Last month, Broward County commissioners reluctantly gave the Unisys Corporation $21 million to manage a computer project so risky one commissioner described it as going "into the abyss." State Sen. Walter "Skip" Campbell could certainly understand their fear. At the time, he was poring over stacks of documents in Tallahassee, where Unisys had already botched another complex project: running the state employees health-insurance program.
Campbell now makes this startling charge: Unisys wasted as much as $100 million in state tax money through "fraud, misrepresentation, and mismanagement." The company was forced to surrender the insurance contract last December, after two years of complaints about billing errors, unpaid claims, and customer neglect.
"The contract should never have been awarded," Campbell (D-Tamarac) said in an interview conducted during a month-long New Times investigation. "Unisys was deceptive in informing us they were capable of handling the contract when clearly they were not. Clearly this was not a company you would want managing your health insurance."
Unisys admits to mismanaging the $300 million health-insurance program, which covers some 215,000 state workers, dependents, and retirees. "We didn't do the job. It was a bad scene," said David H. Pingree, Unisys vice president for government relations. He added, however, that the company has already paid for its mistake: about $2 million in penalties for contract nonperformance.
It's not nearly enough, insists Campbell, who wants the state to sue Unisys to collect damages for breach of contract. The senator also questions whether Unisys was awarded the $86 million contract in a game of political hardball played by Douglas M. Cook, Gov. Lawton Chiles' "health care czar" and long-time friend. Cook refused to be interviewed for this article, but in the past he has denied that politics played a role in awarding the contract, which he considered part of the state's effort to cut soaring health care costs.
Chiles rejected Campbell's $100 million fraud allegation. "The governor's Office of Planning and Budget that headed up the Unisys effort disagrees very strongly with the senator's comments," said April Herrle, Chiles' communication director. "If fraud were to be found, we would look into it, but we do not believe this to be the case. The Florida Department of Law Enforcement (FDLE) and many state entities have reviewed the Unisys contract, and we do not agree with the conclusions that Mr. Campbell made. We will not be pursuing a lawsuit in any way."
Last May, however, Chiles publicly acknowledged the Unisys contract was a mistake and negotiated the pullout agreement to end it on December 31, 1997. State legislature committees and auditors have also criticized the company's mismanagement, and, as early as 1996, FDLE and the Office of the Statewide Prosecutor opened a criminal investigation.
Despite the Tallahassee controversy, the Broward County Commission on February 17 awarded Unisys a $21 million contract to manage an already-troubled computer project called the Integrated Justice Information System (IJIS). The project is supposed to link and upgrade computers in the county's courts, criminal justice agencies, and Clerk of Courts office. But with complex technical and political obstacles to overcome, no one knows whether IJIS will actually work.
Pingree argues that there is no connection between the state health-insurance mess in Tallahassee and the IJIS project in Broward. Unisys is a global company with 32,000 employees, more than $6.6 billion in annual sales, and many different business and computer contracts. Broward County, he says, is dealing with a division of the company that knows what it's doing.
But some people acquainted with the Tallahassee version of Unisys disagree. County Court Judge William W. Herring, whose hospital bills were bungled by Unisys, told New Times: "Hey, if a company is incompetent in one context, why shouldn't we believe they're incompetent in another?"
Judge Herring's complaint comes from the heart. As an employee of the state judicial system, his health insurance was provided through a plan administered by Unisys. In June 1996 he underwent heart-bypass surgery at Broward General Medical Center, then had to decide whether to go through a twelve-week cardiac rehabilitation program. Broward General checked with a Unisys service representative and was told the state's insurance covered the therapy. "Based on that I went ahead," Herring recalled. "When someone tells you you're covered, you figure you have a right to rely on it. Only later did I find out the hospital had been given incorrect information by the Unisys service rep. It turned out there was no coverage at all." Unisys also told him the service rep who provided the inaccurate information was no longer employed by the company. "It left me holding the bag," the judge said.
