Maximus in the Mix

One of my fans sent me this New York Times article from 1996, featuring a special little corporation called Maximus.

Let me dig through my sandbox and see where I put all the fun stuff I found out about Maximus and Medicaid fraud in child welfare.

I will give the readers a hint: Wayne County, Michigan.

Stay tuned. It gets juicy.

Giant Companies Entering Race To Run State Welfare Programs The New York Times September 15, 1996, Sunday, Late Edition - Final

Copyright 1996 The New York Times Company
The New York Times

September 15, 1996, Sunday, Late Edition - Final

SECTION: Section 1; Page 1; Column 1; National Desk

LENGTH: 1916 words

HEADLINE: Giant Companies Entering Race To Run State Welfare Programs

BYLINE:  By NINA BERNSTEIN

BODY:
The new welfare law is still a matter of confusion in statehouses and city streets. But to some companies, it already looks like the business opportunity of a lifetime.

The players are as diverse as Electronic Data Systems, the $12.4 billion information-technology company that Ross Perot founded, and companies at least a thousand times smaller, like Curtis & Associates, which supplements its successful welfare-to-work jobs clubs with accessories like "motivational fortune cookies" at $3.99 a dozen. A sample message is, "The way to control your future is to work hard today."

The newest and most formidable entrant in a field once left largely to local charities and several small companies is Lockheed Martin, the $30 billion giant of the weapons industry. A nonmilitary division, Lockheed Information Services, is bidding against Electronic Data Systems and Andersen Consulting to take over $563 million in welfare operations in Texas.

And that is only the beginning, Lockheed executives say. Having hired two longtime Federal welfare employees and top officials from Texas, Oregon and Alabama, the corporation plans to market even more comprehensive welfare contracts to states and counties in what is potentially a new multibillion-dollar industry to overhaul and run welfare programs.

"We're approaching this marketplace the way we approach all other marketplaces," said Holli Ploog, senior vice president of business development at Lockheed Information Services.

It is a market that expanded overnight when President Clinton signed a law to replace the 60-year-old guarantee of Federal aid to poor children with lump-sum grants to the states.

To state and county officials facing capped welfare budgets and financial penalties if they fail to move most recipients into jobs in two years, a fixed-price contract with a corporation has a strong appeal.

For the first time, the law allows states to buy not only welfare services but also gatekeepers to determine eligibility and benefits.

"There's some easy money if the states aren't careful," said Robert Tyre, head of the government contracts division of Andersen Consulting, a $4.2 billion subsidiary of Arthur Andersen, the accounting firm.

The jockeying frightens longtime social-service workers and public-interest lawyers. No company can be expected to protect the interests of the needy at the expense of its bottom line, least of all a publicly traded corporation with a fiduciary duty to maximize shareholder profits, said Henry A. Freedman, executive director of the Center on Social Welfare Policy and Law, a research and advocacy law office.

If a gatekeeper's profits are linked to reducing the welfare rolls, Mr. Freedman said, the incentive to deny aid will be overwhelming.

But proponents say turning over welfare to the private sector will prove to be the most cost-effective and humane way for states to face up to the fiscal imperatives of the new law. A profit-making company has the flexibility to reward employees for results, the proponents argue, and to change the culture of the welfare office from one focused on calculating deprivation and issuing checks to one that quickly helps people into jobs.

States that are slow to shrink administrative costs will have no money for the additional child-care and transportation spending that are needed to move recipients to work. With the clock ticking on a five-year lifetime limit on benefits, recipients are ultimately the ones who will pay the penalty for delay.

"The days of spending any amount on welfare and going to the Federal Government for a match are over," said Russell Beliveau, president of the Government Operations Group of Maximus Inc., a consulting company in McLean, Va., that had $100 million in business this year, including $7 million in welfare-to-work programs in Boston, two California counties and Fairfax, Va.

"If they don't perform, they're going to have to overspend," Mr. Beliveau said. "If they underspend, they can find other uses for that money. I've been telling states this is the golden opportunity to turn to private companies for a risk-and-profit-sharing arrangement."

