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Baker administration concedes some congregate care for the developmentally disabled is good, but will still largely prohibit it
In responses to comments made to a federally required plan for community-based care of the developmentally disabled, the Baker administration is conceding that not all congregate care is bad or should be banned.
Yet, the administration’s draft Statewide Transition Plan (STP) still appears to prohibit or restrict most new group homes from housing more than five residents; and it would apparently restrict funding for most other congregate settings, such as farm-based residential programs. The administration is currently asking for further comments on the draft STP.
The STP is a requirement of the federal Centers for Medicare and Medicaid Services (CMS), which issued a new regulation in 2014 governing community-based care receiving Medicaid funding. The CMS regulation is intended to reduce reliance on congregate care, but Massachusetts originally appeared to go even further than the CMS regulation in banning congregate care almost entirely.
Along with hundreds of people and other organizations, COFAR submitted comments in late 2014 to the original draft of the STP. It appears that like us, most of the commenters to that original plan were concerned that the state was going too far in banning virtually all possible forms of congregate care.
As we noted in our comments to the administration in 2014, the Department of Developmental Services appeared to be proposing a ban on new and potentially existing residential settings such as farmsteads, residential schools or settings that are part of residential schools, settings “that congregate a large number of people with disabilities for significant shared programming and staff,” and even new group homes with more than five residents. Not even CMS was advocating a complete ban on all of those residential options.
Now, after having received those critical comments, the state seems to be willing to continue to fund some forms of congregate care.
In its response to the comments, the Baker administration made the following statement:
The state acknowledges that CMS… has indicated that ‘it is not the intent of this rule (CMS’s 2014 regulation) to prohibit congregate settings from being considered home and community-based settings.’ The …characteristics of any setting (location, geography, physical characteristic and size) are not necessarily determinative of whether a provider can achieve compliance… (my emphasis).
Despite that apparent concession, the Baker administration’s STP states that DDS has determined that 14 corporate providers operating 57 group home sites are not complying with the new CMS regulation. This lack of compliance is because these residences apparently have “institutional qualities,” either because they house more than five residents or not enough services are provided by community-based providers.
The STP also states that some of these homes may have provided insufficient staff training in “person-centered planning.” (We have voiced concerns that while person-centered planning is touted as giving developmentally disabled individuals more control over the services they receive and how they pay for them, the process appears to put control over an individual’s funds into the hands of private companies.)
By the way, the administration stated in its responses to the STP comments that the state’s Building Code limits group home capacity to five residents. Our reading of the applicable Building Code regulation, however, is that it does not set a 5-person limit on all group homes, but rather specifies only that DDS group homes with five residents or less must be classified as single-family or two-family homes (see amendments to 780 CMR. 310.2).
These are, moreover, group homes, and not developmental centers, that DDS has identified as being too institutional. This raises a concern for us that the federal government and the state are pushing for ever smaller and more dispersed residential settings — a process that diverts more and more taxpayer money appropriated for the developmentally disabled into a grossly unregulated corporate-run service system.
While it appears under the STP as though DDS will allow these 14 providers some leeway in complying with the provisions in the plan, the providers will have to make a range of changes, including potentially relocating their residents to smaller residences. The STP indicated that this may result in an unspecified additional cost to the state.
The STP also noted that the Association of Developmental Disabilities Providers (ADDP), an influential lobbying organization for state-funded DDS providers, will be in charge of providing assistance to the providers in complying with the plan.
Anti-eviction agreements
One piece of potential good news is that the administration’s STP states that DDS will require providers to sign contractual agreements with residents of group homes that prevents arbitrary and capricious evictions. This is apparently another CMS requirement. This could address one of the key problems we’ve identified with provider-operated group homes, which is that they can currently evict residents with minimal notice, particularly in cases in which guardians or other advocates are seen as being pushy or meddlesome.
A portion of the STP also deals with non-residential care. What stood out was that DDS found that 170 community-based day programs operated by 98 providers did not meet CMS standards due to inadequate daily activities, staffing, and funding.
Administration still steeped in community-first ideology
Despite the apparent softening of its anti-congregate-care position, the administration’s STP still appears to be ideologically opposed to anything not considered sufficiently community-integrated, and therefore too institutional. In its response to some of the comments to the STP, the administration stated that it is its belief that:
…all individuals, regardless of their level of impairment, can benefit from integration and access to the community. (my emphasis)
The administration made this statement after noting that it recognized that “…individuals with significant disabilities live in some settings that presumptively do not satisfy the (CMS) community regulation.” The administration stated that it is not its intent “to force individuals to move from settings or to take away needed services and supports.” But that is exactly what DDS did when it closed or downsized four developmental centers in Massachusetts, starting in 2008.
So, in effect, while the administration says in the STP that it recognizes that some individuals live in non-community-based settings, it still maintains that all developmentally disabled individuals, regardless of their level of disability, could benefit from being moved to the community system. It is a community system, however, in which at least some of the services and supports available in “institutional” settings would most probably be taken away.
On the one hand, the administration acknowledges that it is not the size of a care setting that determines whether it is institutional or not, but rather the services provided and the commitment of the staff. Yet the administration consistently overlooks the fact that just because a care setting is small, that doesn’t guarantee it will be integrated into the community.
In a perceptive post, Jill Escher, president of The Autism Society San Francisco Bay Area, notes that the real purpose of the new CMS regulation is not to eliminate institutional care, but rather “to put the brakes on the creation of new residences and programs that cater specifically to adults with autism and other intellectual and developmental disabilities.”
In other words, programs for the developmentally disabled cost money, and the CMS is looking to save money by simply eliminating those services.
Here’s Escher’s very apt description of the impact of the CMS regulation and the transition plans of states like Massachusetts:
Though the (CMS) rules talk of “person-centered” and “outcome-oriented” services, where individuals are not “isolated” and are free from coercion and restraint, in Orwellian doublespeak fashion, civil rights and liberation is not the true endgame here. The overwhelming goal is to restrict out-of-home options.
In practice the rules mean if you’re sitting at your parents’ home doing nothing, or in your own apartment without on-site staff, that’s “community integration.” Meanwhile if you prefer a well staffed adult autism program or housing complex, where you are cared for and safe, engaged in the community, and in the company of your friends who may have similar disabilities, your choice is ironically deemed “isolating” by bureaucrats. And therefore subject to the CMS axe.
Jill Barker, who writes The DD News Blog, adds:
Congregate care, providing services to people with disabilities in group settings, is one of many practical solutions to the need for long-term care. It allows for the sharing of resources and lessening of feelings of isolation. It should not be ruled out as an option, although that appears to be the intent of many advocacy organizations.
In my opinion, there is also a quiet war on families who are offered no other alternative but to keep their adult child with DD at home with services that may not be adequate to provide the family with the relief they need and a good quality of life for their disabled family member for the long term.
Limited federal IG probe faults state’s reporting on group home abuse in MA
In one of the few investigations of the community-based system of care for the developmentally disabled, the Inspector General for the U.S. Department of Health and Human Services last week disclosed critical shortcomings in the process in Massachusetts for reporting abuse and neglect.
A report issued by the IG found that incidents of abuse and neglect in group homes were not regularly reported to investigators. The report noted that of a sample of 587 visits by group home residents to hospital emergency rooms, the group homes had failed to report 88 –or 15 percent — of them to the Department of Developmental Services.
In addition, DDS itself and the group homes did not report 58 percent of 175 “critical incidents” to the Disabled Persons Protection Commission, as required by state regulations. And 29 percent of incident reports sampled by the IG did not contain “action steps” to protect individuals involved from future injury.
