaucratic goofs. However one measures failure, Texas bungled its recent attempt to privatize the operation of four major programs administered by its Health and Human Services Commission--a $900 million deal.

Last October, Carole Keeton Strayhorn, who was Texas comptroller at the time, called for the termination of the contract a mere 359 days after the Texas Access Alliance, an Accenture-led consortium of private companies, took the reins of parts of the State Children's Health Insurance Program, food stamps, children's Medicaid and Temporary Assistance for Needy Families. On March 13 of this year, Texas followed her advice.

How did the arrangement unravel so quickly? The short answer is simple: pressure from all parties on all parties to do too much too quickly.

The implementation began in November 2005, and almost overnight, HHSC shifted all facets of these programs' administration--management, maintenance, hiring and training--to privately operated call centers. That was a huge management challenge, but there was a fiscal one as well. When the legislature mandated the plan in 2003, it built into HHSC's budget a $140 million cut--the savings expected in the first two years of the program, the same years in which the agency would be hit with start-up costs. With that kind of pressure, the agency accelerated and expanded the outsourcing plan. Both eligibility processes and eligibility regulations were changed, as was the core computer system for several programs.

Poor contractual guidance made everything worse and became the catalyst for failure. Accenture went along with HHSC's demands, even though it couldn't fulfill them, slogging through a contract designed to reward effort rather than performance. HHSC assumed, the comptroller wrote, "it could manage a $1 billion contract without...competent contract management staff and...proven contract management practices."

The Texas contract has died, but it has served as a model of sorts. This March, Indiana's Family and Social Services Administration began a 10-year, $1.16 billion privatization contract but with key differences. Most notably, Indiana budgeted for and brought aboard consultants with expertise in big-contract management. In order to retain institutional knowledge during the change, the state has guaranteed all employees at least two more years of employment, even the two-thirds of workers who have been shifted to the private-sector payroll.

Perhaps most important of all, Indiana put savings on the back burner--not hoping for a dime the first two years. "Gonna get it right," says FSSA spokesman Dennis Rosebrough. "Not gonna get it fast."

For Texas, termination of the contract hasn't resolved its program problems. Before the privatization effort began, Texas led the nation in the number of children without health insurance. Now, even more children are uninsured. Meanwhile, short-staffed with undertrained personnel, HHSC continues to unwind other complications. Call center operators, for instance, must recognize when a caller requesting SCHIP actually needs children's Medicaid and then instruct the client to hang up and get on over to the state's walk-in office.

Will Wilson  |  Former Correspondent

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