State audit finds billion-dollar errors in Texas health agency's contracting process

A new state audit has found that Texas’ health agency may have awarded more than $3.4 billion in contracts erroneously — another scandal at an agency that has lost six of its top leaders over the last several months in a wave of contracting disasters.

The Texas State Auditor’s Office said Tuesday it had identified errors in the procurement formulas used by the Texas Health and Human Services Commission in all 28 procurements it examined — and in five of the biggest contracts it looked at, totaling over $3 billion, it could not confirm that the agency had awarded contracts to the best applicants.

Every year, the agency spends billions of taxpayer dollars on contracts with private companies for work ranging from technological support for programs like Medicaid to carrying out medical services. One of the flawed procurement processes auditors identified was the contract for the Children’s Health Insurance Program Rural Service Area, which provides services to poor Texas children in remote areas.

Auditors said Tuesday they found errors in the evaluation processes for all 28 procurements they examined, totaling $4.6 billion in state money. For five of those procurements, those errors were more extreme: “auditors identified significant evaluation scoring errors and missing documentation” in procuring contracts worth over $3 billion.

In the other 23 procurements, auditors said, the errors “did not have a significant effect on the award recommendations.” But all 28 procurements included “formula errors such as omitted scores, incorrect scores, and inappropriate application of best value weights.” The majority of procurements, the audit found, did not use the “standardized evaluation tool” for comparing applicants.

"This report confirms what we already knew — that our efforts to strengthen contracting oversight must continue," said state Sen. Jane Nelson, a Flower Mound Republican who has authored more than one bill aimed at tightening oversight of the agency's contracting process. "I am disappointed that after two straight sessions of contracting reforms, major problems are still occurring. There will be a third reform bill next session, and contracting will continue to be a major focus of our budget hearings."

In an unsigned "management response" to the audit, the agency said it has already taken steps to improve its procurement procedures, including by engaging a consultant to redesign the procurement operation and creating a "compliance and quality control team" to review procedures.

"Management has either taken steps to address the recommendations included in your report or set deadlines for remediating issues related to those recommendations," the agency wrote.

In April, the state auditor released a 30-page report detailing how both HHSC and the Texas Department of State Health Services mishandled a major contract. Gov. Greg Abbott wrote to the agency criticizing its “failure to ensure the integrity” of the state’s procurement process and telling officials “mistakes like this are unacceptable.”

HHSC’s former director, Charles Smith, retired in May after weeks of intense scrutiny on the agency’s flawed contracting process. That news came weeks after three health commission employees were fired and two other top procurement officials resigned.

And the agency’s contracting woes stretch back yet further. During the 2017 legislative session, lawmakers called out agency officials for failing to report dozens of contracts worth at least $100 million to the Legislative Budget Board in a timely manner.