COFAR has long maintained that the state’s privatized group home system is inadequately overseen and prone to abuse and neglect due to relatively low levels of pay and training, and high turnover among staff. Even the providers themselves acknowledge those problems. Yet the state routinely relicenses the providers to operate homes even though there are clear gaps in the prevention and reporting of abuse and neglect.
The Massachusetts report is the third report issued by the HHS IG thus far on abuse and neglect in individual states. Last year, the IG issued a report on New York State; and in May, the agency issued a report on Connecticut.
U.S. Senator Chris Murphy of Connecticut, who originally requested in 2013 that the HHS IG investigate abuse and neglect in group homes around the country, commented this week on the findings, at least concerning Connecticut and Massachusetts. In a statement issued on Monday, Murphy said he will introduce federal legislation to require reporting of incidents of abuse and neglect, and training of direct care staff in group homes.
Murphy’s office did not respond to a request from COFAR earlier this year for comment on the New York report. As we noted in February, the New York report contained no recommendations and no critical findings, and was only six pages long.
The Massachusetts report, in contrast, was 33 pages long. Like the Massachusetts report, the Connecticut report, which was issued in May, found numerous failures to report abuse and neglect to state authorities.
Despite its thoroughness in examining the incident reporting process in Massachusetts, we believe even the IG’s Massachusetts report was limited in its scope. We think it could have gone much further in investigating the major problems posed by the privatized residential system.
In requesting the IG investigation, Murphy’s 2013 letter to Daniel Levinson, the HHS IG, emphasized the role of privatization in causing “a race to he bottom in our health care system. Privatization of care may mean lower costs but without the proper oversight and requirements for well-trained staff,” Murphy stated.
In limiting its report primarily to findings of failures to report instances of abuse and neglect, the IG has focused on a small piece of the overall problem. The larger issue concerns not only the level of abuse and neglect in the privatized system, but the overall adequacy of care that exists in it.
The HHS IG report did not examine the impact of privatization on the quality of care in the group home system, and did not specify whether the residents whose emergency room visits the IG sampled lived in privatized or state-run group homes.
We have found that the state’s ongoing privatization of residential services has resulted in a corporate, bottom-line approach to care of the disabled. Moreover, DDS has insisted on steering people waiting for residential care to the privatized group home system, all the while failing to provide state-run homes as an option.
The case of Kathleen Murphy is an example. As we have previously reported, Kathleen’s sister and guardian, Patricia Murphy, and members of her family began trying to move Kathleen from a corporate provider-operated group home to a state-operated residence in 1998. DDS continually declined to move her, despite a federal law requiring that the Department provide disabled individuals with a choice among all available alternatives for residential care.
Patricia Murphy finally filed a federal lawsuit in 2013, which resulted in the placement of Kathleen in a state-operated residence. (By way of disclosure, Kathleen Murphy is represented in the case by Tom Frain, who is COFAR’s Board president.)
Patricia Murphy contends that Kathleen suffered nearly 16 years of physical abuse, sexual assaults, emotional torment, and medical neglect in provider-operated group homes. She says her sister was also grossly over-drugged in those facilities, and her clothing, jewelry and spending money were stolen.
The state-operated residence to which Kathleen was finally placed is “the best thing that ever happened to her,” Patricia said. She said that since moving to the state-operated group home, Kathleen has lost 45 pounds, is being fed nutritious food, is off all psychotropic drugs, and her blood pressure is under control.
Yet these experiences as reported by families are apparently of little interest to the federal government, in particular, which, like the state, is committed to further privatization of residential services for the developmentally disabled. While the U.S. Department of Justice has placed a major emphasis in recent years on investigating and closing down state-operated facilities and services for the disabled, there have been few if any comprehensive investigations of the privatized group home system.
Unfortunately, the Massachusetts Legislature has adopted a look-the-other-way attitude regarding these problems. As far as we know, no legislative committee has scheduled any hearings in recent memory on the problem of abuse and neglect in the DDS system.
Both the Legislature and the Baker administration have continued a policy of boosting funding for further privatization of services while slowly starving the much more responsive state-run group home system of budgetary support.
We hope that the IG report, limited as it was, spurs the Legislature to finally pay attention to the big issues that surround the care of persons with developmental disabilities in Massachusetts. Those issues concern privatization and its impact on abuse, neglect, and the quality of care in general.
Gov. Baker’s FY ’17 budget continues race to the bottom in care of the developmentally disabled
In his proposed Fiscal 2017 budget, which he filed last week, Governor Baker is continuing to boost funding for privatized care for the developmentally disabled at the expense of state-run care.
This continues a pattern that has crossed party lines — the Patrick administration did the same thing — of reducing both the available choices and the quality of care for people with developmental disabilities.
Privatization of human services reduces the quality of care because it reduces money spent on direct-care staffing. Direct care workers of corporate providers get lower pay and less benefits than their counterparts in state-run facilities.
Privatization reduces choice in care because it results in the closures of state-run facilities and consequently eliminates them as an option for people who might want that higher level of staffing and care.
Of course, as the linked New York Times article points out, privatizing services doesn’t necessarily result in long-term fiscal savings for state taxpayers. The money saved in hiring lower-paid workers is usually offset by higher costs such as unemployment insurance and by Medicaid and other public assistance for workers earning low incomes. We also believe any savings in privatization is also offset by the often inordinately high compensation provided to executives of the corporate providers.
Yet it appears the Baker administration still believes it will save money in using lower-paid direct-care workers. That seems to be the case with the administration’s proposal to privatize mental health services in southeastern Massachusetts. In that case, the administration appears to be implicitly backing a reduction in wages to direct-care workers after an initial contract period.
Governor’s FY ’17 DDS budget numbers
Here are some of the key numbers in Baker’s Fiscal 2017 budget proposal for the Department of Developmental Services. Note: All numbers below are adjusted for inflation using the Mass. Budget and Policy Center’s CPI index numbers. The CPI numbers show inflation running at about 1.8 percent for Fiscal 2016.
We believe that in order to gauge the level of the administration’s commitment to privatization of services for the developmentally disabled, it’s necessary to compare what has happened and is happening to the corporate provider line item with what happens to other DDS line items.
Here’s how it looks graphically, with more detailed explanation below.
Corporate provider residential line item (5920-2000): This is the main DDS line item supporting privatized services. It has become by far the largest line item in the DDS budget — funding under this line item exceeded $1 billion for the first time in Fiscal 2015.
The governor’s Fiscal 2017 budget would increase the corporate provider line item by $5.9 million, or 0.5 percent, over current-year funding. If the governor’s Fiscal 2017 budget is adopted, this line item will have been increased by $309 million, or 38.6 percent, since Fiscal 2012.
Chapter 257 Reserve 1599-6903: This is a reserve fund created to last year to provide even more funding for corporate providers. The governor’s budget would increase this fund by $5.7 million or 18.6 percent, to $36.2 million.
The following three line items are key indicators of the administration’s commitment to state-run services.
State-run developmental centers budget line item (5930-1000): The governor’s Fiscal 2017 budget would cut this line item by $3.18 million or 2.8 percent from the current-year appropriation. If the governor’s proposal for Fiscal 2017 is adopted, this line item will have been cut by $41.6 million, or 27.5 percent, since Fiscal 2012.
That $41.6 million cut reflects the closures since 2008 of three of six remaining developmental centers.
