California gives no-bid health pacts

LOS ANGELES -- California's health insurance exchange has awarded $184 million in contracts without the competitive bidding and oversight that is standard practice across state government, including deals that sent millions of dollars to a firm whose employees have long-standing ties to the agency's executive director.

Covered California's no-bid contracts were for a variety of services, ranging from public relations to paying for ergonomic adjustments to work stations, according to an Associated Press review of contracting records obtained through the state Public Records Act.

Several of those contracts worth a total of $4.2 million went to a consulting firm, The Tori Group, whose founder has strong professional ties to agency executive director Peter Lee, while others were awarded to a subsidiary of a health-care company he once headed.

Awarding no-bid contracts is unusual in state government, where rules promote "open and fair competition" to give taxpayers the best deal and avoid ethical conflicts. The practice is generally reserved for emergencies or when no known competition exists.

Covered California was created in 2010 and given broad authority to award no-bid contracts as a way to meet tight federal deadlines for getting the new health insurance marketplace operational by last year. The same law also exempted it from sections of the state's public records law, a loophole lawmakers closed last year after it was disclosed by the AP.

The agency confirmed some no-bid contracts were awarded to people with previous professional ties to Lee, but emphasized Covered California was under pressure to move fast and needed specialized skills.

The fledgling exchange "needed experienced individuals who could go toe-to-toe with health plans and bring to our consumers the best possible insurance value. Contractors like The Tori Group possess unique and deep health care experience to help make that happen and get the job done on a tight deadline," Lee said in a statement.

"As this organization matures," he added, "we will rely less on private contractors."

With so much taxpayer money in play, a government watchdog group said more oversight is essential.

Kathay Feng, executive director of California Common Cause, said she recognized the need to free Covered California from cumbersome contracting rules that could have hampered its ability to meet Affordable Care Act deadlines.

But with tens of millions of taxpayer dollars at issue, "some accountability and transparency is needed, whether through audits or an alternative oversight body," she said, adding, "To spend $4.2 million on anything, let alone a contract to a friend and former colleague, raises serious questions."

The no-bid contracts represent nearly $2 of every $10 awarded to outside companies by the agency and were among roughly $1 billion in agreements disclosed to AP that the exchange executed from late 2010 through July, according to the records.

Through its first year of operation, Covered California was funded almost entirely by federal grant money.

The founder of The Tori Group, Leesa Tori, worked under Lee when she was a senior executive at Pacific Health Advantage, a small business insurance exchange that failed in 2006. Lee was a longtime chief executive of Pacific Business Group on Health, which managed Pacific Health Advantage, and Tori also worked with him at the parent company.

Long before it opened its doors to the public last fall, Covered California awarded a small contract to Tori for her advice on designing a program to sell insurance to small companies. The $4,900 agreement in late 2011 was executed without rival bids.

The deal would mark the beginning of a lucrative and far-reaching partnership between the agency and the company Tori formed about two years ago, just as national health care reform took root across the U.S. An initial $150,000 contract with The Tori Group in March 2013 was executed by Lee, but later amendments that increased its value to $4.2 million were approved by Covered California's board, an agency statement indicated.

Nearly three years after her first, small contract went into effect, she and employees at her firm hold senior-level positions and work on issues ranging from enrollment to health plan design at Covered California.

At least five other people who are contracted to work at Covered California have ties to the now-defunct Pacific Health Advantage, four of them at The Tori Group, whose employees are paid through the consulting contracts. In all, nine people listed on the group's website, in addition to Tori, work at the exchange.

Yolanda Richardson, Covered California's chief deputy executive director who reports directly to Lee, was a vice president at Pacific Health Advantage. Before she was hired on staff, she received a 10-month, $176,500 no-bid consulting contract from the agency in 2011, about a month before Lee came on board, according to the records.

Tori, the former director of plan management, is now a consultant on plan management. The Tori Group's chief financial officer, Kathleen Solorio, is Covered California's operations adviser. Another principal at the firm, Corky Goodwin, the former interim director of the small-business insurance program, is a consultant on small-business insurance.

Tori said professional credentials qualified her company for the contracts -- working in an exchange gave her team experience rare in the industry.

The Pacific Business Group on Health Negotiating Alliance, a subsidiary of the company Lee previously led, received two no-bid contracts worth a total of $525,000. Spokeswoman Emma Hoo said the work covers "unique and in-depth assessment of plan operations."

John Vigna, spokesman for former Assembly Speaker John Perez, who spearheaded legislation that established the exchange, said Perez was confident that enough checks and balances remained in effect, including oversight by the federal government and a state law that outlines rules for avoiding conflicts of interest.