HHS Inspector General Details How Feds Botched the Obamacare Exchange Planning Process

Federal health officials failed to review the prior work of key contractors and left taxpayers at risk for cost overruns.



When designing contracts for one of the most complex technical projects ever undertaken by the federal government—say, Obamacare's federal health insurance exchange system—you might expect that the agency in charge of the contract would take some basic precautionary steps, like, for example, reviewing the quality of prior work performed by contractors being awarded deals with tens of millions of dollars, or examining a large number of potential contractors, or designing a risk-management plan, or including clauses that limit taxpayer limit liability for possible cost overruns.

Perhaps there would be some exceptions, but if so, you would probably assume that the agency would be able to justify those exceptions in detail.

You might expect this because it's common sense, or because some of it is required by federal contracting guidelines.

But if that's what you expected, you were bound to be disappointed. A new report from the Inspector General (IG) for the Department of Health and Human Services (HHS) reveals that contract managers at the Centers for Medicare and Medicaid Services (CMS) failed to take basic measures to ensure that contracts for HealthCare.gov went to reliable firms, didn't draw up required risk mitigation plans, and agreed to multiple contracts that left taxpayers to pay for any cost overruns incurred by the work.

The HHS IG is both thorough and damning. Investigators looked at 60 different CMS contracts for the online health insurance portal as well as surrounding documentation. The IG also conducted interviews with "high level HHS and CMS staff" about how they planned the contracting process—or what little planning there was, anyway.

According to the report, CMS did "not conduct thorough past performance reviews of potential contractors," including CGI Federal, the main contractor for the essential components of the federal exchange.

That's right: The feds didn't look investigate the prior work performance of a contractor hired to do key work on a high-profile initiative with a contract that was (initially) pegged at $58 million.

That failure was compounded by the inexplicable decision to award five of the six "key contracts" for the project on a "cost-reimbursement" basis, which means that the federal government assumed all risk for cost overruns.

I say that it's "inexplicable" because officials at CMS didn't bother to explain it, even though the agency is required to do so. Federal regulations require that cost-reimbursement contracts include detailed documentation explaining the rationale for choosing that contract type. But according to the IG report, "contract files did not always contain specific and comprehensive rationales for why CMS selected this contract type." The CGI contract specifically "did not detail why it was in the Government's best interest to select a contract type under which it assumed the risk for cost increases," but instead offered "general statements" indicating that "costs could not be defined accurately due to uncertainties with the required work."

So CGI was being awarded a giant pile of taxpayer money to perform work on a project where the scope of the work was uncertain and so were the costs, and the feds in charge didn't bother to check out CGI's user reviews or to insulate taxpayers from the risk that it might end up spending far more than initially estimated.

For all practical purposes, the federal government gave CGI a blank check.

With no incentive to control costs—indeed, with an incentive to bill the feds for overruns—CGI blew up the bill accordingly. The $58 million contract ballooned into a $207 million mess—remember, the exchange crashed on launch, and a few months later a new contractor was brought in to complete it. Overall, the cost of those six key contracts nearly doubled from the time they were awarded, growing from $464 million to $824 million, according to the IG report.

The were other management foul-ups involved as well: No lead integrator was put in place to manage the entire process. Federal guidelines requiring risk-mitigation and acquisition strategies to be drawn up weren't followed, leaving CMS "without a comprehensive roadmap" when awarding project contracts. The agency relied on a procurement process that favored firms with existing CMS contracts (CGI, for example, already worked on existing Medicare information systems); for 20 of the 60 contracts the IG examined, CMS solicited a proposal from just one firm.

CMS doesn't offer much in the way of explanations for any of its mismanagement, just the excuse that they were pressed for time. No surprise there: Obamacare's exchange implementation was a rush job, mostly for political reasons, and the rush contributed to the sloppiness of the work.

The IG's report ends with a series of recommendations that amount to a declaration that CMS shouldn't have done things the way that it did. That's for sure. A better takeaway, however, might be that the federal government shouldn't be put in charge of managing these sorts of projects in the first place.


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  1. They botched it by following the Federal Acquisition Regulations.

    1. Building a website is like building a ship: If you come in 12 months late, at double the budget you did good.

      1. Good, cheap, fast: choose two.

        My point was that the FAR is like the bible. You can’t adhere to some parts of it without violating a lot of other parts of it.

        1. Oh, I am well aware of the FAR and I was agreeing with you. But in government I think it’s more like “Good, cheap, fast: choose any one and you might get it… maybe.”