State-operated Residential line item (5920-2010): The governor’s Fiscal 2017 budget would cut this line item by $212,800, or 0.1 percent, from current-year funding. (In nominal dollars, the governor has proposed a $3.7 million increase in this line item, but it’s a cut when adjusted for inflation.) If the governor’s Fiscal 2017 budget is adopted, this line item will have been increased by $42.8 million, or 24.4 percent, since Fiscal 2012.
That 24.4 percent increase since Fiscal 2012 for state-operated residential care can be compared to the 38.6 percent increase in the corporate provider residential line item. Moreover, that funding increase in the state-operated residential line item is actually a result of the underlying dynamic of privatization.
As we have noted before, there has been a net increase of 40 state-run group homes over the total number in 2008; but the state has closed state-run residences even as it has built new ones. It appears the new state-run residences and the additional funding for those residences have been intended to accommodate the more than 250 people who have been transferred since 2008 from the closed developmental centers and the closed state-run homes. Those are apparently the only people who have been admitted to the new state-operated homes.
As we’ve also pointed out, the administration does not even offer state-run residential facilities as options for developmentally disabled people waiting for residential care. Privatized, corporate-run care has become the only “choice” available those people despite the fact that the federal Medicaid Law requires that developmentally disabled individuals and their guardians be informed of the available “feasible alternatives” for care.
DDS administration (5911-1003): In addition to administrative functions, this line item funds DDS service coordinators, who are responsible for ensuring that clients throughout the system are receiving services to which they are entitled. The service coordinators have seen their caseloads rise dramatically in recent years, but funding under this line item has never kept up with the caseload increases.
The governor’s Fiscal 2017 budget would cut the DDS administrative line item by $977,000, or 1.4 percent. (In nominal dollars, the governor is proposing a slight increase in this line item, but it’s a cut when adjusted for inflation.) Since Fiscal 2012, this line item will have been increased by 8.1 percent if the governor’s Fiscal 2017 budget is approved.
Other line items that demonstrate the administration’s commitment to increased DDS privatization include the following:
Community day and work 5920-2025: The governor’s budget would increase this line item by $5.6 million or 3 percent. Since Fiscal 2012, this line item will have been increased by 45 percent if the governor’s Fiscal 2017 budget is approved. It appears that some of the increase proposed for this line item reflects the transfers of people from sheltered workshops to day programs.
Employment pilot program 5920-2026: The governor’s Fiscal 2017 budget would increase this line item by $4.6 million, which is a major increase, given that the current year appropriation is just over $3 million. That proposed 150 percent increase reflects the transition from sheltered workshops to supposed integrated employment.
The pattern of privatization in Massachusetts state government has become almost permanently established even though the benefits of privatization are highly debatable. Many questions have been raised about the privatization of prisons and the privatization of education in Massachusetts and elsewhere around the country. The privatization of human services may be the biggest prize of all for government-funded contractors. We need to preserve what’s left of state-run services.
Most of the mainstream media skipped class last week on privatization and the Pacheco Law
It’s amazing how little real understanding the mainstream media has of the issue of privatization and of legislative responses to it such as the Pacheco Law.
You only have to read this Boston Globe editorial from 2011 to begin to realize how many misconceptions supposedly savvy journalists have about these issues. (More about that below.)
Privatization is one of the most important and controversial aspects of state and federal policy. When I googled the phrase “privatization and public policy,” I got 2.7 million results. The state auditor’s administration of the Pacheco Law has become a key item of controversy in Massachusetts politics as well.
In that light, the State Auditor’s Office and the Boston Bar Association organized a forum directly across the street from the State House this past Thursday afternoon to discuss and debate the Pacheco Law and its impact on privatization, and invited the media to attend.
I was invited to present the pro-Pacheco Law side in the discussion, and Charlie Chieppo, a senior fellow at the Pioneer Institute, presented the anti-Pacheco Law side. A number of top people from the Auditor’s Office presented information on how the law works, highlights of its 23-year history, and key areas of litigation involving the law. Michael LaGrassa of UMass Dartmouth discussed the university’s experience with the Pacheco Law in privatizing the campus bookstore operations in 2014.
In addition to the lineup of speakers, the State Auditor’s Office had put together three-ring binder notebooks filled with helpful information on the Pacheco Law and what it actually does and requires, in addition to materials we had submitted stating our positions on the law. (Included in the binder was our report, “Setting the record straight about the Pacheco Law.” I’ll post that report here this week.)
As I understand it, two members of the media showed up at the Thursday forum — a reporter from Massachusetts Lawyer’s Weekly and a reporter from The Boston Business Journal. I haven’t yet seen anything published from them, but at least they were there.
Neither the Globe nor Herald sent anyone to the event. Notably absent was Globe columnist Scot Lehigh, who has been described as someone who “has been the most consistent and vociferous critic of the (Pacheco) law…”
From my vantage point, there appeared to be some 50 to 60 people in attendance at the forum.
Among the little-known and discussed facts about the Pacheco Law that I tried to point out during the forum were that:
- The Pacheco Law was based on federal policy (OMB Circular A-76)
- The law never barred or banned the award of bus contracts by the MBTA, and the law has not stopped privatization of most human services in Massachusetts
Chieppo of the Pioneer Institute argued that the Pacheco Law is different than A-76 because A-76 requires a binding letter of obligation if the public employees win the bid competition with the private sector. (I disagreed with his assertion that no such obligation binds state employees under the Pacheco Law.)
LaGrassa of UMass said the Pacheco Law review that the university did to privatize their bookstore helped them to better understand the costs involved in running it. He said that the process involved a lot of work and back-and-forth with the auditor’s office; but in his words, “you should do a lot of work” if you are going to privatize a public service.
Regarding the 2011 Globe editorial referred to above:
Memo to Globe editorial writer: Contractors bidding to privatize services don’t have to pay public sector wages under a Pacheco Law review. They can pay the lesser of the lowest public sector wage or the average private sector wage for the equivalent position.
And no, a privatization initiative doesn’t have to “produce savings” over what the state employees could achieve under ideal conditions. The privatization initiative must project such savings, but no one has to — or is expected to — actually produce them. The Pacheco Law requires a competition between private and public sector bids, both types of which are based on projected results that might be achieved under ideal conditions.
The bottom line, it seems to me, is that people in the mainstream media still occupy influential positions as opinion makers regarding politics and government, in particular. As such, they have an obligation to get their facts straight on these matters. The state auditor’s “Primer” on privatization last week presented a convenient opportunity to do that.
But with two exceptions, the mainstream media blew their opportunity by missing the class.
Baker administration interpreting Pacheco Law to potentially benefit private company
In what may be one of the first tests of the Pacheco Law in the privatization of human services, the Baker administration is seeking to contract out existing emergency mental health services in southeastern Massachusetts.
What concerns us about this situation is that the administration is reportedly interpreting the Pacheco Law to allow a for-profit company, the Massachusetts Behavioral Health Partnership (MBHP), to cut its proposed wage rates within roughly a year after starting to provide those services and potentially to pocket the extra profits.
This is not surprising given that a key executive from MBHP was appointed to a new position in the Baker administration that appears to have at least a supervisory role over contracts with the company. (More about that below.)
The administration’s interpretation of the Pacheco Law has drawn a rebuke from the law’s author, state Senator Marc Pacheco.
First, however, a bit of background: The Pacheco Law requires a state agency seeking to privatize services to submit to the state auditor a comparison of a bid or bids from outside contractors with a bid from existing employees based on the cost of providing the services in-house “in the most cost-efficient manner.”
