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Report to the Chairman, Committee on Finance, U.S. Senate:

United States General Accounting Office:

GAO:

July 2003:

CMS Contracting:

Issues Concerning Administrator's Decision to Exclude Subcontractor:

GAO-03-842:

GAO Highlights:

Highlights of GAO-03-842, a report to the Chairman, Committee on 
Finance, U.S. Senate 

Why GAO Did This Study:

In September 2002, the Centers for Medicare & Medicaid Services (CMS) 
awarded the RAND Corporation, with the University of Wisconsin’s 
Center for Health Systems Research & Analysis as a subcontractor, a 
task order to study inconsistency in the nursing home survey process. 
Allegations were made that CMS directed RAND not to retain the Center 
as a subcontractor in retaliation for technical concerns that the 
Center’s Director had raised about another CMS initiative. GAO was 
asked to examine these allegations. Specifically, GAO was asked to 
examine CMS’s selection of RAND for this task order, the basis for 
CMS’s decision to exclude the Center as a subcontractor, and whether 
the Center’s exclusion extended to other CMS contracts.

What GAO Found:

GAO recommends that the Secretary of Health and Human Services take 
appropriate action to remedy this situation. Such a remedy could 
include permitting RAND to subcontract with the Center as RAND had 
proposed or reopening the competition for the award of this task 
order. Also, the Secretary should have CMS procurement decisions 
affecting the Center since September 2002 reviewed to ensure they were 
supported by a reasonable basis. HHS and CMS concurred with our 
recommendations, although CMS disagreed with our conclusion that the 
Administrator’s action was improper.

What GAO Recommends:

CMS followed a competitive process in awarding the nursing home survey 
inconsistency research task order to RAND, with the Center as its 
subcontractor. RAND’s proposal outlined a plan in which the Center 
would perform approximately half of the work, in terms of cost, in the 
first year and about 80 percent over a 3-year period, if the 
government exercised its options to extend the task order for 2 
additional years. Based on four criteria, including an evaluation of 
personnel and experience and past performance, CMS awarded the task 
order to RAND on September 27, 2002. 

At virtually the same time as the award, the Administrator intervened 
to exclude the Center from the RAND task order. The Administrator 
provided several reasons to support his exclusion of the Center, 
including his conclusion that the Center had performed poorly on a 
number of ongoing CMS task orders, especially those related to nursing 
home survey and certification. He understood that contract provisions 
provided him the legal authority to direct RAND not to use the Center 
as a subcontractor. GAO reviewed each of the reasons provided by the 
Administrator and concluded that, in light of the evidence, the 
Administrator did not have a reasonable basis to direct RAND not to 
subcontract with the Center. For example, GAO’s review of the evidence 
did not support the Administrator’s assertion of poor past performance 
by the Center; in fact, its strong past performance was a key factor 
in the decision to award the task order to RAND.

Instead, the Administrator’s decision to exclude the Center from the 
RAND task order appears to have been retaliation for the Center 
Director's involvement in another CMS nursing home initiative. Because 
of technical concerns voiced about this separate initiative, the 
Administrator perceived the Center’s Director to be obstructing CMS’s 
implementation of the initiative in November 2002. Regardless of the 
merit of the Administrator’s view of the Center’s Director and 
concerns about his involvement in the other initiative, the 
Administrator was not authorized to effectively change the substance 
of the proposal on which the award to RAND had been based. Therefore, 
in GAO’s view, the Administrator’s action was improper and undermined 
the integrity of CMS’s procurement process.

Communications between the Administrator and the Center suggested that 
the Administrator’s decision to exclude the Center was limited to the 
RAND task order. However, senior CMS staff understood the 
Administrator’s instructions to exclude the Center to extend to other 
contracting opportunities and thus attempted to limit the involvement 
of the Center in other CMS contracts.  

www.gao.gov/cgi-bin/getrpt?GAO-03-842.

To view the full product, including the scope and methodology, click 
on the link above. For more information, contact Kathryn G. Allen at 
(202) 512-7118.

[End of section]

Contents:

Letter:

Results in Brief:

Background:

CMS Selected RAND Following a Competitive Process but Excluded Proposed 
Subcontractor:

Administrator's Decision to Exclude Center Was Improper:

Efforts to Exclude the Center Extended to Other Contracting 
Opportunities:

Conclusions:

Recommendations for Executive Action:

Agency Comments:

Appendix I: Comments from the Centers for Medicare & Medicaid Services:

Table:

Table 1: Chronology of Key Events in 2002 Relating to Award of Task 
Order to RAND with the Center as a Subcontractor:

Abbreviations:

CAHPS: Consumer Assessment of Health Plans 

CICA: Competition in Contracting Act of 1984 

CMS: Centers for Medicare & Medicaid Services 

FAR: Federal Acquisition Regulation 

HCFA: Health Care Financing Administration 

HHS: Department of Health and Human Services 

NQF: National Quality Forum 

QI: quality indicator 

RFP: request for proposals 

RTI: Research Triangle Institute:

United States General Accounting Office:

Washington, DC 20548:

July 8, 2003:

The Honorable Charles E. Grassley 
Chairman 
Committee on Finance 
United States Senate:

Dear Mr. Chairman:

Since 1997, considerable attention has been focused on the need to 
improve the quality of care in the nation's 17,000 nursing homes. In a 
series of reports and testimonies prepared at your request as the 
Chairman of the Senate Special Committee on Aging, we found significant 
weaknesses in federal and state survey and oversight activities 
designed to detect and correct quality problems in nursing homes. 
Several others have also reported on these problems, including the 
Institute of Medicine and the Office of Inspector General of the 
Department of Health and Human Services (HHS). In 1998, the President 
announced a series of initiatives intended to address many of the 
weaknesses we identified. These initiatives covered several areas, 
including the strengthening of states' periodic surveys of nursing 
homes and improving federal monitoring of state survey activities. Also 
in 1998, the Health Care Financing Administration (HCFA) launched a Web 
site--"Nursing Home Compare"--that has progressively expanded the 
availability of public information on nursing homes and the quality of 
care provided.[Footnote 1] In April 2002, the agency began a pilot 
project to augment the information provided on this Web site to include 
quality indicators (QI) that allow consumers to make comparisons across 
nursing homes. This project was expanded nationwide on November 12, 
2002.

As part of its work to improve the nursing home survey process, in 
September 2002, the Centers for Medicare & Medicaid Services (CMS) 
awarded the RAND Corporation a task order to study the inconsistency in 
nursing home survey results across states, based on a proposal that 
included the University of Wisconsin's Center for Health Systems 
Research & Analysis as a subcontractor.[Footnote 2],[Footnote 3] 
However, CMS also instructed RAND not to subcontract with the Center. 
Allegations were brought to you that CMS had inappropriately directed 
RAND not to retain the Center as a subcontractor in retaliation for 
technical concerns that the Center's Director, who was proposed by RAND 
to be the co-principal investigator for the task order, made about 
CMS's April 2002 nursing home QI initiative. As a result, you asked us 
to examine these allegations. We agreed to examine (1) CMS's selection 
of RAND for this task order, (2) the basis for CMS's decision to 
exclude the Center as a subcontractor, and (3) whether the exclusion of 
the Center extended to other CMS contracts. To do this, we reviewed 
relevant contract files and other key documents. We interviewed CMS 
staff, including the Administrator and one of his Special Assistants, 
the Director and other staff of the Acquisition and Grants Group, the 
Project Officer assigned to this task order, and the Director of the 
Quality Measures and Health Assessment Group. We also interviewed RAND 
contracting and program staff, and University of Wisconsin and Center 
staff, including attorneys, contracting personnel, and the Center's 
Director. We conducted our work from January 2003 through June 2003 in 
accordance with generally accepted government auditing standards.

