- Associated Press - Thursday, January 29, 2015

HONOLULU (AP) - Officials at Hawaii’s health exchange did not follow the proper procedures for awarding and managing contracts, which may put federal grants at risk, according to a report released by the state auditor.

The Hawaii Health Connector was awarded $204 million in federal grants to build the state-run health exchange. But the Connector circumvented its own policies and procedures when it hired consultants, and contracts were awarded without following the proper procedures to ensure competitive pricing, acting state auditor Jan Yamane said in the report released Thursday. The Connector actually had good procurement policies, but officials just didn’t follow them, she said.

“The prior executive director did misuse her authority,” Yamane said in an interview, referring to former executive director Carol Andrews, who resigned in late 2013. “We understand that they were under the gun to get the Connector up and running. But the truth of the matter is I think she sidestepped a lot of the federal requirements.”

Federal officials often threaten to take back funds, Yamane said.

“Even if you lose $1 or $2 million of that, even if its’ just a slap on the wrist, the Connector is saying it’s not sustainable,” Yamane said. “It can’t even afford to have $1 or $2 million taken away.”

Jeff Kissel, executive director of the Connector, said he recently met with federal officials with the Centers for Medicare and Medicaid Services. Reached by cell phone in Washington D.C., Kissel said he’s confident that federal officials are satisfied that the Connector is now doing the right thing.

“I wanted to let them know that we we’ve changed the procurement policies so that we are conforming to the federal requirements,” Kissel said. “That may not have been the case in the past, and it is now.”

Kissel, in his response to the audit, acknowledged that significant errors in judgment were made. The Connector is doing an internal investigation of one contractor - Mansha Consulting - to determine whether payments are actually due, Kissel said. It also has terminated or revised relationships with some contractors, he said.

Auditors found a dozen instances of unsubstantiated travel expenses totaling more than $12,000 and another $2,600 in questionable meal costs.

Yamane said she encountered delays from the Connector throughout the past year, when her office was requesting documents from the Connector. It took from a week to two months in some cases to get documents from the Connector, she said.

Work for the audit began in January 2014, and it concluded in September, while Tom Matsuda was interim director.

“There was a pretty robust process that was difficult to work with, and it was slow, and it delayed our work considerably,” Yamane said.

Lawmakers have lodged similar complaints.

“The same frustrations that we had about getting the information, the Legislature couldn’t get what it needed either,” Yamane said.

That’s one area Kissel has worked to improve since he started at the Connector in October. “They get everything they ask for now, without resistance,” Kissel said.

The former executive director, Andrews, was uncooperative and withheld information from her office, Yamane said. The report also claims documentation was disorganized or missing from most contract files.

Inadequate planning led to sustainability problems at the health exchange, and the board should have heeded warnings and exerted more influence, Yamane concluded.

Lawmakers who lead health and consumer protection committees have introduced bills that aim to fix some of the problems.

“There are lots of bills that are moving that are going to look at taxes, we are going to look at fees, we’re going to be looking at what plans should be offered,” said Rep. Della Au Belatti, chairwoman for the House Health Committee. “Everything’s on the table at this time.”

Rep. Angus McKelvey said that if the Legislature grants any financial support to the Connector, it should come with the condition that the exchange follows the procurement rules.

But ditching the state-run exchange in favor of an operation run by the federal government isn’t an appealing option to Yamane, Kissel or some lawmakers, because a federal takeover could jeopardize the state’s Prepaid Health Care Act, which has stricter employer health insurance requirements than the federal law.

“We have a federal exchange that comes in and sells what I call ‘junk plans,’ or plans that are not Prepaid-compliant but are benefit-poor, businesses will be able to choose those for their employees and we’ll have an underinsurance phenomenon,” McKelvey said.

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