If the state auditor concurs that the outside bidder’s proposed contract is less expensive and equal or better in quality than what existing employees have proposed, the privatization plan will be likely to be approved. If not, the auditor is likely to rule that the service must stay in-house.
Two key provisions of the Pacheco Law that potentially apply here are:
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- Under the law, an outside contractor’s proposed bid must specify wages at the lesser of either the average private-sector wage for the equivalent position or the lowest public-sector wage level for the position. In other words, the law establishes a minimum wage rate that the outside contractor must propose.
- The Pacheco Law does not apply when contracts for privatized services are renewed. In other words, if a private bidder wins a contract under the Pacheco Law process, that contractor does not have to undergo another review by the auditor in order to renew the contract.
The reason that Provision 2 above is pertinent to this case is that MBHP currently has an ongoing Primary Care Clinician (PCC) contract with MassHealth for separate clinician services that is scheduled to run through June 30, 2017.
As we understand it, the administration intends that the current PCC clinician services contract with MBHP will become the overall contract for the emergency services that the administration is now seeking to privatize. And the administration’s interpretation of Provision 2 above is that if the privatization plan is approved by the auditor, all of the contract provisions in the contract bid will cease to exist when the current PCC contract is renewed.
Thus, it is reportedly the administration’s position that after the MBHP’s PCC contract with MassHealth officially ends in June 2017, MBHP will be legally free to cut the wage levels it is stipulating in its bid. If so, we believe it is unlikely that the company would pass along the savings in cutting wages to state taxpayers, but would instead pocket those savings as profit. As a for-profit, MBHP has an incentive to pocket any operating cost savings as retained earnings.
The administration’s interpretation of the Pacheco Law is ironic because one of the main objections to the law from the law’s most vocal opponent, the Pioneer Institute, is that the bidding contractor in a privatization proposal is required to stick to the terms of its bid whereas there is nothing in the law to ensure that the terms of a state employee bid are enforced.
As Pioneer stated in an influential report last year (linked above):
The Pacheco Law does not contain any requirement that agency employees subsequently provide service in the most cost efficient manner or in an improved manner if the proposed privatization contract is rejected.
But in fact, it appears that it is the administration’s interpretation that it is the outside contractor that doesn’t have to stand by its bid once its contract is renewed.
Sen. Pacheco himself has warned that the administration’s interpretation of the law that was named for him would “undermine” the intent of the law. In a letter sent to Attorney General Maura Healey in November, Pacheco stated that:
Although renewal contracts for validly privatized work do not need to be resubmitted to the Auditor (for a Pacheco Law review), it was never my or the other supporters’ intent that wages and health benefits could sink lower than the “minimum wage” established by the Taxpayer Protection Act (the Pacheco Law) once the initial contract expired. If that is permitted, the statutory purposes of preserving the quality of publicly funded services and providing minimum protections for private sector and public workers would be completely undermined.
Moreover, it seems to us that the Pacheco Law does prevent the state employees from submitting an artificially low bid and then subsequently ignoring it. The Pacheco Law states that if the employees want to submit a bid with wage costs that are lower than what are in a collective bargaining agreement, they must negotiate a change in that agreement with the applicable state agency. That new collective bargaining agreement is binding on the state employees and cannot be changed unless the state agency agrees.
A potential decline in service quality
As we understand it, the Baker administration is projecting a savings of $5 million a year in privatizing the emergency mental health services in Southeastern Massachusetts.
SEIU Local 509, a state employee union, has put in a bid on behalf of the state employees currently providing the emergency services that envisions saving about $500,000 per year. So, the state auditor may well determine that there would be a greater savings in privatizing the services. However, the union is arguing that the quality of those services is likely to decline under the privatization plan because the financial savings will depend on major cuts in staffing.
The administration’s reported interpretation of the Pacheco Law’s contract renewal provision appears to bear out the SEIU’s concerns about a potential drop in the quality of the privatized services offered by MBHP. If MBHP or its subcontracting firms are legally free as of mid-2017 to cut the wage rates proposed in MBHP’s bid for the emergency services, it seems to us to be very likely that the quality of those services will suffer.
Political connections appear to have played a role in the MBHP case
It’s hard to overstate how politically connected MBHP is. There appear to be a number of close relationships between the company and the Baker administration and with previous administrations — and in particular with the Executive Office of Health and Human Services, which will oversee the privatized mental health services.
Last April, Scott Taberner, previously the chief financial officer at MBHP, was named Chief of Behavioral Health and Supportive Care in MassHealth, the division of EOHHS that administers Medicaid and healthcare for low income and disabled persons. Taberner’s position in Masshealth was created by the Baker administration. MassHealth is seeking the privatized mental health services contract with MBHP.
Prior to that, in late May 2014, Beacon Health Strategies (Beacon) announced its plan to merge with ValueOptions, the parent company of MBHP. Under the arrangement, Beacon will be 50 percent owned by Bain Capital and 50 percent owned by Diamond Castle Holdings.
Bain Capital was formed by former Massachusetts Governor Mitt Romney. Last April, the same month that Taberner joined the Baker administration, former Massachusetts Governor Deval Patrick joined Bain as a “social impact” investment advisor. That doesn’t appear to have any direct connection to the proposed MBHP privatization contract, but I thought I’d throw that in.
According to the Mass. Psychological Assn. (MPA), ValueOptions and Beacon both hold a large market share in programs in Massachusetts that are paid for through public funds. As noted, MBHP manages benefits for the PCC program. The MPA estimated that once the merger was finalized, Beacon would manage the behavioral health benefits of 78 percent of the Massachusetts Group Insurance Commission members and of 70 percent of MassHealth members.
A coalition of health care advocacy groups signed onto an MPA letter in August 2014 to the Mass. Health Policy Commission, expressing concern about the proposed merger of Beacon and ValueOptions. The letter stated that the merger “will limit the already narrow choices offered to insured individuals whose primary diagnosis is related to behavioral health…”
It does appear that the merger went through. Now it appears that MBHP is being primed by the administration to run the privatized emergency mental health contract via MassHealth; and Taberner, a former MBHP executive, appears to be involved in that effort or is at least in a position to oversee it.
The administration itself has described Taberner’s new position at MassHealth as follows:
…Taberner will lead reforms to better coordinate and integrate care for behavioral health, physical health and long-term services and supports for elders and persons with disabilities.
The Baker administration wants to make the emergency mental health services part of the MassHealth PCC contract with MBHP. A former MBHP executive is now in a high-level position in the state agency contracting with his former company. And now the administration is interpreting the Pacheco Law in MBHP’s favor by indicating that if the privatization plan is approved, MBHP will be legally free to cut wage levels as of June 2017 when its PCC contract up for renewal.
The Pacheco Law has borne the brunt of much bad press and political criticism over the years; but we have argued that most of that criticism has been based on misinformation about the intent of the law and what it actually does. The proposed privatization of the Southeastern Massachusetts emergency mental health services demonstrates why the auditor’s scrutiny is needed of such privatization proposals and consequently why the Pacheco Law provides critically important protections for taxpayers and the quality of public services.
I’ll be defending the Pacheco Law at a Boston Bar Assn. forum next month
Based on our blog posts earlier this year defending the scrutiny of the privatization of state services that is provided under the Pacheco Law, I’ve been asked to present a defense of the law at an upcoming forum sponsored by the Boston Bar Association.
Arguing in opposition to the Pacheco Law at the January 7 forum will be Charles Chieppo, a senior fellow at the Pioneer Institute, one of the state’s leading proponents of privatization and leading critics of the Pacheco Law.