For months Herring tried to get satisfaction from Unisys as Broward General threatened to sue him over the unpaid bill, which totaled about $5600. After many letters, Unisys "troubleshooters" told him to appeal. "These Unisys representatives told me, 'Don't worry about it, it's 99 percent sure your appeal will be sustained and they'll find coverage,'" Herring said. "I was told this two or three times, only to find out through a form that was sent to me that my appeal was denied." Eventually Herring reached a settlement with Broward General. But from Unisys, "I got nothing but empty promises," he said.
Talking with colleagues around the state, Herring heard horror stories about Unisys sending payments to the wrong health care providers and demanding claims information that already had been sent several times. "It would just drive you crazy," Herring said. "It was just like going into the black hole."
The judge's conclusion: Unisys is guilty of more than just bad management.
"To me there is a real question whether or not there was any hanky-panky in terms of them getting the contract awarded to them," he said. "Someone didn't make the proper background check to see if they were a responsible bidder on the contract. Apparently, from what I heard, they made a low-ball bid. And we got what we paid for."
During his battles with Unisys, Herring sought help from Sen. "Skip" Campbell, a first-term Democrat who knows something about legal liability. He's worth almost $9 million, largely because he's a very good lawyer who knows how to win very big lawsuits. Intrigued by Herring's difficulties, Campbell last December began asking what went wrong with the state health-insurance contract. The senator recently said: "It's bigger than I thought."
The state's trust fund for its employee health-insurance program has a projected deficit of almost $200 million. Part of the deficit has nothing to do with Unisys. Premiums haven't risen in five years, despite a 20 percent rise in health care costs. Increases in prescription drug use and costs, federal mandates requiring additional health care coverage, and trust-fund financial requirements have also contributed to the deficit.
Reports and hearings on the deficit problem abound, but the state has shown little interest in determining just how much of the blame should go to Unisys. Last year Campbell decided to find out. He consulted with legislative staff experts, who pulled together costs related to claims-processing errors, Unisys' inability to negotiate better health care discounts, and higher administrative fees required to correct the problems.
Combining direct and indirect costs, the staff gave Campbell a startling total, an amount that had not been made public. "They figured approximately $100 million goes to fraud, deceit, or mismanagement by Unisys," Campbell said.
At the December 3, 1997, meeting of the Senate Committee on Governmental Reform and Oversight, Campbell publicly called for a state investigation to determine Unisys' legal liability. "We have an obligation to the citizens of the state of Florida," he told the committee. "The figures I have seen are that somewhere between $90 and $100 million is due to breach of contract, fraud and misrepresentation.... If I am correct [the state should] proceed to try to collect that $90 or $100 million from Unisys.... We owe it to our constituents to try to get it back if we are legally entitled to it."
Campbell may have struck a nerve, because after the meeting he started to get Tallahassee power calls. A state law-enforcement official, whom Campbell declined to name, invited the senator to lunch and told him "this was opening a can of worms," Campbell recalled. "Then all of a sudden, the lobbyist for Unisys is at my door with their vice president for governmental affairs. They said, 'You might not want to do this.' They said, 'There might be some people in state government that are not going to look too good.' I took that for what it was worth."
The Unisys vice president was Pingree, a political heavyweight who acknowledges talking with Campbell but denies the senator's account. "I never said any such thing," Pingree claimed. "Someone else may have said something like that, but not me. I know he's talked to a lot of people. I am not saying that is not his recollection, but it sure isn't my recollection."
Pingree remembered the meeting this way: "Sen. Campbell didn't think the legislature had been fully informed and that he felt that maybe this was some deal that had been made under the table -- those are my words, not his. I was there to simply say that was certainly not the case."
As Campbell continued to investigate, he was visited by someone else: Douglas Cook, Chiles' friend and health care czar. "He indicated there is not as much occurring as what I think there is," the senator said. "But I think there is a major problem with the whole contract."
Cook, who is director of the state Agency for Health Care Administration, was asked to comment on his meeting with Campbell but declined.
Meanwhile, Campbell continues to ask pointed questions of state officials. Not all welcome them. "Some people are saying I'm too much of an independent thinker," he said. "I get a tremendous sense that people don't want to talk about Unisys, because someone made at least a $100 million error.... It seems clear to me that Unisys could not have fulfilled the contract, and therefore the contract should never have been awarded."
