The Top 30 Highest Paid State Contractors in RI
Thursday, January 30, 2014
Spending on contractors—particularly vendors—is on the rise in Rhode Island. Between fiscal years 2000 and 2011, local and state combined spending increased by $3.7 billion, or 66 percent. Payments to vendors, mainly related to Medicaid programs, accounted for the largest share of the increase, an estimated 37 percent. That increase far outpaced the national rate of growth, which was 21.1 percent, according to the annual Rhode Island Public Expenditure Council report on local and state expenditures.
Per capita, Rhode Island spent $1,987 on vendor payments—the second highest in the county and 59.2 percent above the national average, according to RIPEC.
Social services and benefits, transportation top the list
Topping the list of the top 30 contractors for the last fiscal year, which ended June 30, 2013, is United Healthcare Services, which is a third-party administrator for health insurance benefits for about 38,000 active state employees, retirees, and their dependents, according to the Department of Administration. (United Healthcare deals only with health benefits, not vision or dental.) United Healthcare was paid a total $257.2 million for its services, far exceeding the next highest-paid contractor, the Bank of New York Trust Company, at $93.3 million.
The top 30 list includes any business that was paid by the state for a product or service in 2013. It excludes quasi-public agencies like the then-named Economic Development Corporation. Payments to towns and cities also are not counted. (See below slides for the complete list of the top 30.)
Mazze said attributed the rise in vendor spending to two factors. One is the demographics of the state, characterized by a “high percentage of individuals of all ages” on various social service programs, Mazze said. The state’s consistently high unemployment rate—now first in the nation—also drives the need for social services, coupled with an even greater underemployment rate, according to Mazze.
The second factor is the state's failure to maintain its public infrastructure—roads, bridges, and highways, Mazze said. Mazze said the state leaders have developed a “Yankee mentality”—“If there’s really isn’t a disaster, let’s just keep moving on.” As a result, deficiencies in state infrastructure are addressed only when problems become too big to ignore.
The cost of repairs also cost more. “We’re paying 2013-2014 prices for something that should have been done in 2000 [or] 1990,” Mazze said.
Vetting the vendors
Mazze noted that some of the contractors at the top of the list may be the only companies that provide the services they do—which could affect their price.
She pointed to United Healthcare Services, which won a contract for the state’s health insurance business when it outbid Blue Cross Blue Shield of Rhode Island (during the administration of former Governor Don Carcieri). “Yet, we don’t have measurable market competition in Rhode Island. The costs for road repairs seem to be as non-competitive as is our health insurance market. Rhode Island’s tax-and-spend formula is clear—keep it over the top,” Blais said.
Some blame staffing cuts on need for more contractors
But other budget decisions made during the Carcieri years—and the administration of his predecessor, Lincoln Almond—are being blamed for the increase in contractor spending.
“They talked a lot about shrinking government, but were very seldom willing to identify specific programs to end, beyond cutting yet another group off Medicaid. They laid people off, put a cap on state hiring, and encouraged early retirements, but didn’t actually cut the state's responsibilities to match the reductions in workforce,” said Tom Sgouros, a progressive policy expert and former candidate for state Treasurer.
When asked to comment, Gary Sasse, who was the former state administration director under Carcieri, did not directly respond, except to say that state officials had to undergo a rigorous approval process before any services could be privatized.
(GoLocalProv has previously reported on the cuts to the state workforce and the impact on services. Click here to read more.)
Growth preceded Chafee
The increase in contractor spending reported by RIPEC pre-dates Governor Lincoln Chafee, whose first budget was for fiscal year 2012 (the RIPEC figures, the latest available, go up to 2011).
But some policy decisions made under Chafee have affected the make-up of the top contractors. In particular, some of the highest-paid businesses are consultants that were hired to set up the state’s health benefits exchange, though funding for the establishment of the state exchange came from federal grants.
Two of the consultants are among the top 30. One, the Florida-based Wakely Consulting Group, was paid $11.7 million in fiscal year 2013 for a wide range of services provided to the exchange. Wakely was awarded a total contract of $18.9 million for 2012 to 2014, with an option for a two one-year extensions. One other company had responded to the RFP for the work: Navigant Consulting, Inc., based in Chicago, Illinois.
A second health exchange consultant is also among the highest paid contractors: Deloitte Consulting, which was paid $9.7 million in 2013.
But Chafee has also worked to curb contractor spending in other areas. Soon after taking office, in March 2011, Chafee had all outside lawyers hired by the state reduce their billing rates by 15 percent, according to Allison Rogers, the director of policy at the Department of Administration.
While the total cost of contractors may be on the rise, it may not reflect an overall increase in spending. For one thing, contractor costs in the health care sector need to be put in context when comparing them to other states, said David Burnett, the deputy secretary of the Executive of Health and Human Services.
While some states have large state-run institutions for the developmentally disabled, Rhode Island pays outside contractors for those services, Burnett said. Another state may have several hospitals with several patients who have development disabilities. Rhode Island has one state-run hospital—Eleanor Slater—with beds for roughly 200, according to Burnett. But when comparing contractor costs, Rhode Island may rank as a bigger spender.
“It’s very … difficult to get an apples-to-apples comparison,” Burnett said.
Plus, hiring contractors for specialized medical services—rather than employing medical staff full-time—is generally more cost effective, according to Sasse, who is the founding director at the Hassenfeld Institute for Public Leadership and also a columnist for GoLocalProv.
Another wrinkle in the data: the RIPEC figures, which are based on U.S. Census data, lump state and local spending together, making it more difficult for state officials to corroborate them. For his part, Burnett said actual Medicaid claims in Rhode Island have an annual rate of increase of about 4 percent, well below the national average of 7 percent.
There’s also the issue of how “vendors” are defined. RIPEC uses the broader definition employed by the U.S. Census, Burnett noted. Sasse also drew a distinction between vendors and contractors. He defined vendors as those businesses the state hires to provide services directly to citizens, such as any one of the various Medicaid programs run by the state. He views a contractor more narrowly as a business that provides services that help state government to function. (For this report, “contractor” is simply any business being paid for a product or service, whether those are for citizens directly or the state.)
One thing seems likely: spending for a number of the top contractors is set to increase, at least in the near future. Already, halfway through fiscal year 2014, United Healthcare Services has been paid at least $133,763,579. At that pace it will exceed its earnings from the state last year. Likewise, the Cardi Corporation has been paid $43,399,961 for the first half of the current fiscal year—almost as much as it made during the entire year in fiscal 2013.
Note: GoLocalProv reached out to two of the top contractors for comment, United Healthcare Services and the Cardi Corporation. Neither responded in time for publication.
UPDATE: Although United Healthcare was the highest paid, a state official informs GoLocalProv that much of the money did not actually go to the company as revenues but instead went to payments for medical costs for state employees, retirees, and their dependents.
Related Slideshow: The Top 30 Highest Paid State Contractors in RI
Below is the list of the top 30 highest paid private contractors for the state of Rhode Island, ranked from least to greatest. Each contractor is identified along with a summary of services that were provided and the department or state agency that hired them. Because contractors will often be hired to offer multiple services or work on numerous projects in a given year, only a basic summary of their work is provided. In cases where a contractor worked for several departments, only a representative sample is listed. The ranking of top contractors excludes payments to other government entities, like cities and towns, as well as quasi-public agencies like the Economic Development Corporation.
Deloitte Consulting, LLP
Total Amount Paid: $9,792,452.99
Agencies: Department of Administration, Office of Health and Human Services, and Department of Business Regulation
Services Provided: Building of a new information technology platform for state health agencies, related to the health benefits exchange
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