In Texas, the Health and Human Services Commissioner, Michael McKinney, said states would receive their money's worth if they wrote contracts correctly.

Texas is revising its request for offers to combine, overhaul and run the separate systems that now determine eligibility for welfare, food stamps, Medicaid and more than 25 other programs. Lockheed has teamed up with International Business Machines and the state's work-force commission, offering a fixed-price contract with penalties for failures to perform.

Electronic Data Systems, which has long designed computer systems for welfare and Medicaid, is collaborating with Unisys and the Texas Human Services Commission. A third bid will come from Andersen, which offers to take a percentage of the savings it achieves as its only fee.

Like Wisconsin, where similar bidding is under way county by county, Texas is seen by many as the forerunner of a new wave of privatization. Until now, churches and groups like Goodwill Industries had been the main competition for the three companies in the welfare-to-work niche: Maximus; Curtis, which began as the pet project of a communications professor in Kearney, Neb., and America Works, a $7 million job broker with contracts in New York City, Albany and Indianapolis.

Selling Federally subsidized management systems to welfare departments was a separate and much bigger business, the province of huge information-technology companies. Now the separation has vanished, and the welfare-to-work crevasse is suddenly a canyon. Sheer scale puts the big companies in command.

"When you talk about small players like a Maximus, an America Works and a Curtis & Associates, they do not have the ability to indemnify the state the way a large corporation would," Ms. Ploog, of Lockheed, said. "The larger states want to make sure they can hold you accountable and can dip into your pockets if there's a problem."

The line where Lockheed's resources end and those of the United States Treasury begin sometimes blurs. The corporation, which the Government bailed out in the 1970's and 80's, has a backlog of more than $50 billion in contracts, mostly with the Defense Department, and it is lobbying for $1.6 billion in subsidies for mergers with two former competitors, Martin Marietta and Loral.

Members of a bipartisan Congressional coalition opposed to the subsidies have called them corporate welfare at its worst and payoffs for layoffs, because the mergers are tied to 30,000 layoffs and $92 million in executive bonuses.

The chief executive of Lockheed, Norman Augustine, who received an $8.2 million bonus, has argued that the subsidies will eventually save taxpayers money. Although a voice vote in the House would have blocked the subsidies, the issue is back in the military appropriations bill, which is in a conference committee.

One opponent, Representative Christopher H. Smith, Republican of New Jersey, has a Lockheed plant scheduled to close in his district. Last week, Mr. Smith's staff director, Andrew Napoli, said the prospect of Lockheed's winning major welfare contracts gave new meaning to the phrase double dipping.

"They would be getting a subsidy to lay off these folks and then could be getting additional money from the Government to help these people get jobs," Mr. Napoli said.

Few companies come to the marketplace with clean slates. The Florida Attorney General tried unsuccessfully to bar Electronic Data Systems from doing business in the state last year in a dispute over what officials called a "grossly inefficient" $240 million Lockheed computer-management system for welfare eligibility, benefits and child-support enforcement.

A spokesman for Electronic Data Systems, which has contracts in 30 states, called the dispute unfortunate.

America Works has been embraced by Mayor Rudolph W. Giuliani of New York and former Gov. Mario M. Cuomo. But it left a trail of unhappy officials in Ohio, Massachussetts and Erie County, N.Y.

In West Virginia, an independent consultant whom Maximus paid to help prepare its bid for an automated statewide child-welfare system in 1994, turned out to be the state employee in charge of the project. He was later indicted, and Maximus lost the contract to Lockheed.

Lockheed, meanwhile, agreed to forfeit the chance to bid on contracts in New York City for four years after an investigation found that aides to Mayor David N. Dinkins had shown favoritism in awarding the company a $150 million contract to run the Parking Violations Bureau in 1993, a case that revived memories of scandals in the 80's, when a Lockheed executive admitted bribing officials to obtain such contracts.

Leaders at the American Federation of State, County and Municipal Employees say privatization opens the door to big campaign contributors and their cronies. They also fear that welfare privatization may come at the expense of their members, whose jobs could be cut or reinvented at lower pay by the companies.