Results in Brief:

CMS followed a competitive process in selecting RAND, with the Center 
as its subcontractor, for the task order to study inconsistencies in 
the nursing home survey process. However, in our view, the 
Administrator improperly intervened to exclude the Center from the task 
order, thus undermining the integrity of the procurement process at 
CMS. The Center was integral to the RAND proposal, with RAND indicating 
that the Center would perform approximately half of the work, in terms 
of cost, in the first year and about 80 percent--valued at about $1.6 
million--over a 3-year period, if CMS exercised its options to extend 
the task order for 2 additional years. Further, the Center's expertise 
in the nursing home survey area was a key factor in CMS's decision to 
select RAND's proposal over those submitted by two others. However, at 
virtually the same time that CMS awarded this task order, the CMS 
Administrator intervened without a reasonable basis to exclude the 
Center as RAND's subcontractor. The Administrator's decision to exclude 
the Center appears to have been retaliation for the Center Director's 
expressed technical concerns about CMS's project to include nursing 
home QIs on the "Nursing Home Compare" Web site. The Director's 
comments did not affect the QIs CMS used or the timing of the national 
rollout. However, the Administrator characterized the Center Director's 
comments as obstructing the consensus-building process for the QI 
initiative. Senior CMS staff understood the Administrator's 
instructions to exclude the Center to extend beyond the RAND task order 
and thus attempted to limit the involvement of the Center in other CMS 
contracts.

In order to maintain the integrity of CMS's procurement process, we are 
recommending that the Secretary of Health and Human Services take 
appropriate action to remedy the situation. Appropriate remedies could 
include permitting RAND to subcontract with the Center as RAND had 
proposed or reopening the competition for the award of the nursing home 
survey research task order. In addition, we are recommending that the 
Secretary have CMS procurement decisions affecting the Center since 
September 2002 reviewed to ensure that they were supported by a 
reasonable basis. HHS and CMS concurred with our recommendations, 
although CMS disagreed with our conclusion that the Administrator's 
action was improper.

Background:

To facilitate the procurement of services quickly while obtaining the 
advantage of competition, the Federal Acquisition Streamlining Act of 
1994 authorized agencies to award task order contracts to multiple 
sources.[Footnote 4] Task order contracts, which are also referred to 
as "indefinite delivery/indefinite quantity contracts," "umbrella 
contracts," or "master contracts," typically cover a range of services, 
without specifying a fixed statement of work and deliverables. Instead, 
orders are issued for the performance of specific tasks during the 
period of the contract. Agencies using task order contracts are 
required to provide contractors with "a fair opportunity to be 
considered" in the award of the individual task orders issued to meet 
agency needs. The Federal Acquisition Regulation (FAR) gives 
procurement officials broad latitude in administering the "fair 
consideration" process. The FAR requires them to consider price or cost 
as one factor in the selection process; it also suggests that other 
factors relevant to the award of a specific task order, such as past 
performance, quality of deliverables, and cost control, be taken into 
consideration.[Footnote 5] CMS's Office of Research, Development, and 
Information is responsible for coordinating the agency's multiple-award 
task order contracts, which the agency refers to as "master contracts," 
while its Acquisition and Grants Group is responsible for awarding 
these contracts as well as subsequent task orders.

On February 24, 2000, HCFA issued a solicitation for master contracts 
in five specialty research areas related to Medicare and 
Medicaid.[Footnote 6] Fourteen contractors, including RAND and the 
Center, were awarded master contracts in the specialty area of 
"Medicare Research and Demonstrations." The master contracts provided 
that contractors would be awarded at least $25,000 over the term of the 
contract, including options. The master contracts also provided that 
task orders would be awarded following a competitive process limited to 
the 14 contractors.

On July 12, 2002, CMS sent a request for proposals (RFP) to the 14 
contractors for a task order to study the inconsistency across states 
in the nursing home survey process. Under contract with CMS, states are 
required to conduct periodic surveys of nursing homes that participate 
in Medicare and Medicaid to determine whether care and services meet 
the assessed needs of the residents and whether homes are in compliance 
with federal quality requirements, such as those regarding the 
prevention of avoidable pressure sores, weight loss, or accidents. 
Surveys must be conducted at each home on average every 12 months and 
no less than once every 15 months. During a nursing home survey, a 
state survey team that includes registered nurses spends several days 
at a home reviewing the quality of care provided to a sample of 
residents. Any deficiencies identified during routine surveys are 
classified according to the number of residents potentially or actually 
affected and their severity. Previous research has demonstrated 
considerable differences among states in terms of survey findings.

The Center, which is one of the 14 master contract holders, has worked 
with CMS and other entities to conduct research on a range of health 
care issues, particularly in the area of nursing homes and the 
regulatory survey process. Over the past 15 years, the Center has been 
a prime contractor or subcontractor on 20 individual agency projects 
whose value to the Center totals over $41 million.[Footnote 
7],[Footnote 8] Beginning in 1994, the Center assisted the agency in 
its efforts to (1) monitor the implementation of a revised long-term 
care survey process and (2) identify possible reasons for variations in 
survey findings among states.[Footnote 9] The Center's survey work on 
this project was discussed in a July 1998 HCFA report to Congress and 
helped reveal a general problem of underidentification of regulatory 
deficiencies in nursing homes.[Footnote 10]

The Center has a particularly extensive background in the development 
and use of QIs for nursing homes, which are essentially numeric warning 
signs of potential care problems, such as greater-than-expected 
instances of weight loss, dehydration, or pressure sores among a 
nursing home's residents. HCFA began contracting with the Center in 
1988 to develop, test, and implement QIs as a way to improve the rigor 
of the survey process. As part of this effort, the Center developed a 
national automated system to provide to states and to HCFA assessment 
information on every nursing home resident in the United 
States.[Footnote 11]

CMS recently undertook an effort to publicly report nursing home QIs on 
the agency's "Nursing Home Compare" Web site. This effort, which began 
in April 2002 with a pilot program in six states and was expanded 
nationwide on November 12, 2002, is intended to help consumers choose a 
nursing home. To develop and help select the QIs for this initiative, 
CMS contracted with two organizations with expertise in health care 
data and quality measurement--Abt Associates, Inc., and the National 
Quality Forum (NQF).[Footnote 12] Abt identified a list of potential 
QIs--including some of those developed by the Center--as being suitable 
for public reporting, and NQF was tasked with reviewing Abt's work and 
making recommendations to CMS regarding the QIs for the pilot and 
national implementation. To accomplish this task, NQF established a 12-
member steering committee, which included the Center's 
Director.[Footnote 13]

The NQF Steering Committee differed with CMS on several aspects of the 
agency's QI initiative, including the risk-adjustment methodology, 
selection of QIs, and the time frame for publishing the data.[Footnote 
14] For example, NQF concluded that some of the QIs required further 
review and that CMS's QI initiative would have benefited from a 
postponement of 3 to 4 months. We also evaluated CMS's QI initiative, 
and on October 31, 2002, reported that its plan to publicly report QI 
data had considerable merit.[Footnote 15] However, we also raised 
concerns about the agency's moving forward with its initiative without 
resolving a number of important open issues on the appropriateness of 
the QIs chosen for national reporting and the accuracy of the 
underlying data. For example, CMS planned to proceed with the national 
rollout without waiting for the advice it sought on the QIs from 
NQF.[Footnote 16] In addition, we reported that CMS's planned November 
2002 implementation did not allow sufficient time to ensure that the 
indicators it published were appropriate and useful to consumers. We 
recommended that the CMS Administrator delay the initiative to resolve 
outstanding issues and thoroughly evaluate the results of the six-state 
pilot. Such a delay, we concluded, would allow CMS to assess both how 
the information should be presented and how it could improve assistance 
to consumers. CMS implemented its QI initiative in November 2002 as 
planned but committed to continually improve the QIs and to work to 
resolve the issues discussed in our report.

