August 05,2003

Grassley Expresses Concern Over Health Care Contracting Incident

WASHINGTON – Sen. Chuck Grassley, chairman of the Committee on Finance, has expressed concern over a General Accounting Office report showing that the Centers for Medicare and Medicaid Services administrator “improperly intervened to exclude” a subcontractor from government work. Grassley expressed concern over this incident in a letter to Health and Human Services Secretary Tommy Thompson. The text of Grassley’s letter follows.

August 4, 2003

VIA FACSIMILE: (202) 690-7380


The Honorable Tommy G. Thompson
Department of Health & Human Services
200 Independence Avenue, SW
Washington, DC 20201

Dear Secretary Thompson:

Last year allegations were brought to my attention that the Centers for Medicare & Medicaid Services (CMS) had inappropriately directed the RAND Corporation (RAND) not to retain the University of Wisconsin’s Center for Health Systems Research & Analysis (Center) as a subcontractor in retaliation for technical concerns raised about another CMS initiative by the Center’s Director, Dr. David Zimmerman. Today the General Accounting Office (GAO) reported to me that in fact CMS Administrator Tom Scully, “improperly intervened to exclude the Center.”

Specifically, the GAO reported:

The Administrator’s action was not supported by any reasonable basis, including areasonable exercise of authority under the subcontract consent clause contained in themaster contract. Rather, the action appears to have been taken in retaliation for theCenter Director’s technical concerns about another CMS initiative. TheAdministrator’s action thus was improper and undermined the integrity of theprocurement process at CMS. Moreover, the Administrator’s exclusion of the Centerwas understood by senior CMS officials to extend to other CMS procurements inwhich the Center might play a role as a prime contractor or subcontractor.

Simply put, Mr. Scully’s actions are unacceptable. America’s taxpayers and Medicarebeneficiaries expect that the government is working toward continually improving the quality ofhealthcare. Contractors and subcontractors who work with the government toward that goal relyupon federal laws and regulations designed to ensure that procurements are conducted fairly. Actionby a high-level government official to unfairly deny a contract or the opportunity to compete for acontract is an intolerable threat to the integrity of the procurement process.

Although CMS asserted that Mr. Scully had a reasonable basis to instruct RAND not tosubcontract with the Center, the GAO did not find evidence to support CMS’s assertion. In anyevent, Mr. Scully’s actions have jeopardized the integrity of CMS’s procurement process and havethreatened the free and frank exchange of views by contractors. Based on my experience, I knowMr. Scully values free and frank discussion and, consequently, should recognize that his actions weresimply inappropriate.

The GAO’s report recommends that you take immediate action to remedy this situation andthat you review all CMS procurement decisions affecting the Center since September 2002 to ensurethat they were supported by a reasonable basis. Please advise me about any action you have takenor will take to fully address the GAO’s findings and recommendations. It is critical to restore theintegrity of CMS’s procurement process and in the future avoid even the appearance of impropriety.

Thank you for your attention to these important matters and for your response by August 15,2003. Please do not hesitate to contact me if you have any concerns.


Charles E. Grassley