Why does Campbell think Unisys got the contract?
"Some people were pissed at Blue Cross/ Blue Shield," he said.
Including Doug Cook?
Cook and the governor go way back. They started working with each other in Washington in the '80s, when Chiles, then a U.S. senator, was chairman of the Senate Budget Committee, and Cook was a Pentagon budget analyst working with the committee. After retiring from the Senate in 1988, Chiles brought Cook back to Florida with him. Two years later Chiles was elected governor and appointed Cook his first budget director. In 1992 Cook was given the unofficial title "health care czar" when he was appointed director of a new superbureaucracy called the Agency for Health Care Administration (AHCA).
In January 1993 Chiles unveiled a massive health care reform package, which included more than 100 proposals to extend insurance coverage to all Floridians while controlling health care costs. Chiles designated Cook his "point man," adding he was "very much in the inner circle."
Various elements of Chiles' plan drew intense opposition from business groups, health care providers, and insurance companies, sparking fierce legislative warfare. During these battles Cook, a former Marine, called himself a "lightning rod"; others called him arrogant and a zealot. He was accused of a power grab for pushing legislation giving his agency more authority over health issues. He argued heatedly with key committee chairmen over attempts to weaken Chiles' reforms. Even the governor once compared Cook to a ferocious dog straining at the leash, and when health care negotiations stalled, Ben Graber, then House Health Care chairman, told reporters, "I think the pit bull may have drawn too much blood."
One of the more controversial legislative issues was whether the state employee health-insurance plan, in particular, should be used to help control health care costs. Chiles and Cook proposed shifting state employees into huge purchasing alliances with other groups, rather than having the insurance plan administered separately. But the proposal had a powerful enemy: Blue Cross/Blue Shield of Florida, which had managed the state insurance plan for seventeen years. Legislators -- who are covered by the plan -- listened to Blue Cross instead of Chiles and Cook; they defeated the alliance provision. News reports at the time said that Chiles lashed out at Cook over the loss.
Cook, in turn, confronted Blue Cross lobbyist Harry G. Landrum on the fourth floor of the Capitol and, according to Landrum and others who witnessed the scene, angrily vowed revenge against Blue Cross. When the Capitol press corps reported the incident, Cook said he didn't recall a shouting match, adding "there is no bad blood between us and Blue Cross." But when state investigators began probing the Unisys controversy in 1996, they received statements alleging Cook "harbored animosity" toward Blue Cross and said "Blue Cross will pay a price" for opposing the Chiles reforms.
Whatever the truth, in the final compromises over health care reform, Cook's superbureaucracy, AHCA, won a new power: control over the bid process for the state employee health-insurance contract. When the contract came up for renewal in 1995, AHCA developed a bid process it said was designed to reduce state health costs by fostering competition. As it turns out, the process favored Unisys over Blue Cross/Blue Shield.
Blue Cross had successfully managed the state health-insurance program for seventeen years, negotiating large discounts with health care providers, which saved the state tens of millions of dollars. Unisys, on the other hand, had never run a health-insurance system before, and its track record, when it came to government contracts, was spotty at best. In 1995, for example, the State of Wisconsin penalized the company for poor performance regarding a $16 million contract to develop a computer system to monitor Medicaid bills. Massachusetts sued over performance issues linked to a 1994 contract to develop a $7 million motor-voter registration program. And in 1991 Unisys pleaded guilty to criminal misconduct in a Pentagon procurement scandal, resulting in fines totaling $190 million.
Nonetheless, the complicated bid-scoring system developed by Cook's agency gave just about as much credence to Unisys' promises as Blue Cross' impressive seventeen-year track record. Judging on technical capabilities for providing administrative services, the AHCA awarded Blue Cross 6000 points. Unisys, with absolutely no health-insurance experience, scored 5744.