CMS Selected RAND Following a Competitive Process but Excluded Proposed 
Subcontractor:

CMS followed a competitive process in awarding a task order for nursing 
home survey inconsistency research work to RAND under the Medicare 
Research and Demonstrations master contract. RAND's proposal, which 
explicitly included the Center as a subcontractor, outlined a plan in 
which the Center would perform approximately half of the work, in terms 
of cost, in the first year and about 80 percent over a 3-year period, 
if the government exercised the options of extending the task order for 
2 additional years. On the basis of four criteria---statement of the 
problem and technical approach, personnel and experience, management 
plan, and past performance---CMS awarded the task order to RAND on 
September 27, 2002. At virtually the same time, however, the CMS 
Administrator instructed agency staff to inform RAND that it could not 
subcontract with the Center. RAND continues to believe that the Center 
is the most qualified subcontractor available and as of June 23, 2003, 
had not conducted any substantive work under the CMS task order.

CMS Followed a Competitive Process to Select the Proposal Submitted by 
RAND:

CMS issued an RFP on July 12, 2002, to the 14 holders of Medicare 
Research and Demonstrations master contracts for a project to assess 
inconsistencies in the application of the nursing home survey process 
across states and to develop specific policy and programmatic options 
for improvement.[Footnote 17] To improve survey consistency among 
states, the RFP listed four objectives for the task order: (1) 
distinguish variability in the survey measurement findings that is 
appropriate (that is, the result of real quality variations among 
nursing homes) from variability that is inappropriate (that is, the 
result of surveyor inconsistency), (2) identify the aspects of survey 
inconsistency that are cited by key stakeholders, (3) identify the most 
important causes of inconsistency, and (4) develop policy and 
programmatic options for improvement. The RFP specifically identified 
the need for a major fieldwork effort to collect primary data to 
compare state survey team decisions with those of an independent and 
expertly qualified research team.[Footnote 18] Proposals were to be 
evaluated on the basis of four criteria, with a total possible score of 
100. These criteria and their associated point totals were (1) 
statement of the problem and quality of technical approach (35 points), 
(2) personnel and experience (30 points), (3) management plan and 
facilities (10 points), and (4) past performance (25 points). The RFP 
specifically included subcontractors among those whose background, 
experience, and accomplishments would be reviewed as part of the 
evaluation process.

Three of the 14 eligible entities submitted proposals to CMS, including 
RAND with the Center as its subcontractor. RAND's proposal was prepared 
jointly with the Center and was premised on collaboration between RAND 
and the Center during the project. Center staff were to conduct the 
majority of the fieldwork, relying on their researchers' survey 
experience. RAND indicated that the Center would perform approximately 
50 percent of the work in terms of cost during the first year. If CMS 
decided to exercise its options for years 2 and 3, RAND estimated the 
total cost of its proposal at $2.0 million, of which the Center was 
expected to receive about $1.6 million. The tasks to be performed 
during the first year consisted largely of design preparation 
activities, with major fieldwork efforts and report writing occurring 
during the option years.

A review panel, composed of CMS staff with different areas of expertise 
and chaired by the Project Officer for this task order, was convened to 
evaluate the three submitted proposals based on the four criteria 
described above. To assign scores in the first three areas--statement 
of the problem and technical approach, personnel and experience, and 
management plan--panel members generally relied on information 
contained in the proposals. With respect to past performance, the RFP 
instructions required each offeror to submit a list of recent and 
related projects with CMS and other entities, and the Project Officer 
gathered past performance data on some of these projects by asking 
panel members and other individuals familiar with the offerors to 
complete a survey. The results of these surveys, as well as comments 
solicited from others who had worked with each of the offerors in the 
past, were shared and discussed by the panel, after which the 
individual panel members assigned a past performance score to each 
offeror. On the basis of its initial evaluation, the panel found each 
of the three submitted proposals to be acceptable.

The review panel chair then sent a series of questions to the three 
offerors to gain additional information about their proposals. The 
three entities responded to these questions, submitting their best and 
final offers. RAND's best and final offer proposed that the Center 
would perform more than 50 percent of the work during the first year, 
in terms of cost. The same panel again met to evaluate and score the 
best and final offers, and the RAND proposal received the highest 
number of points. The panel members specifically cited the Center's 
expertise in the area, particularly among its surveyors, as a reason 
for RAND's high score. CMS sent a letter to RAND on September 26, 2002, 
to notify the firm of its selection, and the CMS Contracting Officer 
signed the task order to RAND for $248,355 on September 27, 2002. The 
task order stated that "[c]onsent is hereby given" for a subcontract to 
the Center and expressly provided for the Center to receive 
$134,706.[Footnote 19]

CMS Administrator Intervened to Exclude Subcontractor:

At virtually the same time that CMS awarded the task order to RAND, the 
CMS Administrator, who told us he had received advice that he had the 
legal authority to do so, directed staff from the Acquisition and 
Grants Group to inform RAND that it could not subcontract with the 
Center. Accordingly, on September 27, 2002, the same day that CMS 
awarded the task order to RAND, a CMS contract specialist left a 
voicemail message with RAND's Contract and Grant Administrator, with 
the following instructions:[Footnote 20]

…[The] subcontract with University of Wisconsin…must be deleted at this 
time from your task order….I'm not sure exactly what the issues are but 
upper management has directed us not to award any…contracts or 
subcontracts with the University of Wisconsin until further notice.

An e-mail message dated September 26, 2002, from the Director of CMS's 
Acquisition and Grants Group to a Special Assistant to the 
Administrator demonstrates that CMS was contemplating this action 
before the award was made:

I just wanted to confirm our discussion last night….We are also going 
to award the Rand contract under which Wisconsin is a subcontractor. 
However, we can explore the possibility of requesting that Rand remove 
Wisconsin as a subcontractor after award.

The Center's Director, who learned of the agency's action from RAND on 
October 8, 2002, attempted to determine the status of the Center's role 
on the task order first through telephone calls to officials in CMS's 
Acquisition and Grants Group and then through e-mail communications 
with the Administrator. The Center's Director met with the 
Administrator and one of his Special Assistants on October 18, 2002. 
Although the Director and the Administrator both characterized the 
meeting as productive, on October 22, 2002, the Administrator sent an 
e-mail message to the Center's Director, reiterating his decision to 
direct RAND not to use the Center as a subcontractor. The University's 
Vice Chancellor for Research and Dean of the Graduate School sent a 
letter to the CMS Administrator on November 15, 2002, asking for the 
rationale for the agency's action.[Footnote 21] On December 4, 2002, 
the University filed a bid protest with GAO's Procurement Law Group 
requesting that CMS be required to rescind its order to RAND barring 
the Center as a subcontractor.[Footnote 22] However, GAO dismissed the 
bid protest on December 16, 2002, explaining that (1) it does not 
consider protests from subcontractors, and (2) the protest was not 
submitted within the appropriate time frame.[Footnote 23] On December 
18, 2002, CMS modified the RAND task order and formally withdrew its 
consent for the Center as a subcontractor. (Table 1 contains a summary 
of the dates on which these and other related events occurred.):

Table 1: Chronology of Key Events in 2002 Relating to Award of Task 
Order to RAND with the Center as a Subcontractor:

July; Date: July 12; Action: CMS sends RFP to 14 contractors.

August: 

Date: Aug. 8; Action: Three offerors submit proposals in 
response to the RFP. RAND proposes to use the Center as a 
subcontractor.

Aug. 20; Action: September: CMS panel conducts initial 
review of proposals.

September:

Date: Sept. 6-10; Action: CMS conducts discussions with 
three offerors and requests best and final offers.

Sept. 17; Action: CMS panel reviews best and final offers. 
Panel recommends RAND for award.

Sept. 26; Action: CMS sends letter to RAND stating that it 
had been selected for the task order. RAND signs the task order and 
sends it to CMS.

Sept. 27; Action: CMS signs the task order and instructs RAND 
not to subcontract with the Center.

