Health chief says he was misled about $110 million no-bid contract

Dr. Kyle Janek, Texas health and human services executive commissioner, speaks in October about Ebola prevention efforts in Austin. Gov. Rick Perry is at right.
Dr. Kyle Janek, Texas health and human services executive commissioner, speaks in October about Ebola prevention efforts in Austin. Gov. Rick Perry is at right. AP

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

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

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

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

Questions have been flying since August about how 21CT came from nowhere to land a $20 million contract with the Office of Inspector General two years ago.

CEO Irene Williams has said that the company welcomes any review of its work and that she has broken no rules.

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

Instead of competing with other companies for the multimillion-dollar contract, the little-known firm was selected by the commission from the state’s computer services catalog managed by the Texas Department of Information Resources. Because 21CT appeared on the department’s list of preapproved vendors, it could circumvent competitive bidding.

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

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

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

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

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

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

Last week, state Sen. John Whitmire, D-Houston, filed a complaint with the state’s Public Integrity Unit, based in the Travis County district attorney’s office, to investigate whether laws were broken when 21CT was selected.

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

The Health and Human Services Commission has paid 21CT $20 million for the Medicaid fraud software. The company was to get an additional $90 million under a contract extension. But Janek canceled the extension.

“We are working with HHSC on the closeout of our work,” 21CT’s Williams said in a statement Tuesday.

When asked whether the commission would demand a refund from 21CT, Janek said it depends on the outcome of an investigation.

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

He said it’s still not clear that was the case.

So far, it’s unclear whether 21CT’s Medicaid fraud software will actually lead to collection of overpayments to Medicaid providers.

Late Monday, 21CT sued James Frinzi, Stick’s former business partner and, until last week, a lobbyist for 21CT.

The suit, which seeks unspecified damages for “business disparagement,” says Frinzi made “false, malicious and damaging statements” against 21CT that caused it to lose its contract with the commission.

Frinzi said he’s not concerned about the lawsuit.

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

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

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

Gregg Cox, director of the Public Integrity Unit, has said an investigation, which could result in criminal charges, is likely.

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

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

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

Wilson’s replacement will be appointed by Gov.-elect Greg Abbott once he takes office. In the interim, Quinton Arnold, the commission’s director of risk and control analysis, will lead administrative operations at the Office of Inspector General.

As to whether he will step down, Janek said Tuesday that he wants to finish cleaning up the commission.

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