Also participating in the forum will be two presenters from the State Auditor’s Office, which administers the law, and Michael LaGrassa, assistant vice chancellor for administrative services at at UMass Dartmouth.
The Pacheco Law has borne the brunt of much bad press and political criticism over the years; but we have argued that most of that criticism has been based on misinformation about the intent of the law and what it actually does.
The law requires a state agency seeking to privatize services to compare bids from outside contractors with a bid from existing employees based on the cost of providing the services in-house “in the most cost-efficient manner.”
If the state auditor concurs that the proposed contract is less expensive and equal or better in quality than what existing employees have proposed, the privatization plan will be likely to be approved. If not, the auditor is likely to rule that the service must stay in-house.
Earlier this year, in the wake of a critical report about the Pacheco Law by the Pioneer Institute, the state Legislature suspended the law’s provisions for three years with regard to the MBTA.
While the Pacheco Law does not appear to have had a role in preventing the past privatization of human services, which we are primarily concerned with, we are concerned that the Baker administration’s next step might well be to exempt future privatization of human services from the law.
At Blue Mass Group, where we often cross-post our blog posts, I and other commenters have already engaged in quite a bit of online debate (here and here) over the Pacheco Law with Greg Sullivan of the Pioneer Institute. I’m looking forward to continuing to set the record straight about this important law at next month’s forum.
Virtually no one waiting for DDS care getting into state-run DDS homes
Despite the fact that an unknown number of intellectually disabled people are waiting for residential services in Massachusetts, new data provided by the state appear to show that virtually none of those people are getting into state-operated group homes.
According to the data, provided by the Department of Developmental Services in response to a Public Records Law request, the number of people living in state-operated group homes in Massachusetts increased by a total of 144 between fiscal 2008 and 2015.
Previously, DDS had provided data showing a total of 156 persons had been transferred from state-run developmental centers to state-operated group homes between fiscal 2008 and 2014.
These numbers seem to imply that the entire increase in population in the state-operated homes since 2008 came from the developmental centers. Also, the numbers appear to imply that up to 12 of those transferred residents have either died or been transferred for a second time to some other location since 2008.
We’ve written previously that DDS data appeared to show that the Department was failing to inform people seeking residential care of the option of state-run services. Families and individuals appear to be directed almost exclusively to group homes run by corporate providers to DDS.
In addition to provider-run group homes, DDS maintains a network of group homes that are staffed by departmental employees. State workers have better training on average than do workers in privately run residences, and have lower turnover and higher pay and benefits.
There are an unknown number of people in Massachusetts waiting for residential care and services from DDS. This number is unknown because DDS doesn’t officially acknowledge a waiting list. The Massachusetts Developmental Disabilities Council has cited a 2010 survey indicating that some 600 people were waiting for residential services in the state, and up to 3,000 people were waiting for family support services.
Despite the apparent lack of sufficient housing and services for all of those who need it, DDS appears to be steadily phasing out state-run services and transferring those services to private providers. Yet, the capacity of the provider-based system is clearly inadequate to meet the entire need for services. And as we’ve recently noted, privatization of state services doesn’t automatically result in lower cost or better quality.
Some other highlights of the new DDS numbers:
- There were a total of 266 state-operated homes in Massachusetts as of April 2015, which amounted to a net increase of 40 homes over the total number in 2008. Previous data from DDS indicated that DDS had closed 28 state-operated residences since 2008.
- Virtually all the (97 out of 99) people living in the state-operated homes that were closed were transferred to the new state-operated homes.
Thus, there has been a total of 253 people who have been transferred since 2008 from the developmental centers and the closed state-operated homes, apparently all to the new state-operated homes.
This raises a further question about DDS’s priorities. Given the hundreds waiting for residential care in the state, why did DDS close 28 state-operated group homes in the past eight years?
- DDS has no projections on the number of people who will be living in state-operated homes in the next five to 10 years.
The bottom line is that it appears the state-operated DDS system has been expanded only enough to accommodate people already receiving services.
The situation may violate the federal Medicaid Law, which requires that intellectually disabled individuals and their guardians be informed of the available “feasible alternatives” for care. In addition, the situation appears to violate the federal Rehabilitation Act, which states that no disabled person may be excluded or denied benefits from any program receiving federal funding.
On July 27, I sent an email to DDS, asking for information on the number of people who have been admitted to state-operated group homes who were not transferred there from other state-operated homes or from the developmental centers. I haven’t yet received a response to that question, but I will be very surprised if the answer is more than a handful of people.
As this post attempts to demonstrate, it is virtually impossible for anyone seeking DDS services to be admitted to a state-operated group home. One of the few people who was able to accomplish it in recent years had to file a federal lawsuit to do so.
Both the administration and the Legislature have provided disproportionate increases in funding to the provider-operated residential system in Massachusetts, and have continued to short-change state-operated care. Now that it turns out that the previous fiscal year ended with a $200 million surplus and not the deficit that had been projected, we hope the Legislature will begin to consider restoring some balance to the DDS system, and begin to fund state-run care adequately.
Governor’s MBTA panel provided virtually no support for its recommendation to restrict the Pacheco Law
The Governor’s Special Panel to Review the MBTA earlier this year made some reasonable proposals to better manage the MBTA. But the Panel report’s recommendation to remove the MBTA from the Pacheco Law’s jurisdiction appears to us to have been a misstep; and the report spent less than a sentence in explaining the rationale for its recommendation.
Based in part on the Panel’s recommendation, the Legislature suspended the Pacheco Law’s provisions for three years with regard to the MBTA, thereby removing an important means of ensuring long-term cost-effectiveness in privatizing services at the T.
The Pacheco Law’s stated intent is “to ensure that citizens of the commonwealth receive high quality services at low cost.” The Special Panel’s report asserted, however, that “the MBTA is inhibited by the Pacheco Law from procuring private, cost-effective services…”
That latter statement, which appears to constitute the sum total of the Panel’s discussion of the Pacheco Law, appears to be at odds with the stated purpose of the statute. There is no additional comment in the report about the impact of the law — not even an explanation of what the law does.
Moreover, as discussed below, the Special Panel did not appear to have consulted with state agencies that oversee procurement of supplies and services in Massachusetts, in preparing its report. Possibly as a result, the Special Panel’s report also appears to be incorrect in stating (in that same sentence) that the MBTA is “strictly limited by state law in its use of many procurement processes (e.g., CM at-Risk and Design/Build).” More about that below as well.
The Special Panel has previously run into criticism from CommonWealth magazine for flawed methodology on which it based a separate finding concerning employee absenteeism at the MBTA.
What the Pacheco Law actually requires
As we’ve noted before, the Pacheco Law requires a state agency seeking to privatize services to compare bids from outside contractors with a bid from existing employees based on the cost of providing the services in-house “in the most cost-efficient manner.” The bids from both contractors and existing employees are examined by the state auditor, who must determine whether:
1. the proposed contract cost is lower than the calculated cost of providing in-house services in the most cost-efficient manner; and
2. the quality of the proposed services will be equal to or better than the quality of the services proposed by the existing employees.
What this means is that both parties — the state employees and the outside contractors — can bid to provide the services; and, if the state auditor concurs that the proposed contract is less expensive and equal or better in quality than what existing employees have proposed, the privatization plan will be likely to be approved.
The Special Panel contends that the Pacheco Law “inhibits” privatization. But State Auditor Suzanne Bump has stated that her office has approved 12 out of 15 privatization proposals presented to the office since the Pacheco Law was enacted in 1993.