        2. We got none of the three.

        3. Well, it’s bad, expensive and slow. Goes as well as any government contracts goes. It’s all just excuse to get the maximum amount of tax dollars, just like the ‘Highspeed Rail’ that we’re building here in California. It matters NOT whether there will ever be any train running at any speed. All that matters is to burn through the Federal matching fund and the initial trenchant of the bond money. When it crash and burn, the actual objective of burning money has already been accomplished.

  2. That stock photo NEVER gets old!

    1. And it’s a pipe dream of mine that the average person realizes (let alone remembers) that the GOP was a very willing accomplice to the cynical morphing of “insurance reform” into “affordable health care.”

      1. I dunno, I may be misunderstanding your comment, but there’s a lot that could be reformed about insurance that could reasonably bring on more affordable healthcare. Much of that “insurance reform” has been discussed here for well over a decade.

        I mean, considering that healthcare “insurance” no longer even resembles “insurance” as the concept was originally designed, it’s certainly a target-rich environment.

        1. I was just trying to make the modest point that the supposed goal of giving 30 million people “insurance” so that they’d have access to healthcare was a trojan horse. What they really wanted was, indeed, national health care.

          The fact that half of all health spending is already paid for by the government is never raised, and never was raised (except by Reason).

  3. Isn’t this too little, too late? It’s not like anyone who matters will learn from these mistakes.

  4. …officials at CMS didn’t bother to explain it, even though the agency is required to do so.

    Apparently not.

    1. Executive Privilege!

      1. The Lord And Savior privilege. How dare you questioning the Chosen One?

  5. And not a single person with be punished or held accountable for any of it. So it will just happen again.

    One has to wonder if there is any limit to how utterly incompetent, corrupt, and wasteful the government can and will be. I’m starting to think there isn’t.

    1. This was chump change compared to the Iraq War contract abuse.

      1. True. And chump change compared to what happens in most large defense and infrastructure contracts. But it’s still worth addressing.


        Right on cue, turd, but you left out Obo’s wars.

        1. It’s not a war if your bombers drop rainbow sprinkles and nobel peace prizes!

        2. Take that back! Obama’s wars are by-the-book thrifty! Why, on weekends the entire First Family volunteers over at the Drone Factory. And he keeps a big shoebox with every DoD receipt.

  6. One has to wonder if there is any limit to how utterly incompetent, corrupt, and wasteful the government can and will be. I’m starting to think there isn’t.

    PEAK DERP is a myth.

    Just ask Shreeek.

  7. Also-


  8. Did the procurement officers get home to their families safely?
    Then I call it a Good Shoot.

    Remember – this is the Adminstration’s signiture and most public program.
    That they would be so lax about this, what are they doing with rest of the government bullshit?

    1. Good question. They weren’t being especially lax, just being themselves. This is the Administration’s very best work. A law they wrote. A project managed from start to finish by their self-described best and brightest, and implemented using their hand-picked contractors under conditions that they controlled and deadlines that they themselves selected. Optimal conditions. This is the result.

  9. The simple fact is they had to ram this piece of shit through, before too many people realized what it was.
    It was income redistribution and government control of our, very, lives, writ large and as is typical of the cynical progressive goal, the longer it is in place, the harder it will be to dismantle.

  10. The revolving door between government “service” and Big Pharma, etc. explains a lot of the sweetheart deals:

    –WASHINGTON — The White House defended its ethics record on Wednesday after reports surfaced that one of its top health care policy officials was leaving the administration to take a job at a pharmaceutical giant.

    Liz Fowler left her post as deputy director of the Office of Consumer Information and Oversight at the U.S. Department of Health and Human Services for a senior position in Johnson & Johnson’s government affairs and policy group. According to Politico, which first reported the departure, Fowler would be leading the company’s “global health policy,” which has raised a few flags.

    The president’s health care law, after all, still needs to be implemented, and Johnson & Johnson could stand to benefit from alterations to certain provisions. Moreover, Fowler’s hiring by the pharmaceutical giant comes after the president’s team cut a deal with the industry’s lobby arm that limited the government’s ability to negotiate for cheaper drug prices. In exchange, the lobby arm, the Pharmaceutical Research and Manufacturers of America (PhRMA), backed the legislation.–


  11. But the backend of healthcare.gov is still not finished, correct? Aren’t they still doing things manually and with estimates?

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