Sept. 30; Action: October: At the request of CMS, RAND 
sends two e-mails to CMS indicating that RAND will not subcontract with 
the Center.

October:

Date: Oct. 7; Action: CMS Project Officer, unaware of the 
decision regarding the Center, e-mails Center's Director reiterating 
that RAND has been awarded the task order.

Oct. 10; Action: Center's Director e-mails CMS Project 
Officer that RAND has been instructed by CMS not to subcontract with 
the Center.

Oct. 14-17; Action: CMS Administrator and Center's Director 
exchange e-mails regarding the basis for the Administrator's decision 
to exclude the Center from the RAND task order.

Oct. 18; Action: CMS Administrator and a Special Assistant 
meet with Center's Director to discuss CMS decision about the Center.

Oct. 22; Action: Center's Director e-mails CMS Administrator 
and a Special Assistant as a follow-up to meeting and asks about moving 
forward on project; CMS Administrator e-mails Center's Director that he 
is not changing his mind about the Center as a subcontractor.

Oct. 23; Action: Center's Director e-mails CMS Administrator 
to ask why he refuses to reverse his decision.

Oct. 25; Action: November: CMS Administrator e-mails 
Center's Director indicating no change in his decision.

November: 

Date: Nov. 15; Action: University sends a letter to CMS 
Administrator requesting clarification of his decision. CMS did not 
respond.

December: 

Date: Dec. 4; Action: University files bid protest with GAO.

Dec. 16; Action: GAO dismisses bid protest without addressing 
issues presented.

Dec. 18; Action: CMS signs a task order 
modification withdrawing its consent for the Center as a subcontractor 
and the Center's Director as the co-principal investigator.

Sources: HHS, RAND, and University of Wisconsin.

[End of table]

Task Order Work on Hold 8 Months After Award:

Given the uncertainty surrounding the use of the Center as its 
subcontractor, RAND had not conducted any substantive work under the 
task order as of June 23, 2003, over 8 months after the task order was 
awarded. RAND officials told us that they had initially perceived that 
concerns about the Center's participation would be quickly resolved, 
with the Center reinstated as the subcontractor. As a result, RAND's 
response for several months was to request extensions from CMS on 
performing the work. On February 25, 2003, however, an official from 
CMS's Acquisition and Grants Group requested that RAND provide the 
agency with a course of action for performing the work without the 
Center. RAND provided CMS with three options on March 14, 2003, all of 
which envisioned RAND performing as the prime contractor but 
potentially using another subcontractor. RAND's letter emphasized that 
it continued to believe that the Center was the most qualified 
subcontractor and that the options were only to be used if CMS 
continued to withhold its consent for the Center. On May 15, 2003, CMS 
asked RAND to delay its work under this task order until we had 
completed our investigation. However, on June 12, 2003, CMS's 
Acquisition and Grants Group sent a letter to RAND requesting the 
termination of the task order by mutual consent. On June 19, 2003, RAND 
responded that it agreed with the agency's earlier suggestion to wait 
for our report before taking further action.

Administrator's Decision to Exclude Center Was Improper:

The Administrator informed us that a number of factors supported his 
exclusion of the Center from the RAND task order. First, he stated that 
the "subcontract consent" clause in the master contract authorized CMS 
to direct RAND not to use the Center as a subcontractor. A second 
factor the Administrator identified was the desire to award work to 
"new" contractors with "fresh" approaches and ideas in areas such as 
nursing home survey and certification. Third, the Administrator told us 
that he and his staff had assessed the Center's performance on a number 
of ongoing CMS task orders and determined that the Center had performed 
poorly on several of them, especially those related to nursing home 
survey and certification. Finally, the Administrator stated that during 
the development and implementation of the nursing home QI initiative, 
the Center's Director had worked against consensus and was unwilling to 
compromise, which generated significant problems for the agency. We 
have reviewed each of the reasons provided by the Administrator and 
conclude that, in light of the evidence, the Administrator did not have 
a reasonable basis to direct RAND not to subcontract with the 
Center.[Footnote 24] Rather, the Administrator's decision appears to 
have been in retaliation for the Director's comments on CMS's QI 
initiative. As a result, we believe that the Administrator's action was 
improper.

Neither the Subcontract Consent Clause Nor CMS's Interest in New 
Contractors Provided a Reasonable Basis for the Administrator's 
Decision:

Two of the reasons cited by the Administrator--the subcontract consent 
clause and a desire to obtain work from new contractors--do not provide 
reasonable bases for excluding the Center from the RAND task order. The 
Administrator's reliance on the subcontract consent clause is 
inappropriate because the task order award was largely based on the 
integral role of the Center in the work to be performed. Further, both 
the use of a task order competition limited to the 14 holders of master 
contracts and the RFP for this task order undermine the Administrator's 
second reason--an interest in working with new contractors.

Subcontract Consent Clause:

The Administrator asserted that the subcontract consent clause 
contained in the master contract authorized him to disapprove RAND's 
use of the Center as a subcontractor under the task order. The 
subcontract consent clause requires the contracting officer to review 
requests for approval of subcontractors submitted by a prime contractor 
and advise the contractor of the agency's approval or disapproval in 
writing. While a subcontract consent clause generally provides an 
agency with broad authority to accept or reject proposed 
subcontractors, the Administrator's reliance on the clause in this 
context is inappropriate for a number of reasons.

As a preliminary matter, the subcontract consent clause cited by the 
Administrator is typically applicable after contract award, as a matter 
of contract administration, rather than at contract award.[Footnote 25] 
Here, the Administrator's decision to exclude the Center as a 
subcontractor related to the award of the task order, rather than to 
CMS's administration of the task order. RAND had identified the Center 
as a subcontractor in the proposal it submitted to CMS, and the 
Administrator required RAND to remove the Center at essentially the 
same time as CMS awarded the task order to RAND.

More importantly, even if the subcontract consent clause was 
applicable, the Administrator's exercise of his authority under this 
clause was not reasonable. CMS selected RAND in large part because of 
the strengths of its proposed subcontractor, after reviewing the 
Center's past performance, the role it would have under the task order, 
and the time Center personnel would devote to the project. Moreover, 
the agency consented to the RAND subcontract with the Center in the 
task order itself, explicitly endorsing this element of the RAND 
proposal. If the Administrator acted properly in excluding the Center-
-which we do not believe is the case--the award to RAND would no longer 
be supported because it was largely based on RAND's subcontract with 
the Center.[Footnote 26]

Agency's Interest in New Contractors:

Given the terms of the solicitation, the Administrator's stated 
preference for CMS to work with new contractors with fresh approaches 
to the nursing home survey and certification area did not provide a 
reasonable basis for his decision to exclude the Center as a 
subcontractor. The solicitation did not state that being new to the 
area of nursing home quality review was a selection criterion. To the 
contrary, the competition for the nursing home research task order was 
limited to the 14 entities that were eligible to compete under the 
master contract.[Footnote 27] In addition, much of the solicitation's 
discussion of the agency's need for work in this area was based on the 
Center's prior efforts, which were repeatedly referenced. If the 
Administrator believed there was a need to involve "new" researchers in 
the nursing home survey and certification work, he could have directed 
agency officials to amend the solicitation to reflect this criterion 
and request revised proposals.

Assertion of Center's Poor Past Performance Not Supported:

The evidence also does not support the Administrator's statement that 
poor past performance by the Center justified his decision to exclude 
it from the RAND task order. As noted above, "past performance" and 
"personnel and experience" accounted for 25 and 30 percent, 
respectively, of the evaluation score, and officials from CMS's 
Acquisition and Grants Group told us that information about the past 
performance of a contractor or subcontractor--either positive or 
negative--would be in the contract file. Our review of the file for 
this task order, however, shows no record of poor past performance by 
the Center. The scores that the RAND proposal received for both of 
these criteria were high, and the contract file included several 
examples of the Center's strong past performance and unique 
qualifications. CMS acquisition and grants and program staff we 
interviewed also were not aware of any documentation suggesting poor 
performance by the Center. The selection panel assessed the Center's 
past performance as very satisfactory and pointed to the central role 
of its staff in the proposed fieldwork as a key factor in the decision 
to award the task order to RAND. In response to one offeror's post-
award request for information about weaknesses in its proposal, CMS 
officials identified the absence of staff with extensive survey 
experience, like that of the Center.

