System Failure

The Comptroller Says HS Systems Overcharged for Screening Disabled Welfare Recipients. So Why Did the Company Win a Fat New Contract?

The private company that performs medical exams of New York City's disabled welfare recipients billed the city $662,974 more than its contract called for—in some cases for work it was never specifically commissioned to do—and then had an unfair advantage in winning a new $30 million contract last month, an audit by the city comptroller's office has shown.

According to the audit, between October 1995 and September 1998 HS Systems charged the city's Human Resources Administration steep prices for radiological services—billing, on average, 364 percent more than the standard reimbursements by Medicaid.

Although the contract stipulated HS Systems was to receive $29 for X rays, HRA ultimately paid between $53 and $133 for each study performed—a total of $623,218 more than intended, the audit said. (HS Systems claimed its fees were reasonable, but later repaid the city $114,653.) HRA also paid an excess of $37,281 over the contracted amount for lab services and $2475 for "emergency services" not specifically mentioned in the contract, the audit estimated.

HS Systems' Manhattan facility: Some disabled clients have had to wait outside.
HS Systems' Manhattan facility: Some disabled clients have had to wait outside.

In 1995, HRA signed a contract in which it agreed to pay HS Systems $6 million a year. It wound up disbursing an average of $9.5 million annually, largely because the company, which was compensated according to the number of client exams, racked up far more appointments than anticipated.

HS Systems was nonetheless awarded a lucrative new contract this March, three months after the audit documenting the possibly inflated charges was sent to HRA.

HS Systems is owned by financier William D. Witter, president of the Dean Witter Foundation and son of investment banker Dean Witter; Ralph M. Richart, M.D., a Columbia University professor of pathology; and Noel deCordova Jr., a Poughkeepsie lawyer.

HS Systems has worked for the city for more than 20 years providing medical assessments of welfare recipients. It determines who is eligible for disability benefits, who isn't, and therefore who must clean parks or sweep streets under the city's Work Experience Program (WEP).

At a time when Mayor Rudy Giuliani is battling Comptroller Alan Hevesi over contracts with welfare-to-work companies, HS Systems' situation highlights the difficulties in privatizing social services—namely, maintaining a fair process for awarding contracts and then keeping tabs on winning vendors.

Such issues recently made headlines when a New York State Supreme Court justice blocked $104 million in city contracts with Maximus, a Virginia company hired to help welfare recipients find jobs. The judge agreed with the comptroller's charge that the contracting process was corrupted. Maximus has since suspended its operations in the city.

"The contracting of HS Systems fits a pattern of recent contracting used to favor preconsidered or favorite contractors of HRA at the expense of innocents who are out there without connections," said Glenn Pasanen, associate director of City Project, a budget-watchdog organization.

HRA opened the disability-screening contract to competitive bidding last year by issuing a request for proposals (RFP). But according to one bidder, the agency did not provide sufficient information to allow new applicants to submit truly competitive proposals.

Craig Connell, director of medical operations at New York Diagnostic Centers, which bid against HS Systems and others for the 1999 contract, said the recent contracting process favored the incumbent provider. "We asked what volume of patients we could expect to see," Connell said. "But HRA said they didn't know. So we were in the dilemma of having to guess how much testing would be done. It makes it tough on a first-time bidder with no insight."

The comptroller's office agreed. "It appears that the RFP gives HSS an unfair advantage over all other vendors since HSS is the only vendor that possesses all the data necessary to formulate a comprehensive proposal," the audit said. Connell said HRA told him HS Systems was unable to come up with the necessary data.

HS Systems president Yvonne Jones would not comment for this article. HRA did not disclose the number of bidders, but co-owner Witter insisted the contracting process had been fair. "I understand the bidding was very extensive," he said. "A lot of people bid."

