Arbitrator rules that outsourced work in Illinois must be returned to state employees

The State of Illinois recently terminated its $76.8 million contract with Maximus to redetermine Medicaid eligibility in the state.

AFSCME Council 31, the state’s largest state employees union, had called the contract wasteful.

The state’s decision to terminate the Maximus contract came after an independent arbitrator ruled that the Maximus contract violated the state’s Master agreement with AFSCME.

“The arbitrator’s order is a victory for Illinois taxpayers,” said Henry Bayer, AFSCME Council 31’s executive director. “Wasteful spending on a private contract will be eliminated, trained professionals will replace unqualified call centers, and state government will ensure that Medicaid is available to those who need it and cut off from those who don’t.”

Using a private contractor to redetermine Medicaid eligibility was a major piece of a 2012 law enacted by the Illinois Legislature. The law, Saving Medicaid Access and Resources Together (SMART), was designed to close a Medicaid funding gap.

Among other things, SMART encouraged the state’s Department of Healthcare and Family Services (DHFS) to contract with a private company to identify Medicaid recipients who were no longer eligible or should have their benefits changed.

In 2012, DHFS contracted with Maximus for this work, known as Medicaid redetermination. To win the contract, Maximus said that it would use sophisticated data mining software to identify and recommend people whose eligibility should be terminated or whose benefits should be changed.

Maximus estimated that it would save the state would save $350 million over the two years of the contract.

But according to Crain’s Chicago Business, in February 2013 DHFS Director Julie Hamos testified before a legislative committee that those savings projected by Maximus were “too optimistic.”

As Maximus’ Medicaid redetermination project continued, other problems started to surface.

By mid-June, reports Community Media Workshop, “Maximus recommendations were rejected in 25 percent of cases where they found recipients ineligible; in cases where they recommended changes in benefit levels, fully 50 percent were found to be in error.”

In June, an independent arbitrator held hearings on the grievance filed by AFSCME. The union’s grievance charged that the Maximus contract violated the union’s Master agreement with the state, which says that work cannot be outsourced unless clear cost savings and efficiencies can be gained by outsourcing.

AFSCME argued that if the state hired a sufficient number of state workers for the redetermination project, the work could be done in-house for $18 million less than the $76.8 million Maximus contract.

During the hearing, representative of DHFS and the state did not refute AFSCME’s argument; instead, they argued that the Legislature ordered them to contract out the work and that they were carrying out that order.

The arbitrator ruled that SMART allows rather than requires the agency to contract out Medicaid redetermination work and that there was no clear evidence of savings that could be achieved from doing so; therefore, the contract violated the Master agreement.

He ordered that the contract with Maximus be terminated effective December 31, 2013.

The ruling set off loud howls of protestors from business friendly legislators, looking for ways to channel public funds into the hands of private corporations. The media also chimed in and there was pressure on Gov. Pat Quinn to appeal the arbitrator’s ruling.

In September, Gov. Quinn said that the arbitrator’s decision would be appealed, but Peoria’s public radio station reported that Gov. Quinn and his administration were warned by their attorneys that the appeal might not be successful.

In the meantime, Gov. Quinn and AFSCME began negotiations to seek a solution that would make the appeal unnecessary.

In December, the two sides reached an agreement that then was included in a December 17 supplemental ruling by the arbitrator.

According to AFSCME Council 31, the arbitrator’s ruling requires the state to use funds that have already been appropriated to hire “a sufficient number of caseworkers to return the work in-house by April 30, 2014.”

Maximus will be allowed to continue to provide data matching software and some support services until June 2015, but its role in the redetermination project will be substantially reduced.

After the arbitrator’s ruling was announced, AFSCME’s Bayer called the contract with Maximus a failed experiment that can now be replaced by a more responsible approach to finding savings in the Medicaid program.

“The arbitrator’s order will bring oversight back to state government where it is directly accountable, and save money in the process,” said Bayer.

2 thoughts on “Arbitrator rules that outsourced work in Illinois must be returned to state employees

  1. Pingback: It’s Been a Very Bad Month for the Private Sector | My Blog

  2. Pingback: It's Been a Very Bad Month for the Private Sector | We Report

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