What the Unions Can Do

Bloomberg Could Save Millions If City Seized Slush Funds

  • Among the stranger expenditures by these funds are $5000 bail bonds; funeral costs of up to $10,000; name changes; bankruptcies; $50,000 living benefit options for those with "a limited life expectancy"; full drug, optical, and dental benefits for seasonal workers like lifeguards; Viagra and fertility coverage; a multimillion-dollar mobile van service that gives firefighters physicals and blood tests; and $1.5 million a year in "advertising and public relations" expenses by the PBA.
  • Spending over $63 million for administration in 2000—the last audited year—some funds have seen 3000 percent increases in bureaucratic costs over a single year , spending more to manage the fund than it gets in city contributions. Thirty funds ran up $25 million in operating deficits in the audit for 2000, with District Council 37 in the red for $15 million, the PBA Retiree Fund formally found to be insolvent, and three others rated as "possible risks of insolvency within one or two years." Eight funds received adverse opinions from their own accountants and six more got qualified opinions.
  • But, as unnoticed and shocking as some of these decades-old practices are, it is the conflict-ridden saga of the city's two biggest benefit contracts that sounds the loudest alarm for change. In 2001, National Prescription Administrators, a small, closely held New Jersey-based pharmaceutical-benefits manager (PBM), won both contracts, worth a potential three quarters of a billion dollars over the next few years. The selection processes were carefully wired by the company's labor friends, and shortly after the contracts were awarded, one of the nation's largest PBMs, Express Scripts, bought NPA for $515 million. It is a story that starts far away from the sometimes-sewer politics of DC 37, the largest municipal union, whose welfare funds get $205 million a year in city contributions.

    Randi Weingarten, whose teacher-union fund provides real health benefits, is open to talking about structural change.
    photo: Richard B. Levine
    Randi Weingarten, whose teacher-union fund provides real health benefits, is open to talking about structural change.

    Back in the late '70s, Gerry McEntee, who now the runs the nation's second-biggest union (American Federation of State County and Municipal Employees), was ensconced in Harrisburg, Pennsylvania, as head of the state federation, District Council 13, that he'd organized just a few years earlier. One of the breakthrough gains in Council 13's first collective bargaining contract was the state's agreement to support a welfare fund that started out providing only prescription benefits. The 75,000-member federation's first pharmaceutical manager was a company called Paid Prescriptions. The executive who supervised the contract was Richard Ullman, a pharmacist certified in Pennsylvania who commuted to Harrisburg from Jersey.

    In 1978, Ullman started his own company, NPA, and by 1979, he was doing business with Council 13. Ernest Sessa, who ran the Pennsylvania Public Employee Health and Welfare Fund, told the Voice: "Dick did our eligibility work. NPA set up all our first data processing." Business manager Jesse Newcomer told a journalist hired years later to write the history of DC 13 that NPA "provided us with computer service," adding that the union used them "to work the state checkoff program," processing dues deductions from payroll checks. Then, in 1981, according to DC 13 officials, an NPA subsidiary, National Vision Administrators, took over the optical plan. Finally, the union switched its prescription contract to NPA, which by then had opened a mail-order facility in suburban Harrisburg, located to this day less than a mile from the headquarters building DC 13 built and owns.

    Ullman, who owned NPA with a few minority shareholders, became a fixture in DC 13, developing what Sessa described as "a professional relationship" with McEntee and eventually putting McEntee's ex-wife Janet and daughter Christine Serenelli on the payroll, running NPA's Philadelphia office. The company also became a most unusual union shop, with a few hundred private employees, most of them working at its New Jersey locations, becoming members of a union that otherwise included only Pennsylvania state workers. NPA joined District Council 90, the Harrisburg local that was the only one to share an office with McEntee's statewide federation.

    Once McEntee took over AFSCME and moved to Washington, D.C., in late 1981, leaving his best friend to run DC 13, NPA started securing national AFSCME-connected business, eventually snaring the grand prize of union PBM contracts, DC 37's. NPA got the contract, valued now at $125 million a year, by beating two other bidders in 1987, the year after the departure of Victor Gotbaum, the patriarch of DC 37, who had a strained relationship with McEntee. McEntee never spoke to Gotbaum about NPA, says Gotbaum, but then again, McEntee rarely spoke to him about anything. McEntee did speak far more regularly to Gotbaum's successor, Stanley Hill, by both Gotbaum's and Hill's account. "I had a good rapport with Jerry," Hill told the Voice. "We talked, but not about the fund or NPA."

    Hill says he left the fund's business to its respected and knowledgeable administrator, Roslyn Yasser, a Gotbaum protégée who ran it from 1978 until she was forced out last May. But a half-dozen sources from the union and elsewhere say that Yasser became extremely close to Ullman, a fact that even Ullman has privately conceded. One top union administrator said that NPA paid Yasser for at least two speeches at health-related conferences, both of which involved trips, one to Europe. Once NPA got its foot in the door at the union, its theoretically three-year contract was not put up for bid again for 14 years, even though the deal consumed more than half of the fund's expenditures. When the contract was finally bid again in 2001—after a scandal at the union that led to 38 indictments—lower bidders forced NPA to cut its own bid by $7 million a year. NPA won, but the competitive process is saving the union over $21 million.

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