The Special Panel did not consult key state agencies that regulate procurement of supplies and services in Massachusetts
Among the 38 organizations listed by the Special Panel in its report as having provided the Panel with input, most were special interest groups, ranging from the Mass. Association of Realtors to the Conservation Law Foundation to the Boston Carmen’s Union. But not on the Panel’s list was anyone from the office of the state auditor, which, as noted, administers the Pacheco Law, or either the inspector general or attorney general’s offices, which oversee state procurement laws and regulations.
That may explain why the Special Panel’s report stated, apparently incorrectly, that the MBTA “is strictly limited by state law in its use of many procurement processes (e.g., CM at-Risk and Design/Build).” In fact, this is the second half of the sentence cited above, claiming that the MBTA has been “inhibited” by the Pacheco Law. Once again, a single sentence (or rather half a sentence) constitutes the sum of the report’s discussion of an allegedly serious problem faced by the MBTA — in this case, the alleged limitations on the MBTA’s procurement options.
Construction management at-risk (CM at-risk) and design-build services are alternatives to the traditional design-bid-build approach in managing public projects. Under the traditional approach, construction contractors bid on fully completed designs. The alternative approaches allow for fast-tracking some construction activities before design is complete.
Despite the Special Panel’s assertion, the state’s bidding laws do provide permission to the MBTA and other state agencies to use CM at-risk for building construction projects (MGL C. 149A, Section 4), and design-build for public works projects, estimated in both cases to cost $5 million or more (MGL C. 149A, Section 16).
If the Special Panel’s concern was that the MBTA should be allowed to use CM at-risk and design-build on projects costing less than $5 million, it wasn’t stated in the report.
Email query to Professor Gomez-Ibanez
On January 28, I emailed Jose Gomez-Ibanez, a professor at Harvard’s Kennedy School and a member of the Special Panel, to ask whether he concurred with the Panel’s recommendation on the Pacheco Law.
Gomez-Ibanez has written compellingly about economic and political issues involved in the privatization of governmental functions and services. In a 2004 working paper, “The Future of Private Infrastructure,” he stated that:
…in retrospect it is clear that we severely underestimated the difficulties of privatization. We often failed to appreciate that the challenge of privatization was not primarily technical, but also fundamentally political.
In our view, the Pacheco Law implicitly recognizes those technical and political problems of privatization.
In my email, I stated that:
It is not surprising to us that a conservative think tank such as the Pioneer Institute might draw ideologically based conclusions about privatization. But it was surprising to me that the Governor’s Special Panel, which included faculty of Harvard and Northeastern Universities, including yourself, would support a recommendation that appears to have no written rationale to support it.
To date, I haven’t heard back from Gomez-Ibanez.
Critics of the Pacheco Law overlook the costs of privatization
In its single statement about the Pacheco Law’s impact, the Special Panel contends that privatized services are inherently more cost-effective than in-house services, and implies that even requiring a comparison between in-house and contracted services is unnecessary.
While the Special Panel provides no explanation for its assertion about the Pacheco Law, the Pioneer Institute, one of the chief critics of the law, argues that the major flaw in the cost-competition process under the law is the following: if the state employee bid is found to be lower than the contract bid, there is nothing in the law that requires the state agency to adhere to the state employees’ bid costs going forward.
But this argument overlooks the fact that there is little to prevent contract costs from rising over time as well.
As we pointed out previously, the cost of contracting at the T appears to have risen even faster than in-house services there. The T’s budget history appears to bear this out as well. The budget shows contracted commuter rail expenses rising by 122.5 percent between fiscal 2001 and 2016, compared with a 75.6 percent increase in-house wages during that same period. The budget also shows “purchased (contracted) local service expenses” rising by 336.3 percent between fiscal 2001 and 2016.
One of the reasons that privatization can be expensive is that the private sector tends to pay higher salaries than the public sector for upper-level management positions, and lower wages than the public sector for lower-level positions. So, allowing unfettered privatization of an already quasi-privatized organization such as the T would seem likely to exacerbate the problem of high executive salaries.
The Special Panel appears to have played political games with its report
I would venture to guess that at this point, some members of the Special Panel are wishing they hadn’t signed on to the product that the Panel ultimately delivered. Whenever the final report of a panel or commission is a PowerPoint presentation, as was the case with the Special Panel’s report, it may be a tipoff that the product isn’t first-rate.
I would also venture to guess that the single-sentence (or half-sentence) critique of the Pacheco Law in the Panel’s report may have been stuck in there at the last-minute — maybe at the request of the man who commissioned the report in the first place — Governor Baker — who has made the Pacheco Law a political target of his at least as far back as his first run for governor in 2010. Is it really a coincidence that Baker’s hand-picked commission came up with the very same recommendation about that particular law that Baker has espoused for years?
Politics and public policy obviously go hand in hand, and that’s as it should be. But major policy decisions should not be based solely on politics. Recent developments in the long-running saga of the Pacheco Law show how major policy decisions can, in fact, be based on ideologically biased analyses and unsupported statements from prestigious commissions.
MBTA commuter rail contracts rose by a greater percentage than in-house bus costs
While proponents of privatizing the MBTA point to the rising cost of in-house operations there, the cost to the agency of contracting out appears to have risen even faster.
The annual cost to the MBTA of contracting for commuter rail services has risen by 99.4 percent since 2000, compared with a 74.9 percent increase in the annual cost of the agency’s in-house bus operations, according to cost information we’ve compiled from public online sources (see below).
In our view, the rising cost of the commuter rail contracts since 2000 casts further doubt on the claims by the Pioneer Institute and other privatization proponents that contracting out for services will automatically save hundreds of millions of dollars at the T.
In case you missed it, the Pioneer Institute issued a report earlier this month that compared the actual cost of MBTA bus operations to a proposal based on bids from outside contractors to undertake those functions.
The Pioneer report concluded that had the state auditor allowed the planned privatization of the bus operations to go forward, the MBTA would have saved $450 million between 1997 and 2015. The report claimed those allegedly foregone savings were the fault of the Pacheco Law, which the auditor had cited in objecting to the outside contract proposal.
(As discussed below, the state auditor did not definitively reject the MBTA’s contract proposal, but rather asked the agency to resubmit its proposal after addressing concerns raised by the auditor about its cost calculations. The MBTA never did resubmit its proposal, but instead chose to sue the auditor in state superior court to reverse the auditor’s decision, and lost.)
The Pacheco Law requires state agencies seeking to privatize existing operations to show that bids from private contractors would be lower than a calculated cost of continuing to perform specified work by regular state employees “in the most cost-efficient manner.” The state agencies must submit their calculations to the state auditor, who has the final say as to whether the functions can be privatized.
Largely due to unrelenting political pressure from the Pioneer Institute and other privatization advocates, the Legislature approved a 3-year freeze earlier this month on invoking the Pacheco Law with regard to privatizing MBTA functions.
Last week, we raised a number of concerns about the methodology of the Pioneer report, including criticizing its comparison of actual in-house MBTA costs to bids. We argued that it’s meaningless to compare actual costs to hypothetical costs over a nearly 20-year period.
We think it would make more sense to compare actual in-house costs to actual contract costs over a multi-year period. An obvious candidate for an evaluation of actual contracting costs appears to be commuter rail.
The MBTA has contracted out for commuter rail service since the 1980s, according to a state audit report on the agency. Beginning in 1987, Amtrak began providing commuter rail services to the T under a cost-plus-overhead and profit contract. In 1995, this was changed to a negotiated fixed price contract with a three-year term and two one-year options.
