HHS IG finds a slew of inadequacies in Healthcare.gov acquisition

HHS’s OIG is pointing acquisition inadequacies as a big part of why Healthcare.gov had such a troubled launch. (iStockphoto.com)

With a system as complex as the Healthcare.gov federal marketplace, the Centers for Medicare and Medicaid Services should have taken more care in its IT planning and procurement efforts leading up to what would be a costly and bug-ridden 2013 launch, according to the Department of Health and Human Services Office of Inspector General.

The watchdog office released a new report Wednesday detailing what it calls inadequacies in CMS’ development of the crippled Healthcare.gov, failing early on to develop an acquisition strategy, meet contracting requirements, use other existing competitive acquisition plans and bring on a lead systems integrator, among other issues.

The HHS Acquisition Regulation (HHSAR) — which “implements and supplements the FAR for HHS and provides the regulatory framework for conducting acquisitions across HHS,” according to the report — requires a written acquisition strategy for major IT acquisitions. CMS, though, developed the federal marketplace without one. Some CMS program managers claimed they didn’t know it was required.

Even without an acquisition strategy to lead the procurement process, CMS “did not avail itself of other acquisition planning tools that, although not required, may have strengthened its planning for the Federal Marketplace contracts,” the OIG found.

These plans, which are used to guide decisions made about individual contracts, are required by HHSAR. However, 53 of the 60 Healthcare.gov contracts fell under exceptions and did not receive acquisitions plans. Those 53 contracts had a total estimated value of more than $1 billion. And even for the seven contracts that required plans, the supporting information was often missing.

With 60 contracts awarded to 33 companies, the development of the federal marketplace was inherently perplexing and in need of a leader to conduct that chaos. CMS, however, failed to select a lead systems integrator until October 2013, after the launch.

“The 33 companies that were awarded the 60 Federal Marketplace contracts each had individual tasks to support the implementation of the Federal Marketplace, but there was no single point-of-contact with responsibility for integrating contractors’ efforts and communicating the common project goal to all 33 companies,” the OIG found.

In reality, CMS assumed CGI Federal, initially responsible for building out the largest aspect of the project, the federally facilitated marketplace, had organically taken this role. CGI thought otherwise, the report said.

After CMS had failed to plan and provide proper oversight for Healthcare.gov, it continued digging itself into a hole by using noncompetitive, shoddy procurement techniques to contract the site’s development, which many officials attributed to a lack of time.

“[I]ts procurement decisions may have limited the number of qualified companies that competed for contracts and the number of technically acceptable proposals from which CMS could choose,” the repost states. “Fifty-five of the sixty Federal Marketplace contracts were awarded as orders under previously established contracts. Therefore, only companies that held previously established contracts were eligible to obtain these orders. Furthermore, for one-third of the 60 contracts, CMS solicited a proposal for the contract from only one company.”

Because of the lack of time, an enterprise system development indefinite-delivery-indefinite-quantity (ESD IDIQ) contract was awarded to five of the six most important marketplace contracts, valued at close to $500 million all together at time of contract.

While it might have meant speedy procurement, the ESD IDIQ limited CMS’ ability to solicit proposals for those six contracts to just the 16 companies awarded the initial ESD IDIQ in 2007. And for many of those key contracts, only a handful of companies submitted proposals, and of those, very few were deemed technically acceptable by CMS. Additionally, CMS failed to thoroughly review most of those contracts prior to awarding them.

Only 16 companies were eligible for some of Healthcare.gov’s key contracts, and even fewer were solicited to submit proposals. (HHS OIG)

For the other 54 contracts, 35 of them received proposals from just one company. And a large part of that was that CMS only solicited proposals from one company for 21 of those 35 contracts, taking away any competition.

Finally, when it came down to the awards, CMS chose a contract type that placed the risk of cost increases on taxpayers through cost reimbursements to the contractors, the OIG found. This led to many of the already massive contracts skyrocketing even higher. CGI’s estimated contract value jumped from $58 million to an actual expense of $207 million for work that would eventually be re-contracted to Accenture.

In total, the six key contracts’ started with a total estimated value of $464 million. When reassessed in early 2014, that estimated value nearly doubled to $824 million.

The OIG recommended several procurement reforms to HHS and CMS, which the agencies agreed with.

“CMS has moved aggressively to implement extensive contracting reforms, bring in new leadership to oversee Marketplace operation, hire a systems integrator, and end our largest contract with CGI and move to a new type of contract with Accenture that rewards performance and reduces risk to the federal government,” wrote Ellen Murray, HHS’ assistant secretary for financial resources and chief financial officer, in a letter to the OIG.

With those steps, it seems Healthcare.gov is in better shape in its second go around. But for the early mistakes CMS made in the website’s planning, it’s too little, too late. At least, as the OIG states, this can be a lesson learned in planning for such a massive IT undertaking in the federal government.

“Although the Federal Marketplace was an unprecedented project with unique challenges, the experience of contracting for the Federal Marketplace has broader implications for Federal contracting,” the repost says. “Government contracting personnel are continually faced with the competing demands of timeliness, fiscal responsibility, and attracting contractors that will provide outstanding performance.”