With technical scores so close, the bottom line became cost. Blue Cross bid $102.2 million over eight years to administer the health-insurance system. Unisys said it could be done for merely $86.6 million. Based on the scoring system, Blue Cross received 2931 points and Unisys, 3458. That 527-point difference gave Unisys the higher overall score, and AHCA announced its intent to award the contract. Blue Cross appealed, claiming that experience should have counted for more in the bid process. But a state administrative hearing officer ruled in favor of Unisys and AHCA. With Cook's agency in charge, Blue Cross was out and Unisys was in.
Unisys took over the health-insurance program on January 1, 1996. Three weeks later Charles Salerno sounded the first alarm.
Salerno, then chief of customer service for the Division of State Employee Insurance, was quoted in a front-page story in the Tallahassee Democrat under the headline, "Unisys Has a Few Bugs of Its Own to Cure." In the interview Salerno revealed that some doctors weren't signing up for the new Unisys provider network, while others complained that they couldn't get through to Unisys. Salerno added: "Ultimately, down the line, this thing could snowball." He was right.
"It was obvious to us that Unisys should not have been put in the position to run that program," Salerno said recently. "They just never had the capability. They went into this thing, they low-balled the bid by underestimating the number of staff people they were going to need. It was obvious the software didn't have the flexibility and capability to perform. They had no corporate knowledge of running a health program."
By February 1996, just a month after Unisys took over, state legislators were hearing from angry state employees. Salerno was called to testify before the Senate Banking and Insurance Committee. His bosses were not happy. "I was outspoken," he said. "I was severely chastised to the point where I was put under a gag order that I was not to speak to the news media or legislators. Doug Cook wanted me fired because of my testimony."
In the following months, claims complaints soared. Salerno's customer-service bureau had handled about 200 phone calls a day when Blue Cross managed the program. That number jumped to 900 a day under Unisys. Letters went from 25 a week to almost 300.
Customers complained that doctors wouldn't treat them because Unisys hadn't paid earlier claims. Some customers were being hounded by collection agencies threatening to ruin their credit because of unpaid bills. Others, like Ellen Zulka of Pompano Beach, had spent months trying to straighten out billing errors. In her case, Unisys paid five surgery-related bills totaling $8500 -- only they were sent to the wrong hospital. When she called Unisys to complain, she was told the claim was lost in the system.
"It got to the point where they had over 300,000 claims that were backlogged in the system at one time," Salerno said. "Some of those sat in there an inordinate amount of time, not a matter of 20 or 30 days; some of them were there 120 or 180 days, and nothing was done with them. Whether it was incompetence or a willful decision made on their part to just not deal with them, I can't say."
As the problems got worse, state officials began receiving what Salerno calls "some very unusual reporting by Unisys with respect to the number of outstanding claims.... The numbers never added up. It sometimes became very difficult to know whether they were being devious or just ignorant. Some of the numbers they gave us they couldn't even explain. We weren't sure whether their statistics were wrong because they just didn't know any better or because they were trying to do a cover-up."
Salerno worked side by side with Unisys employees for more than a year, trying to improve the company's performance. In 1997, when Unisys was finally forced out, so was Salerno -- in retaliation, he says, for his criticism of the Unisys contract award. "It cost me a job," he said. He resigned in July after his duties were reduced from supervising complaints to simply answering telephones.
"The ones who created the problem are still riding high and free," a bitter Salerno said. "The ones who tried to resist what turned into a really expensive donnybrook for state taxpayers, we got the ax. I would just love to see the truth come out."
As complaints mounted against Unisys, so did the investigations. An outside audit by Coopers & Lybrand documented a string of problems, including a claims-error rate that exceeded industry standards and computer software that wasn't performing as promised. The state began withholding a portion of its payments to Unisys as punishment for poor performance. Those penalties eventually totaled about $2 million.
Legislative anger exploded, with one senator complaining to reporters, "they sold us a pig in a poke." Sen. John Grant (R-Tampa) thundered: "Either this is the most monumental bureaucratic blunder in quite a while, or it's some kind of massive scandal."
