DHS closing $174 million in contracts, but not all money will be saved

The Department of Human Services is ending contracts at the end of this fiscal year that would have cost more than $174 million over the next seven years, though the state won’t necessarily save money in all of those cases, DHS Director Cindy Gillespie said Wednesday.

Speaking to the Health Reform Legislative Task Force, Gillespie said the 17 contracts would have cost $174,357,959 between fiscal years 2017-23. Most were originally signed for seven years and were simply automatically renewed even if they don’t have strong performance-based measures.

“The easy path is just to keep it going,” she said.

Gillespie, who was working her 100th day on the job as director, said DHS has not yet comprehensively examined its contracts and that the ending of each contract won’t necessarily result in savings.

“These may be areas that we end up deciding down the road that some of these things we need, but we’re going to go procure them differently,” she said.

The largest contract, with McKinsey & Company for $92.4 million, was to develop the Arkansas Health Care Payment Improvement Initiative. DHS Deputy Director Mark White said McKinsey & Company had helped build the infrastructure for the program, which changes the way medical providers are compensated for services. White said the state is now ready to operate the program.

Gillespie described the results of a 60-day review of the 7,000-employee agency’s core business functions.

By July 1, DHS will be restructured to include seven shared services offices led by chiefs that will perform certain functions across the entire agency. Those offices will include a chief counsel that already exists and six new offices: for finances, procurement, information technology, human resources, legislative and intergovernmental affairs, and communications and community engagement.

The changes are coming after Gillespie’s review found that each of the department’s 10 divisions – which will be reduced to nine – were handling those responsibilities individually. For example, each division was purchasing its own information technology, resulting in hundreds of systems across the department.

Among the big changes:

– The creation of a procurement office will enable DHS to consolidate that responsibility and increase the department’s buying power.
– A finance office will create a central point of accountability and allow for long-term planning. That office will be led by Mark Story, who has been serving as Medicaid chief financial officer. Gillespie said DHS will be trying to “build out our Medicaid finance bench” and have more employees who understand the process.

“With what has gone on in the health care world the last few years, and with what’s gone on with the Affordable Care Act, and quite frankly the outside consulting world and business world suddenly discovering government health programs, the 50 people in the country that understand Medicaid finance are probably some of the most sought after folks that are out there,” she said. “The states all steal from each other and now these companies are stealing from all of us, so I’m thrilled that Mark is going to take this role.”

– An information technology office will create an overall strategic plan. Most of the department’s IT operations currently are performed and managed by outside vendors.

– A human resources office will provide insight into staffing and skills needs and help the department create career pathways.

Gillespie said the changes will create efficiencies and save money, but there is no need for a reduction in force because the department’s current 22% turnover rate will allow that to happen through attrition.

“People ask me, ‘Will this save money?’ Of course it will save money,” she said.

Gillespie said that, when she first moved to DHS, she asked if the department has a morale issue, and every head nodded. The department is trying to determine what is causing its high employee turnover. In many cases, it’s not salary. One caseworker spent 30 hours a month making copies. Another lost days driving to meetings.

But salaries also are an issue.

“Part of what we are really hoping to do is have a DHS in a few years that may be smaller, but that the people who work there are extremely good at what they do, they’re very motivated, and they are paid appropriately for what they do, which means in most cases they will likely be paid more than what they are paid now,” she said.

Rep. Kim Hammer, R-Benton, praised Gillespie for her work.

“Ms. Gillespie, I want to commend you because what you’ve brought to us is a business model, not a political model moving forward,” he said.

Meanwhile, the state will engage an outside vendor, Maximus, which will deploy 225-250 employees to help the state clear 146,336 pending Medicaid cases. The performance-based contract ends at the end of 2016. The total budget for the project will be $8.375 million, with the state responsible for $2.09 million of that amount.

Some of these cases require limited work, but overdue problem cases are growing by 182 per day. Gillespie said DHS expects to see an increase in problem cases as the backlog is addressed, so the department has deployed 90 of its employees full-time to work on those cases, and more will be added when the state begins working with Maximus. Also, DHS’ internal call center will be adding 21 employees from the Arkansas Foundation for Medical Care and will be extending its hours to 7 p.m.