Powerful state healthcare consultant serves two bosses

Aug. 25--Meet the architect of Gov. Mike Pence's signature health-care plan, Seema Verma.

For more than a decade, the little-known private consultant has quietly shaped much of Indiana's public health-care policy. The state has paid her millions of dollars for her work -- amid a potential conflict of interest that ethics experts say should concern taxpayers.

Largely invisible to the public, Verma's work has included the design of the Healthy Indiana Plan, a consumer-driven insurance program for low-income Hoosiers now being touted nationally as an alternative to Obamacare. In all, Verma and her small consulting firm, SVC Inc., have received more than $3.5 million in state contracts.

At the same time, Verma has worked for one of the state's largest Medicaid vendors -- a division of Silicon Valley tech giant Hewlett-Packard. That company agreed to pay Verma more than $1 million and has landed more than $500 million in state contracts during her tenure as Indiana's go-to health-care consultant, according to documents obtained by The Indianapolis Star.

Verma's dual roles raise an important question: Who is she working for when she advises the state on how to spend billions of dollars in Medicaid funds -- Hoosier taxpayers or one of the state's largest contractors?

In a written statement, Verma said unequivocally that she played no role in HP's contracts with the state. "SVC has disclosed to both HP and the state the relationship with the other to be transparent," Verma said. "If any issue between HP and the state presented a conflict between the two, I recused myself from the process."

But the recently ousted head of the state agency administering Verma's contract told The Star that Verma once attempted to negotiate with state officials on behalf of Hewlett-Packard, while also being paid by the state.

HP said it can find no one in its company with any recollection of such a meeting. Verma declined to answer further questions about her work with the state or HP.

Verma's dual roles have surprised some leading Republican lawmakers and expose one of many loopholes in Indiana's government ethics laws.

Ethics experts consulted by The Star called the arrangement a conflict of interest that potentially puts Indiana taxpayers at risk. If Verma were working for the federal government, they point out, she would have to show how the government was protected, or step aside.

"If I were a taxpayer in Indiana, I would be concerned about whether the advice the government was receiving from her was tainted by her own financial interest and the financial interest of her other clients," said Kathleen Clark, a professor at Washington University School of Law in St. Louis who specializes in government ethics.

But in Indiana, government consultants aren't required to disclose such potential conflicts, even when they have offices in state government, as Verma does.

So the nature of Verma's work -- and the extent to which it benefited HP -- remains unclear.

HP referred any other questions on the matter to the state. Verma's spokesman, Lou Gerig, noted in a statement that "all contracts between the state and SVC Inc., or between the state and SVC Inc. as a subcontractor, have been reviewed and approved in accordance with all requirements of state law."

Pence's office issued a written statement in response to The Star's questions.

"Seema has played a valuable role in the state's health-care policy since the O'Bannon administration, and we appreciate her advice and counsel, especially on the continuation of the Healthy Indiana Plan and HIP 2.0," said Christy Denault, a spokeswoman for Pence.

State officials didn't directly address questions about Verma's work for HP. But James Gavin, spokesman for the Indiana Family and Social Services Administration, said the state does take steps to prevent conflicts in the bidding process.

He said the state's procurement guidelines "clearly require that all decision-making authority lie with state employees and agency executives. These guidelines are designed to eliminate conflicts of interest."

Powerful contractor

Verma enjoys a tremendous amount of sway for a private contractor. She has her own office at the state government center. Earlier this year, Pence turned to her to broker a deal with the state's hospital industry to help finance his plan to expand the Healthy Indiana Plan. And when Verma and one of Pence's Cabinet members -- Family and Social Services Administration Secretary Debra Minott -- butted heads over how soon to roll out the program, it was Minott who lost her job.

Verma's influence reaches back at least a decade and across the administrations of four governors, two from each party. During his first term, Gov. Mitch Daniels tapped Verma to help create a new health-care plan to address the state's uninsured population. Her solution: the Healthy Indiana Plan, a new low-income health insurance program that features high deductibles and requires participants to contribute a portion of their income to a health savings account.

"This structure melds two themes of American society that typically collide in our health-care system, rugged individualism and the Judeo-Christian ethic," Verma wrote in a 2008 Health Affairs blog article co-authored with former FSSA Secretary Mitch Roob. "HIP combines these diametrically opposed themes by promoting personal responsibility while providing subsidized health protection to those who can least afford it."

The plan won the support of both Republicans and Democrats in the Indiana legislature and was implemented in January 2008. Today, 52,000 Hoosiers are enrolled in the program.

Now, Pence wants to expand the plan to an additional 350,000 low-income Hoosiers through what he's calling HIP 2.0. And like Daniels, he turned to Verma for help in developing the plan and negotiating a financing agreement with the state's hospital industry. If approved by the federal government, billions of new Medicaid funds would flow to the state.

And because HIP 2.0 would generate significantly more claims, some of that money would likely go to Hewlett-Packard, Verma's other client.

The extent to which Verma's advice has benefited HP is difficult to determine, given that none of the parties involved will talk much about the subject. Further obscuring the issue: Several of her most recent contracts weren't publicly available on the state's online transparency portal until The Star began making inquiries. Denault said that was because "some of them were mistakenly coded as not for publication." The contracts have since been added to the online list.