Our review of other sources of performance information also yielded a 
high level of praise for the Center's prior work. For example, as part 
of the agency's review of proposals for its 2000 master contract, CMS 
requested evaluations from managers in CMS and other entities on 
projects that were either ongoing or completed within the past 3 years. 
CMS staff collected 18 such past performance evaluations for the Center 
on a mix of CMS and non-CMS projects.[Footnote 28] For these 
evaluations, reviewers rated the Center in six categories, including 
performance. The majority of evaluations completed for the Center were 
positive. While a few of the reviewers gave the Center lower scores in 
some categories than in others, all but one indicated on the evaluation 
that they would contract with the Center again. The remaining reviewer 
gave an "unsure" response.

In addition, the Administrator's assessment of the Center's performance 
on ongoing projects as a prime contractor or a subcontractor is not 
persuasive and therefore does not support his assertion that the 
Center's past performance was poor. This assessment, which was 
documented in an e-mail message dated February 4, 2003, from a Special 
Assistant to the Administrator to senior CMS contracting and other 
officials--over 4 months after the decision was made to exclude the 
Center as a subcontractor--contains an unsupported statement that most 
of the work managed by the Center "did not produce favorable results." 
For the six task orders cited in this assessment, the vast majority of 
the funds--about 83 percent--were directed to two task orders in which 
the Administrator determined that the Center performed well.[Footnote 
29] With respect to the remaining four projects, the assessment 
characterizes the Center's performance as poor but does not provide 
specific examples of poor performance. For example, in reference to the 
Center's work on two survey and certification task orders, the 
assessment states that "this program/process [survey and certification] 
has been very problematic for CMS…. [I]t continues to be an area that 
generates great concern…. This doesn't mean that all of the problems 
are the responsibility of this contractor - but CMS would certainly 
benefit from a fresh approach - old ideas from this contractor and 
others are not working." The assessment does not go on to specify 
examples of the Center's poor performance on the projects and does not 
explain why the Center, which is one of several contractors to have 
performed work in the area, would be responsible for weaknesses in the 
nursing home survey and certification process.[Footnote 30] The 
assessment also does not explain why the other contractors involved in 
the nursing home survey process were not excluded from survey-related 
task orders on a similar basis.

The Administrator's negative view of the Center's work on these four 
task orders identified in the summary assessment document also is not 
consistent with the master contract performance evaluations completed 
by CMS project managers, who a CMS official said are in the best 
position to comment on the performance of a contractor. For example, 
with respect to the two survey and certification projects referred to 
above, the respective CMS project officers gave high marks to the 
Center in all applicable categories on the performance evaluations. 
While there are some negative statements, most of the other documents 
related to these four task orders are positive.

The Administrator's October 17, 2002, e-mail message to the Center's 
Director also contradicts his assertion that the Center's past 
performance was poor. In this e-mail message, the Administrator stated, 
in part:

I am sure your work with us will continue…. If you do good work--as you 
apparently do--and deal with us fairly--you will get the same treatment 
from me.

Evidence Suggests that Administrator's Decision Was Retaliation for the 
Center Director's Comments on QI Initiative:

The evidence suggests that the Administrator's decision to exclude the 
Center from the RAND task order was in retaliation for the Center 
Director's comments about CMS's nursing home QI initiative, including 
the Director's provision of technical information that we requested 
during our review of the effort. Although these comments did not affect 
the QIs CMS used or the timing of the national rollout, the Center's 
Director was perceived by the Administrator as obstructing the 
consensus-building process for the QI initiative by being unwilling to 
compromise. Having received advice that he had the legal authority to 
exclude the Center from the RAND task order and understanding (although 
erroneously) that the task order was valued at $30,000, the 
Administrator directed CMS staff to exclude the Center. Acknowledging 
that he was not familiar with the agency's contracting process, the 
Administrator told us he believed it was appropriate for him to 
intervene in this instance given the Center Director's position on the 
QI initiative. Regardless of the merit of the Administrator's view of 
the Center's Director and concerns about the Director's capacity to 
build consensus, the Administrator was not authorized to effectively 
change the proposal on which the award to RAND had been based. As 
explained earlier, the award to RAND was no longer supported once the 
Administrator excluded RAND's proposed subcontractor.

The Administrator's frustration with the Center's Director regarding 
the QI project is demonstrated in e-mail exchanges between the two. For 
example, in an e-mail message on October 16, 2002, referring to the QI 
initiative, the Administrator wrote:

…Your problem with the agency is me--and I have discussed that with the 
Secretary at some length. I am happy to talk to you--but if you want to 
continue to yank my chain--I will continue to disconnect you from this 
agency. And I am happy to discuss this in front of the Secretary, 
either of your Senators--or anyone you like. There is no entitlement to 
government contracts--especially when you try to sandbag the agency you 
contract with--and I have NO doubt they would all agree with me if I 
have to discuss it in more detail.

When asked by the Center's Director on October 17, 2002, why the Center 
was excluded from the RAND task order, the Administrator responded, in 
part:

I gave you every shot in the world to get your views in…. We have 
worked hard to build that consensus in the last year, and are not 
interested in having it erode before the November 12th publication…. 
You were part of a fair, thorough and unbiased process. I don't think 
it is too much to ask the participants in that process not to rip it 
apart when it is put in place. The RAND subcontract is a very very 
small part of your work. I am sure your work with us will continue. But 
the government has no requirement to contract with anyone.

The timing of certain events relating to the Administrator's decision 
to exclude the Center from the RAND task order and the involvement of 
the Center's Director in commenting on the QI initiative further 
suggest that the Administrator's directive was retaliatory in nature. 
For example, on September 25, 2002--roughly 6 weeks before the national 
rollout and 2 days before the task order award--the Center's Director 
met with CMS's Project Director for the QI initiative, at which time 
the Center's Director provided a position paper that identified several 
technical issues that he believed the agency needed to address prior to 
the national implementation. Although the CMS official characterized 
the meeting as productive, she also told us that CMS and the Center's 
Director had a fundamental disagreement over certain technical aspects 
of the initiative, and she believed that the Center's Director would 
not be satisfied unless CMS changed course and included the QIs that 
the Center's Director supported in its public reporting program. On the 
same day as this meeting, September 25, 2002, this CMS official 
contacted a Special Assistant to the Administrator to brief him on the 
substance of the discussion. The same evening, the Special Assistant 
and the Director of CMS's Acquisition and Grants Group also discussed 
the status of the RAND contract and the possibility of excluding the 
Center, which occurred 2 days later on September 27, 2002.

Efforts to Exclude the Center Extended to Other Contracting 
Opportunities:

Although communications between the Administrator and the Center 
suggested that the Administrator's decision to exclude the Center was 
limited to the RAND task order, other evidence we reviewed indicated 
that senior CMS officials intended to exclude the Center from other CMS 
contracting opportunities based on their understanding of the 
Administrator's direction. Most notably, internal CMS communications 
suggest that agency officials had essentially barred the Center from 
participating as a prime or subcontractor on other task orders. 
However, CMS's treatment of the Center under other task orders has 
varied since its exclusion from the RAND task order. While CMS denied a 
request submitted in December 2002 to provide additional funds to the 
Center as a subcontractor, the agency recently decided to exercise an 
option to extend another task order on which the Center is the prime 
contractor.