In a letter to the comptroller, HRA agreed HS Systems had overbilled for laboratory studies but rejected the audit's findings that HS Systems had overcharged the HRA for X rays and emergency services. HRA said that price comparisons between HS Systems, a comprehensive diagnostic facility, and two private radiology groups were inappropriate. HRA added that the audit report "demonstrates the auditors' limited understanding of the medical field and the complexities of the services provided under the terms of the HSS contract."

In the letter, HRA also defended the contracting process. The agency said it eventually provided additional information to help other bidders. But Connell, for one, said that was not enough. When he asked about the number of HIV tests he could expect to perform, Connell said, HRA only provided the number of clients who tested HIV-positive, not the total number tested. He added that HS Systems could easily have provided those numbers by examining doctors' records. But releasing such specifics, he said, could have cost HS Systems its competitive advantage.

Under the terms of its contract, HS Systems was paid by the exam between 1995 and 2000. This arrangement is not unusual, but may have given the company a financial incentive to keep its clients coming back. The 1995 agreement said HS Systems would receive $18 million over three years. Yet HS Systems eventually received $38 million over four years because of a sharp increase in medical testing. The number of exams jumped by roughly 30,000, going from 55,000 to 60,000 tests in 1996 to 85,000 to 90,000 in 1998, according to the audit.

Despite challenging the audit, HRA significantly altered the new contract with HS Systems, imposing more rigorous pricing and service standards. The company will no longer be paid for every medical examination, but instead for making a ruling on the level of a client's disability, even if it involves multiple tests.

"They'll pay you for having made that determination," said Connell. "The city no longer cares how much testing you do."

Other changes to the contract reflect long-standing concerns about HS Systems' treatment and evaluation of disabled New Yorkers. For the past few years, the Legal Aid Society, the Urban Justice Center, and New York Legal Assistance Group have complained about overcrowding, lack of privacy, hasty medical assessments, bad record keeping, and poor services for the mentally ill at HS Systems.

The single HS Systems site is located on West 44th Street in Manhattan. On regular visits to the center in recent months, The Village Voice found that disabled clients leaning on canes were sometimes kept waiting for more than an hour after their scheduled appointment time, even in the rain and snow.

Inside, clients complained of lack of privacy. "There is no separation of the sexes," said Joan, a woman in her mid fifties who asked that her real name not be used. "Men and women stand together in little paper gowns."

Advocates for the disabled also said there was a lack of privacy in the medical record keeping. "One of my clients had to discuss their HIV status in front of others," said Matthew Schneider, a staff attorney for New York Legal Assistance Group."HS Systems sucks."

Critics charged that HS Systems frequently failed to look at clients' previous medical records or other doctors' recommendations, though the company is required to do so by law. One result, they said, is that disabled people have been wrongly forced to work. In 1997, doctors at HS Systems found Marsha Motipersad, a 5O-year-old woman with a history of serious heart disease, to be employable. Motipersad died of a heart attack while on a break at her WEP job in Coney Island. There is also an outstanding lawsuit from Mikhail Fridman, who says he had a heart attack as a result of working in a Sanitation Department garage for his WEP benefit. Fridman had been cleared, despite his hypertension, by an HS Systems doctor.

HRA has conducted on-site visits to the center every three years since HS Systems began to work for the city in 1975. The most recent HRA evaluations gave the center "very good" to "excellent" ratings.

In 1993, HRA even gave the center a certificate for outstanding performance and quality services. The same year, an HS Systems doctor, Koshi Padnani, was suspended for ordering excessive testing, prescribing controlled substances inappropriately, and maintaining inadequate medical records.

In its new three-year, $30 million contract, HS Systems has agreed to a number of changes that may solve many of the problems cited above. The contract mandates, for instance, that there be sufficient room inside, so that clients do not have to queue up outside. HS Systems will also open three additional sites—in Brooklyn, Queens, and the Bronx—so that clients from the outer boroughs do not have to come all the way into Manhattan for screening.

The new deal took effect on April 1. The comptroller's office could not comment, however, because the contract had not yet been sent over by HRA.

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