In May 2000, according to the audit report, the MBTA was given permission by the federal government to extend the Amtrak contract without bidding for an additional three years. The total cost of the three-year contract extension, plus additional work that was in included in subsequent contracts, came to $168 million per year.
The Massachusetts Bay Commuter Rail Company (MBCR) subsequently won a competitive RFP process to operate the commuter rail system, starting in 2003. The cost per year of that fixed-price contract was $217.4 million, which amounted to a 29.4 percent increase over the cost of the Amtrak contract three years earlier. In that same period, the in-house cost of MBTA bus operations rose by just 12.8 percent, based on the Pioneer report’s figures (See chart below).
In 2008, the MBTA granted MBCR a three-year contract extension at a cost of $246 million per year, which amounted to a 46.4 percent increase in commuter rail contracting costs to the MBTA since 2000. In that same time, the in-house bus operations cost had risen 40.4 percent.
In 2011, MBCR received a final 2-year commuter-rail contract extension costing $288.5 million a year. By that time, the MBTA’s cost of contracting for commuter rail had risen by 71.7 percent since 2000, whereas the in-house cost of MBTA bus operations had risen by 55.7 percent.
Finally, the MBTA signed an eight-year contract last year with Keolis Commuter Services at an annual cost of $335 million, according to The Boston Globe. (Note: the headline on the linked Globe story appears to be wrong.) As a result, by the time Keolis began operations last July, its annual contract cost was 99.4 percent higher to the MBTA than the Amtrak contract cost had been in 2000. In contrast, the cost of in-house bus operations at the MBTA was only 74.9 percent higher in 2014 than it had been in 2000.
By the way, it may be only a matter of time before the Keolis contract cost rises above the $335 million annual amount, given that the company is reportedly already losing money operating the MBTA commuter system.
The Pioneer report characterized the in-house cost of MBTA bus operations as “inordinately expensive,” and concluded that for that reason, replacing that in-house service with contracted work in 1997 would have saved hundreds of millions of dollars. But the Pioneer report failed to consider the actual experience that the MBTA has had with contracting.
One might argue that you can’t legitimately compare the cost of commuter rail operations to bus operations. But at the same time, we think our comparison shows that entering into contracts for services doesn’t guarantee that the costs won’t rise dramatically. Since 1995, the commuter rail contracts have all been fixed-price contracts.
The Pioneer report misrepresented the state auditor’s objection to the MBTA’s 1997 privatization proposal as a “ban” on the award of the contracts
The Pioneer report referred in different places to the state auditor as having “banned” or “blocked” or “barred” the MBTA’s proposal to privatize the agency’s bus services in 1997. According to the report, this adverse decision, which was based on the Pacheco Law, not only thwarted the MBTA’s attempts to save costs and improve quality of its bus service, but the MBTA never again attempted to privatize that service.
But the actual decision by then State Auditor Joseph DeNucci did not ban or block or bar the MBTA from privatizing its bus services. Instead, DeNucci invited the MBTA to resubmit its proposal after addressing a number of issues raised in his decision letter and in a previous letter regarding the proposal. Among those issues were alleged failures by the MBTA to support specific cost savings in its bid proposal and to provide measurable indicators of service quality as a baseline for comparison, such as information about on-time performance.
It does appear that the MBTA was not happy with the issues and inquiries DeNucci’s staff was raising about the MBTA’s privatization proposal. According to DeNucci’s letter, the MBTA objected at one point to the auditor’s questions about how claimed savings in contracting out functions at garages in Charlestown and Quincy could be achieved since a third facility in Everett was providing services to support the two other garages.
When the auditor inquired as to how costs would be reduced at the Everett facility, the MBTA responded that the auditor’s inquiry was “of no significance,” and “beyond the scope” of the Pacheco Law.
DeNucci’s final letter to the MBTA stated the following:
Recommendation:
We believe that the MBTA should seriously address each of the above substantive issues disclosed
by our review. A carefully considered objective analysis of these matters, such as the Everett and
Arlington facilities, quality of service, changes and extra work, pension costs, 13(c), and bid price
changes, should be undertaken prior to privatization. A hasty, ill-considered, rather than a thorough
analysis, would not well serve the MBTA’s ridership and the taxpaying public.Conclusion:
Therefore, pursuant to Section 55(a) of Chapter 7, MGL, this office hereby notifies the MBTA of
its objection to the awarding of these contracts. In accordance with Section 55(d), this objection is final
and binding on the MBTA, until such time as a revised certificate is submitted and approved by this
office. As always, this office is available to discuss our findings and provide further assistance to the
agency. (my emphasis)
Whatever reasons the MBTA had for not answering the auditor’s questions, the fact that those questions remained unanswered was the reason that the auditor objected to the MBTA’s privatization proposal. Nevertheless, the auditor clearly invited the MBTA to try again and to resubmit a revised privatization plan that addressed the issues in the auditor’s review.
The Pioneer report implies that it is somehow the fault of the Pacheco Law and the state auditor that the MBTA never did revise or resubmit its proposal, and never again attempted to privatize its bus services. That seems to us to overlook the MBTA’s responsibility for failing to comply with the auditor’s reasonable requests for information.
If you want someone in authority to grant a request you’ve made, and they say they may well grant it, but first they would like some more information about it, do you then say “it’s none of your business?” That, in effect, appears to be what the MBTA told the auditor in the the bus privatization case.
It was the MBTA’s choice not to answer the auditor’s questions and subsequently to sue the auditor rather than resubmit its proposal. It was also the MBTA’s choice never to submit another privatization proposal to the auditor for those services.
Now, not only is the Pioneer Institute continuing to complain about the auditor’s 1997 decision, we think the Institute has failed to make the case that the decision cost the taxpayers money over the intervening years.
And one more thing about the Pioneer report’s calculation of the alleged foregone savings
As noted above, the Pioneer report’s figure of $450 million in lost savings from 1997 to the present, due to the Pacheco Law, is based on comparing the T’s actual in-house operating cost for bus service to an outside contract bid. The report stated that as a means of comparison, it escalated the proposed contract bid between the years 2002 and 2013, the last date for which in-house cost data on the MBTA was available. The Pioneer report escalated the contract bid by the same percentage rate that it escalated the in-house cost each year.
But why did the Pioneer report not escalate the contract bid for the first five years of the comparison (from 1997 to 2002)? For no readily apparent reason, the report lists the same hourly contract rate for those first five years of its comparison. Yet, the report shows in-house MBTA costs rising by over 18 percent during that same initial five-year period. Had the report applied the same escalation rate to the contract bid as it did to the actual in-house costs throughout the comparison period (1997 to 2015), it would reduce the alleged $450 million in foregone savings by about $72 million.
If there was a reason that the Pioneer report assumed the bus contract costs would remain flat for the first five years, but would escalate after that, it isn’t stated in the report, as far as I could tell. But even if the report had assumed the same escalation rate throughout the comparison period, we would still reject the entire comparison of actual to proposed numbers.
The Pioneer Institute does acrobatic logical twists re the Pacheco Law
In what has been widely viewed as a setback for state employee unions in Massachusetts, state legislators last week approved a state budget for Fiscal Year 2016 that includes a provision freezing the Pacheco Law for three years with regard to the MBTA.
The Pioneer Institute apparently had a lot of influence on the Legislature in approving the Pacheco Law suspension. The Institute and other long-time opponents of the Pacheco Law claim the suspension, or better yet, an outright repeal of the law, will allow the T to operate without “anti-competitive” restraints on privatization, and thereby improve transit service and save taxpayers millions of dollars.