Staff Understood Instructions to Exclude the Center to Extend to Other 
CMS Contracting Opportunities:

On January 30, 2003, CMS sent a letter to the Center advising it that 
the agency and the Center no longer had a contractual relationship 
because of the Center's insistence on certain changes to the master 
contract that CMS considered unacceptable.[Footnote 31] As a result, 
the Center was no longer eligible to compete for task orders issued 
under the master contract. Center officials told us that they were 
surprised and confused by CMS's letter since they believed that their 
concerns regarding the master contract had been resolved. Therefore, 
the Center requested clarification in a February 7, 2003, letter to 
CMS. On April 30, 2003, CMS advised the Center that it continued to 
find the Center's proposed changes unacceptable, but offered to 
reinstate the Center's master contract under the original terms.

Regardless of the dispute concerning the master contract, a January 29, 
2003, internal CMS e-mail message suggests that the Center would not 
have been considered for task order awards despite the existence of a 
contractual relationship with CMS. Describing the context in which the 
ongoing dispute between the Center and CMS had arisen, the Director of 
CMS's Acquisition and Grants Group wrote to a Special Assistant to the 
Administrator, in part:

In September, we sent [the Center] a modification to extend its current 
[master] contract for Medicare research activities. We have no 
intention of awarding it work under the contract based upon [the 
Administrator's] instructions. But, we felt we had to exercise the 
option to extend the base contract for legal reasons.

Earlier e-mail and voicemail messages also suggest that, as a practical 
matter, the Center had been barred from serving as a prime contractor 
for task orders under the master contract as well as a subcontractor to 
other entities. For example, the Director of CMS's Acquisition and 
Grants Group e-mailed the following direction concerning the Center to 
some of his staff in November 2002:

…The Administrator's Office has directed us not to make awards to [the 
Center]…. If [the Center] is the apparent successful offeror for any 
competed task order, do not make an award until we have had the chance 
to raise the matter with the Office of the Administrator….

In the same e-mail message, the Director of CMS's Acquisition and 
Grants Group also directed a senior member of his staff to pursue 
acquisition strategies, including competing work under other master 
contracts and awarding task orders to small businesses, designed to 
limit the Center's participation in CMS procurements. A later internal 
e-mail message emphasized that the instructions regarding awards to the 
Center extended to subcontracts and funding transfers as well.

An intent to exclude the Center from CMS procurements could constitute 
an improper de facto debarment.[Footnote 32] A de facto debarment 
occurs when an agency excludes a potential contractor from government 
contracting or subcontracting without following the procedures set 
forth in the FAR, which requires agencies to notify contractors of the 
reasons for proposed debarments and provide them with an opportunity to 
respond.[Footnote 33] During the course of our review, we found no 
evidence that the agency had followed these procedures with respect to 
the Center.

CMS's Treatment of Center on Other Task Orders Varied:

CMS's unfavorable treatment of the Center was apparent in another CMS 
task order under a separate master contract where the Center is one of 
four subcontractors to the Research Triangle Institute (RTI).[Footnote 
34] In this project, the Center and another subcontractor are charged 
with leading a multiphase project to test and implement the use of QIs 
in the long-term care survey process.[Footnote 35] The Center's 
Director is the principal investigator on the Center's subcontract with 
RTI. In late December 2002, the Project Officer for this task order 
submitted a request to adjust subcontractor funding levels, including a 
relatively small addition for the Center.[Footnote 36] This request was 
not approved by CMS's Acquisition and Grants Group, based on the 
staff's understanding of the Administrator's instructions regarding the 
Center. A CMS official confirmed that there were no additional reasons 
the request was not approved, and when the reference to the Center was 
deleted, the request, which included additional adjustments to other 
subcontractor funding levels, was approved.

On June 9, 2003, the Director of CMS's Acquisition and Grants Group 
told us that CMS had recently decided to exercise an option to extend a 
task order on which the Center is the prime contractor but which does 
not involve the Center's Director.[Footnote 37] The extension through 
September 30, 2004, is valued at $3.3 million, with the overall task 
order valued at approximately $15.6 million. A task order modification 
for this extension was provided to the Center for signature on May 29, 
2003. A CMS official told us that the agency would sign the 
modification once it receives a signed copy from the Center.

Conclusions:

Consistent with the "fair consideration" requirements of the Federal 
Acquisition Streamlining Act of 1994 and the terms of the master 
contract, CMS conducted a competitive process for the award of a task 
order for nursing home survey work. Although the resulting award to 
RAND was based largely on the identity and past performance of its 
proposed subcontractor--the Center--the Administrator intervened in 
the procurement by directing RAND to exclude the Center from serving as 
a subcontractor. The Administrator's action was not supported by any 
reasonable basis, including a reasonable exercise of authority under 
the subcontract consent clause contained in the master contract. 
Rather, the action appears to have been taken in retaliation for the 
Center Director's technical concerns about another CMS initiative. The 
Administrator's action thus was improper and undermined the integrity 
of the procurement process at CMS. Moreover, the Administrator's 
exclusion of the Center was understood by senior CMS officials to 
extend to other CMS procurements in which the Center might play a role 
as a prime contractor or subcontractor.

Recommendations for Executive Action:

In order to maintain the integrity of CMS's procurement process, we 
recommend that the Secretary of Health and Human Services take 
appropriate action to remedy the Administrator's improper decision to 
exclude the Center from the RAND task order. Such a remedy could 
include permitting RAND to subcontract with the Center as RAND had 
proposed or reopening the competition for the award of the nursing home 
survey research task order. We further recommend that the Secretary 
have CMS procurement decisions affecting the Center since September 
2002 reviewed to ensure that they were supported by a reasonable basis.

Agency Comments:

We provided a draft of this report to the Secretary of Health and Human 
Services and the Administrator of CMS, as well as relevant excerpts to 
RAND and the University of Wisconsin. The Office of the Secretary 
provided oral comments and CMS provided written comments (reproduced in 
app. I). RAND and the University of Wisconsin provided technical 
comments, which we incorporated as appropriate.

In its written comments, CMS disagreed with our conclusion that the 
Administrator's decision to exclude the Center as a subcontractor from 
the RAND task order was improper and undermined the integrity of CMS's 
procurement process. CMS asserted that the Administrator had a 
reasonable basis to instruct RAND not to subcontract with the Center, 
reiterating the reasons described earlier in this report without 
providing any new information. For example, CMS restated the view that 
the Center's past performance on nursing home survey and certification 
initiatives was problematic. We did not find evidence to support this 
view. Rather, the evidence pointed to a record of strong performance in 
this area. Nonetheless, CMS concurred with our recommendation 
concerning the need to take action to remedy the situation with regard 
to the Center's exclusion from the RAND task order award. CMS commented 
that the Administrator acknowledged that the subcontractor work under 
the RAND task order may have been more significant than he had 
initially understood and stated that the issue may be best rectified by 
recompeting the work, with the clear expectation that the agency is 
looking for new ideas with a strong results orientation. According to 
the written comments, the Administrator has directed staff to rebid the 
work as quickly as possible. Any such solicitation must include the 
actual selection criteria that CMS intends to apply.

In oral comments, the Office of the Secretary concurred with our 
recommendation concerning the need to review CMS procurement decisions 
affecting the Center since September 2002. We were informed that the 
Assistant Secretary for Administration and Management will perform an 
independent review of all CMS procurement activities involving the 
Center. In its comments, CMS emphasized that the Administrator did not 
intend for his decision concerning the Center on the RAND task order to 
extend to other work for CMS and that, upon learning of this 
possibility, the Administrator took immediate action instructing 
appropriate staff to "set the record straight." CMS said the Center is 
to be treated no better or worse than any other prospective contractor, 
with a completely level playing field for all contractors that want to 
offer new ideas to improve the nursing home survey and certification 
process.

