(Bloomberg) — The U.S. government paid the main HealthCare.gov contractor $4 million to correct defects of the botched site and withheld only $267,420 of what it owed the company, according to a new federal audit.
The report on the Centers for Medicare & Medicaid Services (CMS) and its contract with CGI Federal is to be published today by the Health and Human Services Office of Inspector General (HHS OIG). It is the latest in a series of audits critical of federal oversight of the private companies that built the public health insurance exchange system, or marketplace, at the heart of the Patient Protection and Affordable Care Act (PPACA) private health insurance regulatory system.
Although CMS replaced the contractor a few months after HealthCare.gov’s meltdown in 2013, the agency had little power to recover the money it spent trying to fix the site.
Like many deals between the federal government and private companies, CGI Federal’s contract allowed the company to pass along its costs to taxpayers and to take a fee on top of that—essentially, its profit. If the health insurance site didn’t work, the government could withhold part of that fee, but taxpayers were still responsible for paying the underlying costs. “Cost reimbursement contracts place the risk of performance on the government,” according to the inspector general’s report.
Federal watchdogs have criticized contract structures that put taxpayers at risk for cost overruns. President Barack Obama tried to steer agencies away from these types of deals early in his presidency. In a March 2009 memorandum, he said such arrangements should be reserved for “when circumstances do not allow the agency to define its requirements sufficiently” to set a price, he wrote.
Yet the share of that money flowing through contracts structured like CGI Federal’s, known as “cost plus fixed fee,” has increased from 10 percent to 18 percent since 2009, according to data compiled by Bloomberg Government.
CGI Federal didn’t respond to an e-mail seeking comment.
HealthCare.gov stumbled for months after it opened on Oct. 1, 2013, as CMS and its contractors scrambled to fix it. The total value of all CGI Federal’s contracts for the site exceeded $250 million. In the five months that followed the bungled launch, CGI Federal billed taxpayers for $56 million. The government withheld $267,420 of that and approved the rest, including about $4 million in costs the auditors determined were to correct defects in the broken software. (Despite the flaws at HealthCare.gov and some state-based exchange programs, 8 million people ultimately enrolled in health plans in the first year; enrollment for 2016 health plans will begin Nov. 1.)