We have waded through the Pioneer Institute’s report, which is filled with charts and financial analyses. You don’t have to go too deeply into the numbers, though, to see that there are a number of apparent holes in the methodology and logical conclusions drawn in the report.
The Pacheco law basically says you have to prove you will save money before you can privatize state services. The Pioneer Institute has had to twist the numbers, logic, and the facts to persuade legislators and the public to draw the opposite conclusion.
In at least one instance, which I’ll get to below, the Pioneer report appears to have misquoted the actual language of the law. It’s an unusually acrobatic performance even by the standards of the Institute.
(Note: While the Pacheco Law does not appear to have had a role in preventing the past privatization of human services, which we are primarily concerned with, the Baker administration’s next step, with the support of the Pioneer Institute and like-minded organizations, might well be to exempt future privatization of human services from the law.)
Unsupported statement
I’ll begin by noting that the Pioneer report says, without any attribution, that several “anti-competitive elements” in the Pacheco Law “combine to create the nation’s most extreme anti-privatization law.”
What the Pioneer report doesn’t say is that the Pacheco Law is based on a federal Office of Management and Budget (OMB) requirement that federal functions be subjected to a competitive cost analysis before they can be privatized (OMB Circular A-76). As I’ll discuss below, at least two of the top three supposedly anti-competitive requirements in the Pacheco Law are also requirements in Circular A-76, while a third is a requirement of the Defense Department in complying with A-76.
The Pioneer report makes no mention whatsoever of Circular A-76, which has public-private cost-comparison elements that date back to the Reagan administration and even before. That’s not surprising since an analysis of the requirements of A-76 would seem to cast doubt on Pioneer’s claim that the Pacheco Law is the nation’s most extreme anti-privatization law.
Far from complaining that the cost analysis requirements of Circular A-76 would prevent public agencies from saving money through privatization, most of the critics of A-76 have contended that its real purpose has been to encourage privatization of federal functions by introducing cost competitions for what had been publicly provided services. As a result, a moratorium has actually been placed on A-76 cost competitions at the federal level since 2009 as a means of slowing the rate of privatization of federal agency services.
It is apparently only in Massachusetts that a law setting conditions for competitions to privatize services can be seen as an impediment to privatization. We do not view the Pacheco Law as an impediment to privatization if the case has been made that privatization will save money and ensure the quality of services.
The Republican Bush administration maintained in 2003 that the competition provisions in A-76 would save taxpayers money. As an online Bush administration document noted:
At the Defense Department, a survey of the results of hundreds of (A-76 public vs. private service) competitions done since 1994 showed savings averaging 42 percent…It makes sense to periodically evaluate whether or not any organization is organized in the best possible way to accomplish its mission. This self-examination is fundamentally what public-private competition is intended to achieve.
The Pioneer Institute’s apples-to-oranges comparison
The Pacheco Law authorizes the state auditor to compare bids from private contractors to a calculated cost of continuing to perform specified work by regular state employees “in the most cost-efficient manner.” If the auditor determines that the cost of continuing to provide the services in-house would be less than the bids, or if he or she determines that the privatized service would not equal or exceed the in-house service in quality, the auditor can reject the bids and the service will stay in house.
The main complaint raised in the Pioneer report about the Pacheco Law is that the the auditor used the law’s provisions to deny a proposal by the MBTA to sign two contracts in 1997 with private companies to operate 38 percent of its bus and bus maintenance service.
The Pioneer report concludes that had the Pacheco Law not been in effect, the MBTA would have saved $450 million since 1997 through the privatization of those bus services. But in making this claim, the Pioneer report compared bids proposed by the two prospective bus service vendors with actual costs incurred by the MBTA in that and subsequent years, and applied a cost-escalation factor to the bids.
The problem in doing that is that even though the Pioneer Institute claims it is being fair in applying that cost escalation factor, it is still comparing apples to oranges.
Under the Pacheco Law, the state auditor compared the bids from the vendors with a calculated cost of in-house operation at the MBTA based on operation in the most “cost efficient manner.” Based on that comparison, the auditor found that the MBTA operation would be less expensive than the proposed bus contracts.
The Pioneer report takes great exception to the Pacheco Law’s requirement that the cost comparison be made between contractor bids and a projection of the “most cost efficient” state operation. That is a key “anti-competitive element” that the Pioneer Institute cites. But the Pacheco Law is not unique in setting the comparison up that way. Circular A-76 also states that a federal agency can base its costs in a privatization analysis on what is referred to as a “most efficient organization.”
In fact, we think the Pacheco Law and Circular A-76 establish a true apples-to-apples comparison. While calculating costs based on operating in the most efficient manner may not reflect an agency’s actual operating costs, neither do bids necessarily reflect a vendor’s true operating costs. Bids are often lowballed, as we well know. As a result, contracting out for public services can prove to be much more expensive in actuality than it appeared in the plans or bids.
The Project on Government Oversight (POGO) found in 2011 that the federal government was paying billions of dollars more annually to hire contractors than it would to hire federal employees to perform comparable services.
We think that much of the high cost of human services contracting at the state level is due to a hidden layer of bureaucracy consisting of executives of corporate providers to the Department of Developmental Services. Our own survey showed that those executives receive some $85 million a year in taxpayer funding in Massachusetts.
So, in that regard, the Pioneer’s entire calculation of a $450 million in foregone savings in rejecting the MBTA vendor contracts is suspect, in our view.
A second major complaint about the Pacheco Law in the Pioneer report is that the law requires the winning bidder to offer jobs to public agency employees whose jobs are terminated by privatization. But that requirement is also in A-76.
Apparent misquote of the language in the Pacheco Law
The Pioneer report claims that under the cost analysis requirements of the Pacheco Law, any outside bidder must offer to pay the same wage rates and health insurance benefits to its employees as the incumbent state agency. This, according to the report, “neutralizes any potential advantage the outside bidder may have based on cost of labor.”
The Pioneer report, in fact, appears to be quoting from the law verbatim in including the following statement under the heading “Restrictive Elements of the Pacheco Law”:
Every privatization contract must include compensation and health insurance benefits for the contractor’s employees no less than those paid to equivalent employees at the public contracting agency; (my emphasis)
But I could find no such language in the Pacheco Law! Regarding wages, the Pacheco Law states that the outside bidder must offer to pay the lesser of either the average private sector wage rate for the position or step one of the grade of the comparable state employee. That could mean that the bidder could stipulate a lower wage cost in its bid than the state’s wage.
Regarding benefits, the Pacheco law says the bidder must offer a comparable percentage of the cost of health insurance plans as the state agency. This is consistent with the policy of the Defense Department, for instance, which prohibits private bidders in A-76 competitions from offering to pay less for health benefits than the DoD pays for its employees.
Despite his chamber’s action last week to freeze the Pacheco law, Senate President Stanley Rosenberg has appeared to be less than enthusiastic about the efforts to discredit the law and either freeze or repeal it. “There’s an ideological-slash-political component to this,” Rosenberg said. “We ought to be driving policy based on outcomes and data and how things actually work.”
Unfortunately, the latest attacks on the Pacheco Law seem to be more about ideology and politics than about real outcomes and data.
In 2010, I wrote a defense of the Pacheco Law, noting that it was already a major political target of the Pioneer Institute and Charlie Baker, who was making his first bid for governor at the time. If anything, the hyperbole and misrepresentations used to attack the Pacheco Law have only intensified since then.
COFAR blog 