But on the front lines of change, even some public employees are converts.

In San Francisco, welfare recipients with children 3 and older are now ordered to report to the Express for Success Center, an employment and training program redesigned by Curtis in February. Staff members are still employed by the Human Services Department. But they had to apply to Curtis for jobs at the center and take its training.

The supervisor, Casey Brenner, said that at first, she and other social-service veterans were skeptical of the "cheesy, smiley" approach of the trainers from Curtis.

"We were like, 'Oh, yeah, right, Kearney, Neb., is not going to work in San Francisco,' " Ms. Brenner said. "But you know what? It did."

She showed off walls with photographs of smiling recipients who had landed jobs after a six-day workshop.

As the latest workshop reached its end, a trainer led the graduates in cheering one another. Elsewhere, job seekers worked a telephone bank to set up interviews and helped one another fill out job applications.

Later, Ms. Brenner said the center was placing 40 of the 60 people a month who completed the program, which has a 17 percent dropout rate. That represents a 20 percent improvement on the city-run program, which dealt with recipients one at a time, lacked a sense of urgency and focused more on barriers to employment than on strengths, she said.

"It really lifted me up," a job seeker, Denise Hunter, said. "But I can't make nobody give me a job."

She said that after looking for work for three weeks, she saw the way that the welfare law would play out. "People that's been working 20 years, they're going to give us their jobs for minimum wage," she said.

Most of the companies seeking to inject marketplace efficiency into government bureaucracies were built on government contracts and have long staffed their top ranks with once and future officials.

To some longtime workers in social services, the new systems seem like a bad dream.

"For us old bleeding-heart liberals who were on the streets in the 60's, the idea that Lockheed, of the military-industrial complex, would be in charge of welfare is out of somebody's nightmare fantasy," said the director of the JOBS program in a Northeastern state.

Then he begged not to be identified, "We may end up working with them," he said.


GRAPHIC: Chart: "PROFILE: Profits Out of Poverty?

Before the new welfare law, moving people from welfare to work was the domain of nonprofit organizations and three relatively small businesses. Now, some large companies see a potentially multibillion-dollar industry that could run entire welfare programs for states and counties.

Three Small, For-Profit Veterans

America Works

$7 million in contracts in New York City, Albany and Indianapolis

SPECIALITY -- provides supportive services for the first four months on the job while paying minimum wage and collecting a higher wage rate from the employer; charges about $5,000 per successful job placement.

Curtis & Associates

$9.2 million in business last year in 11 states, including California, New Jersey, Indiana, Vermont and Wisconsin; was founded by a professor of communications in Kearney, Neb.

SPECIALITY -- Markets a jobs club model to government as a contracted service or a public-private partnership, and sells schools and churches a line of training manuals and accessories.

Maximus, Inc.

$100 million government consulting firm in McLean, Va. founded by a former HEW administrator

SPECIALTY Provides child support enforcement contracts in six states, a $10 million California contract to recruit Medicaid recipients into HMOs, and welfare to work programs there and in Boston and Fairfax, Va. and two California counties.

...And Three Giants Looking to Expand

Andersen Consulting

$4.2 billion global management and technology consulting company that is a sister company to accounting firm.

SPECIALITY -- Contracts in 14 states, include child support enforcement in 7 and child welfare programs. Marketing a profit-sharing approach to welfare overhaul and recently won contracts with two Canadian provinces.

Electronic Data Systems

$12.4 billion informa-tion technology services company founded by Ross Perot.

SPECIALITY -- Began to computerize Medicaid billing and welfare eligibility 20 years ago and gets about 12 percent of its revenue from contracts in 30 states.

Lockheed Martin Information Management Servies

A nonmilitary division of the publicly traded $30 billion-dollar Lockheed Martin.

SPECIALITY -- Child support enforcement contracts in the District of Columbia and 16 states, including New York, and contracts in 20 states to convert welfare benefits to an electronic debit card system. LaunchING a new "welfare reform/self-sufficiency line of business," with a bid for $563 million in welfare agency functions in Texas. (pg. 26)

LOAD-DATE: September 15, 1996