As agreed with your office, unless you publicly announce its contents 
earlier, we plan no further distribution of this report until 30 days 
after its issue date. At that time, we will send copies of this report 
to the Secretary of Health and Human Services, the Administrator of 
CMS, and appropriate congressional committees. We will also make copies 
available to others upon request. In addition, the report will be 
available at no charge on the GAO Web site at http://www.gao.gov.

If you or your staff have any questions, please call Kathryn G. Allen 
at (202) 512-7118. Major contributors to this report include Susan 
Anthony, Helen T. Desaulniers, Laura Sutton Elsberg, and Behn M. Kelly.

Sincerely yours,

Kathryn G. Allen 

Director, Health Care--Medicaid and Private Insurance Issues:

Dayna K. Shah 

Associate General Counsel:

Signed by Kathryn G. Allen and Dayna K. Shah: 

[End of section]

Appendix I: Comments from the Centers for Medicare & Medicaid 
Services:

DEPARTMENT OF HEALTH & HUMAN SERVICES:

Centers for Medicare & Medicaid Services office of strategic 
Operations and Regulatory Affairs:

200 Independence Avenue SW:

Washington, DC 20201:

DATE: JUN 25 2003:

TO: Kathryn G. Allen:

General Accounting Office Director, Health Care-Medicaid And Private 
Health Insurance Issues:

FROM: Jacquelyn Y. White:

Office of Strategic Operations and Regulatory Affairs:

SUBJECT: General Accounting Office (GAO) Draft Report, CMS CONTRACTING: 
Issues Concerning Administrator's Decision to Exclude Subcontractor 
(GAO-03-842):

We appreciate the opportunity to review and offer comments on the 
above-referenced report. The Centers for Medicare & Medicaid Services 
(CMS) is the agency that purchases healthcare for 40 million Medicare 
beneficiaries, and partners with states to purchase healthcare for 
another 40 million people with Medicaid. As such, we take very 
seriously our charge to assure that we use every strategy available to 
us so that taxpayer dollars are used to finance continued improvements 
in the quality of healthcare.

The report deals with an issue very important to CMS and the American 
public - the Nursing Home Quality Initiative (NHQI) - and specifically 
about CMS's actions in dealing with a contractor who was part of an 
effort to improve the survey and certification process. We believe the 
quality measurement information we are sharing with the public and the 
provider community is reliable, valid, accurate, and useful. The CMS is 
committed to continually improving the quality measures and working to 
resolve the issues discussed in GAO's report Nursing Homes: Public 
Reporting of Quality Indicators Has Merit, But National Implementation 
Is Premature, (GAO-03-187). This contract, to study inconsistencies in 
nursing home survey results is also related to the agency's overall 
efforts to improve quality throughout the nursing home industry.

In the subject report GAO examined the actions taken by the CMS 
Administrator regarding a contract awarded to the RAND Corporation in 
September 2002, specifically as regards the subcontract to the 
University of Wisconsin's Center for Health Systems Research & Analysis 
(the Center). The GAO's goal was to determine if actions taken by the 
Administrator in denying this subcontract to the Center were 
appropriate. GAO concluded that, although the Administrator had the 
authority to take this action, the Administrator should also have a 
reasonable basis to direct RAND not to subcontract with the Center. The 
GAO believes that the Administrator's decision appears to have 
been retaliation for the Center Director's involvement in another 
nursing home initiative. The GAO believes the Administrator's action 
was improper and undermined the integrity of CMS's procurement process.

The CMS disagrees and asserts that the Administrator did have a 
reasonable basis to instruct RAND not to subcontract with the Center. 
The Administrator was very direct with GAO in stating his concern 
regarding the inappropriate actions of the Center's Director regarding 
the nursing home quality initiative. The Administrator had good reason 
to believe that the Center's Director was obstructing and deterring the 
consensus building process for the NHQI by being unwilling to 
compromise and unwilling to work cooperatively with the broad group of 
stakeholders in addressing a delicate issue related to risk-adjustment. 
Although, the Administrator had good reason to be concerned about the 
contractor's performance under a different contract, other factors were 
considered by the Administrator, when he decided to restrict the Center 
from subcontracting with RAND for survey and certification work.

As GAO documents in the opening paragraphs of this report, the nursing 
home survey and certification process has been criticized for a number 
of years. The GAO as well as the Institute of Medicine, and the Office 
of the Inspector General of the Department of Health and Human 
Services, have reported on problems with this process. The 
Administrator was concerned with the constant criticism of the survey 
and certification process and, consequently, he was not satisfied with 
the work produced by the contractors that had been advising CMS on this 
issue. As this contract was being awarded to the RAND Corporation, the 
Administrator believed it was time to take a new approach. While the 
Center had performed reasonably well on some contracts in the past (not 
related to survey and certification), the Administrator decided that it 
was time for a change in this particular area. The Center, due to the 
body of work it had performed over the years had become part of the 
problem, not the solution.

The Federal Acquisition Regulations encourage agencies not only to 
consider past performance information submitted as part of a technical 
proposal, but to also consider relevant information from other sources. 
In this case, due to his past dealings with the survey and 
certification program, the Administrator would be an appropriate source 
from whom to obtain relevant information for purposes of evaluating the 
Center's experience in the area of survey and certification area. The 
Agency notes that considering relevant information from other sources, 
including high level officials, is appropriate.

The GAO asserts that the exclusion of the Center from this contract 
essentially changes the nature of RAND's proposal and may invalidate 
the award to RAND. The Administrator acknowledges that the 
subcontractor work under this contract award may have been more 
significant than he had initially understood. After a meeting with the 
GAO staff and consultation with CMS staff on this issue the 
Administrator agreed that this issue may be best rectified by 
recompeting the work, with the clear expectation that the agency is 
looking for new ideas - with a strong results orientation. Accordingly, 
the Administrator directed staff to rebid the work described above as 
quickly as possible. CMS believes the scope of work will be similar 
though not exactly the same as the 
current task order due to changing CMS requirements and due to a clear 
focus on new ideas. All of this information was provided to GAO and 
their report should be modified to reflect these facts.

The GAO also contends that, due to the Administrator's actions, some 
CMS staff may have been left with the impression that the Center should 
be excluded from other contracting opportunities. This impression is 
totally false and the Administrator made clear to GAO that he never 
discussed this contractor with staff. He did not intend any impact on 
other work the contractor was doing for CMS. Upon learning of this 
possibility the Administrator took immediate action instructing 
appropriate staff to set the record straight. The Center is to be 
treated no better or worse than any other prospective contractor - with 
a completely level playing field for all contractors that want to offer 
new ideas to improve survey and certification. This fact was also 
explained to GAO and the report should be amended accordingly.

We appreciate the work completed by GAO. Their efforts helped us to 
identify potential problems that allowed the Administrator to take 
appropriate and immediate action. We respectfully request that the 
report be amended accordingly.

[End of section]

FOOTNOTES

[1] In June 2001, the agency's name was changed from the Health Care 
Financing Administration (HCFA) to the Centers for Medicare & Medicaid 
Services (CMS). In this report, we continue to refer to HCFA where our 
findings apply to the organizational structure and operations 
associated with that name.

[2] This task order was issued under a CMS contract for Medicare 
Research and Demonstrations.

[3] The Center is the University of Wisconsin component that had been 
designated to perform work under the University's proposed subcontract 
with RAND and that carries out health care research under the 
University's contracts with CMS. Therefore, we refer to the Center 
rather than the University as the contracting entity throughout the 
report. 

[4] Pub. L. No. 103-355, § 1054(a), 108 Stat. 3243, 3261-3265 (codified 
at 41 U.S.C. §§ 253h-253k (2000)). 

[5] See 48 C.F.R. § 16.505(b) (2002). 

[6] The solicitation referred to these contracts collectively as 
Research, Analysis, Demonstration, and Survey Design Task Order 
Contracts.

[7] Six of these projects valued at about $32.2 million are ongoing. 
Approximately $10.7 million of the $41 million is attributable to 
projects specifically related to the nursing home survey process. 