In May 1996 the Florida Department of Law Enforcement (FDLE) opened a criminal investigation. Based on critical audits and statements from at least two fired Unisys employees, the FDLE looked into what it later called "improper billing practices and criminal conspiracy by Unisys." One of those practices allegedly involved the shifting of claims among computer mailboxes to obscure how long they'd been in the system. "They knew they were falling short of the contract requirements," Arnett Ross, a former quality-assurance worker for Unisys, told the Tallahassee Democrat at the time. "When they knew they couldn't do it, they turned around, and they manipulated the data." Unisys strongly denied the allegations and, responding to media reports on the FDLE investigation, said, "We have found absolutely no evidence of any criminal wrongdoing."
As the investigation progressed, FDLE Director James T. "Tim" Moore complained that Unisys was providing "substantially less than full cooperation." Deputy Attorney General Peter Antonacci was blunter. "This is not the clean-hands crowd," he said. "You have to wonder what else they are up to when they are treating their customers this way."
By the end of 1996, the Chiles administration was in retreat. Cook admitted to reporters that the Unisys contract was "a tragedy of errors... a nightmare for all of us." The following spring, as the administration negotiated surrender terms with Unisys, the state legislature also acted. It took control of the health-insurance contract away from the AHCA and added a provision actually requiring future bidders to know something about running a health-insurance system.
On May 29, 1997, Chiles announced the pullout agreement with Unisys and admitted the AHCA bid process was a mistake. "Unisys underbid that contract an awful lot," the governor said. "The Blues knew a lot more about what they were doing when they put the numbers to it, in hindsight."
Two months later, with the revised bid-rules in place, Chiles announced his new health-insurance management company: Blue Cross/Blue Shield of Florida. "I hope I never have to deal with this again," the governor said.
But the Unisys fallout continued.
In July the FDLE charged two Unisys health-insurance employees with stealing more than $840,000 by diverting claims money to a phony address. In November two more employees were arrested in a copycat scheme planned after the first arrests. One, LaTonia Brennan of Fort Lauderdale, was charged with swindling $23,000 by accessing the Unisys computer network, then changing the addresses of legitimate health care providers to reflect a bogus address. When Unisys hired Brennan for her computer job, she already had a lengthy record of arrests for grand theft, credit card fraud, forgery, and writing bad checks.
As a result of the investigation into Unisys' corporate actions, meanwhile, a statewide grand jury issued a report last June. It remains sealed, however, pending appeals involving those named in the report. One of the appellate issues concerns whether an organization named in the report has the same right to attempt to block disclosure as an individual does.
"Our office is litigating the question of disclosure," said Jim Schneider, special counsel to the statewide prosecutor. "Under Florida law only an individual, a flesh-and-blood human being, can move to repress a report. An individual is not the same as an agency."
No one involved in the investigation would comment on whether Unisys or the AHCA had moved to block the report. Those familiar with evidence presented to the grand jury say the report, if eventually released, could inspire calls for civil action against Unisys.
In adding up the costs of Unisys mismanagement, knowledgeable state officials include about $12 million more a year the state must pay Blue Cross/Blue Shield to take over management of the contract; about $9 million in lost premium payments and costs incurred when some 15,000 employees abandoned the problem-plagued Unisys system for HMOs; anywhere from $10 to $27 million in overpayments and underpayments the state is still trying to sort through; and the costs of the investigations. Also, under Unisys the state ended up paying more money per insurance claim than it would have under the Blue Cross contract, which included deep discounts from health care providers. The estimated extra cost: $30 million.
To deal with the overall insurance deficit, the legislature is expected to approve an emergency allocation of almost $55 million to complete this fis-cal year. Chiles has included another $84 million in his 199899 budget. He has also proposed a 30 percent increase in health-insurance premiums, which adds another $42 million.
Reviewing the insurance crisis, Mark Neimeiser, who handled the issue for the state employees' union, said of Unisys, "They may have hired some very good, high-priced lobbyists. Maybe they should have paid some attention to customer service instead."
The nineteen lobbyists Unisys employed during the insurance crisis included ultimate insider James B. Krog, Chiles' chief of staff from 1990 to 1992 and key strategist in both his political campaigns. In the 1994 campaign, Krog took the blame for "phonegate," a series of deceptive anti-Republican phone calls made to senior citizens and undecided voters just before the election.
