The Big Enchilada
The Bloomberg administration is considering the award of the most expensive contract in city history, and the selection process is shrouded in conflict and intrigue.
In partnership with the Municipal Labor Committee (MLC), the mayor will decide in the next week or so if he wants to save tens of millions of dollars a year by combining the medical and hospital coverage for over 400,000 city employees and retirees. If the city and the coalition of municipal unions decide to select a single health care provider, as opposed to the current mix, the five-year contract is expected to cost between $1.3 and $1.7 billion annually, more than even the largest capital projects. If they decide to break up the contracts againwith one hospital provider and a variety of medical plansthe individual value of each deal will still be astronomical.
The competition has narrowed to two nonprofit entities that have long offered coverage to city workers: GHI (Group Health Inc.) and HIP (Health Insurance Plan). The current hospital provider, Empire Blue Cross/Blue Shield, has become a for-profit provider since the contracts were last bid, so Empire's submissions now are so high they've priced themselves out of the competition.
The low bidderwhether the contracts are consolidated or notis HIP, but sources say that HIP has not locked in any of its price submissions. And if HIP uses the contract to help it go public like Empire, its prices will increase, pushed in part by the state's insurance premium tax, which does not apply to nonprofit providers. HIP has already publicly indicated an interest in a for-profit conversionwhich GHI has rejectedand Governor Pataki, who is already reaping a budgetary bonanza from Empire's switch, is leaning on HIP to do the same. Just as the governor used the proceeds from Empire's stock sale to pay for his election-year wage hike for health care workers, he wants to use HIP's proceeds as a potential billion-dollar budget-gap closer.
With that much on the line, HIP, which currently provides only medical to 20 percent of city workers, has played a slippery insider game in an effort to win either the hospital contract or the blockbuster combination. The new HIP senior vice president for business development, Roslyn Yasser, moved from the union side of the table to HIP's in the middle of this selection process, casting a cloud over HIP's bid.
Yasser, who was the administrator of District Council 37's Health & Security Fund and who has chaired MLC's Health Technical Committee for years, was asked to resign by new DC 37 executive director Lillian Roberts around March 1 last year. Having served on HIP's board of directors for 20 years, Yasser quickly negotiated her new job there. HIP says she actually left her union and MLC positions in the third week of April, while DC 37 gives May 31 as her final date of employment. No one disputes that she was fully involved in helping shape the Request for Proposals that was issued at the end of the Giuliani administration, on December 28, 2001and that she was still in her critical union posts when the bids were submitted on March 29, 2002.
Asked in several recent e-mails if Yasser ever saw the proposals submitted by HIP's competitors before she left her union positions, HIP spokesmen Ron Maiorana and Howard Rubenstein dodged the question. They said she "was aware that the bids had been submitted but that she had no detailed knowledge of HIP's bid or any other competitive bids." They also insisted that "at no time were the bids in her personal possession." Two of their e-mails even implied that she had seen the bids by insisting that "she did not participate in any analysis of the material."
Marcia Sander, the Milliman USA consultant who guided the RFP process, subsequently did a slide presentation about it to the full MLC and, according to the minutes, reported that early in the process, "the original bids were reviewed by the technical committee" that Yasser headed. Oliver Gray, DC 37's associate director, told the Voice that he couldn't "say for certain," but that his "sense" was that Yasser "would have seen the bids."
Yasser's familiarity with the other bids is important because she unquestionably helped HIP shape its response. In an earlier story ("Welfare Fund Waste," March 12, 2003), the Voice quoted a HIP fax as stating that Yasser "participated in helping the staff of HIP to reply to the RFP." HIP now adamantly maintains that she did nothing to help HIP prepare the initial proposal, which was submitted at the end of March, long before she formally joined HIP's staff on June 19. But HIP acknowledges that two days after she started there, she was part of a 15-member HIP team that presented the proposal to the MLC and city officials who make up the selection committee. She attended two more presentations on June 26 and June 28.
HIP and its competitors have modified their bids twice since Yasser joined HIP, in September and again this February. Any inside knowledge she might have had about GHI or other bids could have been critical when these modifications were made. HIP concedes that she "participated in formulating modifications to HIP's written response to the City's request for follow-up information," but insists that "at no time did Ms. Yasser help HIP with any analytical work." When HIP changed its bid in September at the invitation of the city, it actually increased its prices nominally, which is not what usually happens when bidders are given a second chance to "improve" their bids. GHI nominally lowered theirs. HIP's action suggests knowledge of competitor bids.
Yasser also played a decisive role in naming the union members that sit on the multi-panel selection committees, due to her coordinating position at MLC at the time. MLC sources say she placed the same four unions on the pivotal committees that will evaluate the hospital, medical, and combined optionsDC 37, the United Federation of Teachers, the Patrolmen's Benevolent Association, and the Superior Officers Council. While four officials from the city's Office of Labor Relations also sit on those panels, MLC preferences in this process are usually given great weight.
Created by municipal unions, HIP has more city union officials on its board than GHI (five to two) and employs an array of union-connected power brokers like Yasser. Arthur Barnes, the husband of American Federation of Teachers president Sandra Feldman, is one of the 35 HIP executives who makes more than $200,000 a year, as is Leslie Strassberg, who worked under Yasser at the MLC before joining HIP. Strassberg led the HIP team that presented the bid in June. Randi Weingarten, the MLC chair, was once HIP's chair.
HIP was blasted in a Daily News series a couple of years ago for its extravagant waysincluding a million-dollar-plus salary for its top executive, rented Jaguars and luxury Miami and Sutton Place apartments, illegal campaign contributions, cozy intertwines with contractors, and the veritable collapse of subsidiaries in New Jersey and Florida. The New York State Insurance Department also found that it had failed to maintain legally mandated reserves, and a review of lawsuits filed against health insurers in the '90s found more against HIP affiliates than any other provider in the metropolitan area.
Ironically, the Bloomberg administration, which has yet to play a strong hand in the selection process, faces both of its budgetary nemeses in this contract decision. Should HIP do well, the governor, who's gone out of his way to stiff the city, could benefit by forcing a newly fattened HIP to make a public offering. HIP is also clearly the favorite, at least for the hospital contract, of the labor leaders, who have yet to meet the mayor's demand for major, recurring concessions to help the city achieve its goalclosing the $600 million gap.
Should the mayor insist on a single providerregardless of whether it's HIP or GHI, which presently provides medical coverage for almost two-thirds of city workershe can achieve real savings that range from $40 million a year to $150 million, according to sources close to the bidding process. That ought to be enough to get Bloomberg's attention.
Research assistance: Cathy Bussewitz, Alexa Hinton, Felicia Mello, Solana Pyne, E.B. Solomont, Steven I. Weiss
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