[8] For Wisconsin's state fiscal year 2002, the Center's funding for 
CMS and other projects totaled approximately $13.8 million, and its 
total staff consisted of approximately 65 faculty, researchers, 
programmers, and support personnel.

[9] "Consultation in Analysis of Long-Term Care Survey Process," 
Contract No. 500-94-0075, from September 1994 through August 1998. 

[10] HHS, HCFA, Report to Congress, Study of Private Accreditation 
(Deeming) of Nursing Homes, Regulatory Incentives and Non-Regulatory 
Initiatives, and Effectiveness of the Survey and Certification System 
(Washington, D.C.: July 1998).

[11] Effective July 1999, HCFA instructed states to begin using QIs 
derived from these data to review the care provided to a nursing home's 
residents before state surveyors actually visit the home to conduct a 
survey. Surveyors use the QIs to help select a preliminary sample of 
residents and preview information on the care provided to these 
residents prior to the on-site inspection. QIs are derived from data 
collected during nursing homes' assessments of residents, called the 
minimum data set.

[12] NQF is a nonprofit organization created to develop and implement a 
national strategy for health care quality measurement and reporting. 
NQF participants include government and private entities as well as 
entities from all sectors of the health care industry. 

[13] The Steering Committee of 12 included health services researchers, 
geriatricians, state survey agency personnel, state Medicaid directors, 
health systems representatives, and others.

[14] Risk adjustment is important because it provides consumers with an 
"apples-to-apples" comparison of nursing homes by taking into 
consideration the characteristics of individual residents and adjusting 
QI scores accordingly. For example, a home with a disproportionate 
number of residents who are bedfast or who present a challenge for 
maintaining an adequate level of nutrition--factors that contribute to 
the development of pressure sores--may have a higher pressure sore 
score. Adjusting a home's QI score to fairly represent to what extent a 
home does--or does not--admit such residents is important for consumers 
who may wish to compare one home to another.

[15] See U.S. General Accounting Office, Nursing Homes: Public 
Reporting of Quality Indicators Has Merit, but National Implementation 
Is Premature, GAO-03-187 (Washington, D.C.: Oct. 31, 2002).

[16] Although the NQF Steering Committee had originally planned to 
complete its review of potential indicators using its consensus process 
by August 2002, in June 2002 CMS asked NQF to delay finalizing its 
recommendations until 2003.

[17] "Improving the Consistency of the Nursing Home Survey Process," 
RFP No. CMS-02-017/JB, issued July 12, 2002. Nursing home deficiency 
rates and scope and severity determinations vary substantially among 
states. For example, according to the RFP, the percentage of nursing 
homes with no health deficiency citations in 2000 ranged from 2.3 
percent in Arizona to 37.8 percent in Virginia. The RFP explained that 
although some of these differences might be accounted for by real 
quality-of-care differences among nursing homes, it also is extremely 
unlikely that average differences of this great a magnitude for entire 
states can be explained by real quality-of-care differences. 

[18] The RFP repeatedly cited the previous survey work done by Center 
staff and attributed some improvements to the nursing home survey 
process to the Center's findings. 

[19] The task order also incorporated RAND's technical proposal by 
reference.

[20] A RAND official provided us with an electronic copy of the 
recorded voicemail message as well as a written transcription of the 
voicemail message that included the date and time it was received. We 
have corrected the transcription of this voicemail message and e-mail 
quotations throughout this report for spelling errors. Except where 
otherwise indicated by bracketed material or ellipses, they are 
verbatim.

[21] As of June 20, 2003, CMS had not responded to this letter.

[22] Under the Competition in Contracting Act of 1984 (CICA), GAO 
considers protests of solicitations for contracts and awards or 
proposed awards of contracts by federal agencies. See 31 U.S.C. §§ 
3551-3556. CICA and GAO's implementing regulations generally define the 
scope of GAO's bid protest jurisdiction. GAO's authority to hear bid 
protests is distinct from its authority to conduct audits, evaluations, 
and investigations of federal programs and activities. 

[23] B-291751, Dec. 16, 2002. 

[24] Contracting agencies are afforded broad discretion in their 
procurement decisions. Maintenance Engineers v. United States, 50 Fed. 
Cl. 399, 412 (2001); Preferred Systems Solutions, B-291750, Feb. 24, 
2003, 2003 CPD P 56 at 4. Accordingly, when those decisions are 
challenged, they are generally reviewed only to ensure that they are 
consistent with the solicitation's stated terms and applicable 
procurement statutes and regulations, and that they have a reasonable 
basis. Halter Marine v. United States, 56 Fed. Cl. 144, 156-59 (2003); 
TLT Construction Corporation v. United States, 50 Fed. Cl. 212, 215 
(2001); Sams El Segundo, LLC, B-291620.3, Feb. 25, 2003, 2003 CPD P 48 
at 8.

[25] The language of the clause (referring to requests by the 
"contractor," not offerors competing for a contract), as well as the 
FAR provision governing its use, support the view that its 
applicability is limited to post-award modifications or the approval of 
subcontractors that the agency had not otherwise agreed to prior to 
award. See 48 C.F.R. § 52.244-2.

[26] It is well established that the selection of a proposal for award 
of a federal contract must be based on the proposal as it was submitted 
by the offeror and evaluated against the selection criteria in the 
solicitation. Cf. 41 U.S.C. § 253b(a); Bionetics Corp., B-221308, Dec. 
24, 1985, 85-2 CPD P 715 (pertaining to competitive procedures under 
CICA).

[27] CMS was not required to satisfy its research needs by awarding a 
task order under the master contract. A provision in the master 
contract suggests that an entity other than one of the 14 master 
contract holders could have met CMS's need for nursing home survey 
research through a separate contract. 

[28] The 2000 master contract solicitation instructed offerors to 
provide a list of contracts and subcontracts completed during the past 
3 years and ongoing contracts and subcontracts similar in nature to the 
scope of the solicitation. 

[29] These two projects involved examinations of the (1) Implementation 
of Medicare Consumer Assessment of Health Plans (CAHPS) Disenrollment 
Survey and (2) National Implementation of Medicare CAHPS/Fee-for-
Service Survey.

[30] While the Center has performed work on several projects related to 
the survey and certification process, there are other contractors with 
similar levels of CMS contracting experience in this area. 

[31] Negotiations over information disclosure provisions in the master 
contract had been ongoing since October 2000, during which time CMS had 
twice exercised options to extend the contract. CMS officials told us 
that negotiations after contract award are common and that the Center 
had been eligible to compete for task orders under the master contract 
notwithstanding the ongoing negotiations. 

[32] Debarment refers to the formal exclusion of a prospective 
contractor from government contracting. The FAR identifies various 
reasons for debarment. Among other things, a contractor may be debarred 
for a conviction of or civil judgment for fraud, violation of federal 
or state antitrust statutes related to the submission of offers, or 
commission of other offenses indicating a lack of business integrity 
that seriously and directly affects the contractor's present 
responsibility. See 48 C.F.R. § 9.406-2. 

[33] See 48 C.F.R. § 9.406-3; Quality Trust, Inc., B-289445, Feb. 14, 
2002, 2002 CPD P 41 at 4 (noting that a necessary element of a de facto 
debarment is that an agency intends not to do business with the firm in 
the future).

[34] Contract No. 500-96-0010, Task Order 3, "Evaluating the Use of 
Quality Indicators in the Long Term Care Survey Process."

[35] The other subcontractor is the Division of Health Care Policy and 
Research within the University of Colorado's Health Sciences Center.

[36] This request included the transfer of $20,000 from one of the 
other subcontractors to the Center. The Center's budget for the RTI 
task order is approximately $2.3 million.

[37] "Implementation of Medicare CAHPS Fee for Service," Contract No. 
500-95-0061, Task Order 7. The task order was awarded to the Center in 
August 2000.

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