Unisys lobbyists report to Pingree, the company's vice president for government relations. Pingree was secretary of the Department of Health and Rehabilitative Services and deputy chief of staff under Gov. Bob Graham, and he worked with some of the top people now in the Chiles administration. He is the Unisys executive who visited Campbell after the senator started asking questions.
Despite the deep-rooted political connections, Pingree doesn't see Unisys as especially powerful. "If we're talking politics, all you have to do is look at campaign contributions: One of the most powerful companies in the state of Florida is Blue Cross/Blue Shield," he said. On the health-insurance issue, he added: "The fact is if politics were played, they were played as part of the normal process. I do not know of any influence on either side that was involved in the awarding of the contract."
Lack of experience is the primary cause behind the health-insurance mess, according to Pingree. "That contract was the first contract of its type that Unisys had ever had, and because of lack of transition time and other factors, we weren't ready," he admitted. "We did a lousy job in 1996. There were a lot of people who didn't get their bills paid on time and whose credit worthiness was threatened.... We did it to ourselves. We said that at the time we got out of the business."
Pingree was asked about Campbell's call for the state to sue Unisys to try to recover the full $100 million. "While I have heard such things, there are forums for those things to be discussed," Pingree said. He pointed out that Unisys had already paid the state $2 million in penalties for billing errors and late payments. "Where we did not live up to the terms of our contract, there were penalties and liquidated damages assessed, which Unisys paid. The state had recourse under the contract for nonperformance."
While dealing with the Unisys crisis in Tallahassee, Pingree had to persuade Broward County commissioners to award the company a $21 million contract to set up the justice computer system, IJIS. As part of the project, Unisys is also supposed to fix the year-2000 problem, when old computers, programmed to read only the last two digits in a date, will interpret 2000 as 1900, wreaking havoc on vital data. Commissioners worried about both the cost of IJIS and its technological complexity, because the system is supposed to link now-incompatible computers in five different branches of county government.
Pingree told commissioners that Unisys was the company for the job. "The justice-public safety arena is one where we have over twenty years of nationwide, even international experience," he told New Times. "We do work for Scotland Yard. This is a primary focus for the Unisys business.... There is prior experience and a significant track record. It is something where we know what we're doing."
In other words, Pingree sees no connection between the Tallahassee Unisys and the Broward County Unisys. "It's not this group of the company that did the business in Tallahassee," he explained. "This is a totally different section of the company with a very good record."
There is at least one connection, however: County Commission Chairwoman Lori Nance Parrish, who had to vote on the Broward-Unisys contract while battling with the Tallahassee Unisys.
"They're a terrible company," Parrish said.
Parrish is married to Circuit Judge Geoffrey D. Cohen, so in 1996 and 1997 she was covered by the state health-insurance plan administered by Unisys. During that time Unisys didn't pay the Parrish family's medical bills, which included a $314 emergency-room visit by her son, who was in a skiing accident in Brighton, Utah. The accident took place January 7, 1996, and, despite angry letters from her husband, Unisys didn't respond until late 1997 -- when the company was actively pursuing the IJIS contract.
"You don't think that's an odd coincidence," Parrish said, "that because I was going to have to vote on their contract, that after a year they finally responded to my husband's letter?" When Unisys representatives came to lobby her, "I wasn't even going to let them in the office," she recalled. "I said, 'Tell them they're a slimy company, and they're not coming in until they pay our doctor bills.' The day they came in, I was armed for bear."
In the end Unisys got the contract, after agreeing to stringent guarantees the county will get back its money if the system doesn't work. Commissioners still weren't happy, but Parrish explained the decision this way: Fixing the year-2000 problem would have cost about $10 million alone, and the county would still be stuck with old computers; so the IJIS contract made business sense. And Unisys' competitor on the project, IBM, was more expensive in its initial bid. So Parrish ended up giving Unisys the $21 million.
"I held my nose and voted for them," she said. "But they're horrible.
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