What they show is that her duties involve crafting requirements for contractors, negotiating with contractors and supervising vendors. Her company's website also says she provided "requirements for the state's three technology vendors to support HIP." That would include Hewlett-Packard. One contract gives her the authority to "initiate and/or track" a contract or contract amendments with the state's fiscal intermediary, which is HP. Another puts her in charge of technical changes to the state's medical management information system, which is operated by HP.

Those responsibilities put Verma in the position of making decisions about a state contractor that is also paying her hundreds of thousands of dollars. HP's claims management and information system contracts show it has agreed since 2007 to pay Verma's company $1.2 million as a subcontractor for "health consulting services."

During that time, HP received more than $500 million in state contracts, including millions of dollars in contract changes to accommodate the Healthy Indiana Plan that Verma helped create and other new programs.

"Certainly on the face of it, there is the appearance of a conflict," said Trevor Brown, an expert on government purchasing and director of Ohio State University'sJohn Glenn School of Public Affairs.

If Verma was a federal contractor, her dual roles "would certainly raise tremendous concern for regulators and purchasing officials," he said. "This is exactly the kind of thing that would land an agency in a hearing before a legislative oversight committee."

Lawmakers in Indiana, however, were unaware of Verma's work for HP.

"I was only aware she was working for the state," said Sen. Patricia Miller, R-<location value="LU/us.in.indpol" idsrc="xmltag.org">Indianapolis, chairwoman of the Senate Health Committee.

"There certainly appears to be the potential for conflict, and appearances matter," said Ed Clere, R-New Albany, chairman of the House Health Committee.

Verma's arrangement with HP also came as a surprise to former FSSA Secretary Debra Minott, who said she learned about it sometime in 2013.

"We had delayed paying an HP invoice because of an issue we were trying to resolve, and HP sent Seema to our CFO to resolve the issue on their behalf," Minott said. "I was troubled because I thought Seema was our consultant."

HP spokesman Bill Ritz said the company "checked with a number of its employees and can find no one with any recollection of such a meeting."

Gerig, Verma's spokesman, said Verma's work for HP was a matter of public record because she is listed as a subcontractor in HP's contracts with the state.

A lack of rules

Ethics experts say that kind of scenario would be unlikely at the federal level, where government purchasing officers are required to identify and avoid "organizational conflicts of interest," which occur when a person is unable or potentially unable to render impartial assistance or advice to the government because of other business relationships.

Many states, including Maryland, Virginia, Minnesota and Illinois, have adopted similar rules at the state level, according to Dan Forman, a Washington, D.C.-based government procurement attorney. Other states, such as Tennessee and Washington, have implemented rules at the agency level. Still others, such as California and Maine, have introduced rules via standard state contract provisions.

But in Indiana, that's not the case.

Minott said when she brought her concerns to FSSA's ethics officer, she wastold Indiana's ethics rules didn't apply to conflicts of interests among state contractors.

The lack of any such rule is just the latest in a litany of loopholes that good government advocates say Indiana needs to address.

In recent months, The Star has reported on several high-profile cases -- including those of state Rep. Eric Turner, former highway official Troy Woodruff and former state schools chief Tony Bennett -- where ethics officials criticized the behavior of public officials but took little or no action due to exemptions in state ethics rules.

The issues raised in Verma's case are not unique to Indiana, said Brown, the Ohio State professor. State governments across the country are increasingly grappling with potential conflicts of interest as more private contractors perform what has traditionally been government work.

"Historically, the practice was these decisions would be made by the leadership of the agency, and in many states they are," he said. "But Indiana is not alone in having to rely on advice and services of a private actor to perform what is at the boundary of, if not a clear instance of, a government function."

State reliance on private contractors is especially common in the health-care arena, where rapid changes in federal health-care law have put a premium on speed. And indeed, several executive summaries of Verma's contracts emphasize the need to quickly utilize her services amid the threat of losing federal grant money.

"Over the short run, it sounds like you're going to get speed," Brown said. "And you may get some cost savings over the short run."

But in the long run, states can become dependent on private contractors, who can then jack up their prices.

"They essentially become a monopoly, and there's a risk that they can raise costs over time," he said.

Verma's arrangement with the state demonstrates how difficult it can be to control such costs.

An amendment to her contract in January added $300,000 without increasing her workload or extending the term of the contract. The reason listed: "to cover claims." State officials declined to elaborate.

The hourly rates listed in her contracts also have increased over time, from $110 in 2007 to $135-$165 this year.

Lawmakers expressed surprise when told by The Star that the state paid Verma's company $1.15 million in the past year alone.

"I had no idea her firm received that much money. I think it would come as a surprise to most legislators," Clere said. "I think there's a larger issue of transparency and accountability as the state increasingly relies on contractors, including consultants. I'm all for harnessing the power of the private sector, and the key word is 'harness,' which suggests the state is in control. The question here is, 'Whose hands are on the reins?' "

Star researcher Cathy Knapp contributed to this story.

Call Star reporter Tony Cook at (317) 444-6081. Follow him on Twitter: @indystartony.

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