THE MISSISSIPPI LEGISLATURE

Introduction

State law authorizes the Department of Finance and Administration (DFA) to administer the state and public school employees' health insurance plans and to enter into contracts with "accountants, actuaries and other persons from the private sector whose skills are necessary" to carry out the provisions of state law relative to the plans.

MISS. CODE ANN. § 25-15-11 and § 25-15-255 require the PEER Committee to report annually to the Legislature regarding contractors used by DFA to administer the health insurance plans, specifically addressing:

• the processes by which the department procured its contractors;
• the contractors' work products; and,
• contract expenditures.

State law requires that PEER's annual report include contracts for the most recently completed fiscal year and those for the current fiscal year-i.e., fiscal years 1996 and 1997 for this report. MISS. CODE ANN. § 25-15-11 and § 25-15-255 exclude from PEER's report the third-party administrator contract used by DFA to process health claims. (State law mandates that PEER contract for a compliance and performance audit of DFA's third-party administrator, which is issued under separate cover.) PEER excluded from this review DFA's provider network contracts because they primarily provide financial discounts to the plans rather than specific work products.

Overview

In procuring four administrative contracts during FY 1996 for the state employees' and teachers' health plans, DFA adhered to state law and good contracting principles. The department developed and advertised requests for proposals, rated the proposals based on a formal rating system, and selected contractors which submitted the highest-rated proposals. However, the department could improve its contracting process in the future by including more complete documentation of its needs determination and performing a cost-benefit analysis.

PEER identified other weaknesses in DFA's proposal evaluation process:

• DFA's rating system awarded points based on the number of number of client contacts submitted. However, because the requests for proposals did not explicitly state that proposers could enhance their ratings by listing more than the required minimum number of client contacts, the rating system could have favored proposers who submitted more client contacts than required.
• DFA's awarding of points to proposers having experience with Mississippi's health plans favored one incumbent contractor.

DFA's contractors under review delivered work products according to financial and other contractual requirements. The department expended $3,081,997 in fiscal year 1996 and $551,383 in the first two months of fiscal year 1997 on these contracts. PEER determined that DFA contracted for a claims audit with components that duplicate the FY 1996 statutorily required compliance and performance audit of the health plan's third-party administrator.

Recommendations

1. DFA should develop and implement a needs analysis process that includes a comparative financial analysis of the options of providing the services internally, whether through existing resources or hiring, or contracting with private firms for the services. The analysis should include comparisons for:

• the projected costs of contracting outside the office, including number of consultant hours needed for specific projects to be completed; costs per hour; and support costs such as telephone and facsimile billings, travel, and postage; and,
• the projected costs of hiring internally at the appropriate level of expertise, including number of staff needed; salaries and benefits; and support costs such as travel, training, supplies, and computer software and equipment.

2. When developing future requests for proposals, DFA should ensure that each RFP's evaluation criteria are stated in sufficient detail to allow each proposer to understand how information submitted to the department will be evaluated for an award decision. DFA should also analyze its current proposal evaluation rating systems to ensure that all future proposers have equal chances of being selected, with no additional points awarded exclusively to contractors having experience with the Mississippi plans.

3. Before requesting claims audit services under its current claims audit contract and duplicating expenditures, DFA should work with the PEER Committee to determine whether its requirements for information could be obtained through the claims audit which PEER is statutorily required to perform annually. DFA should seek to reduce costs for the plan by not requesting additional audits if they duplicate the audit required by MISS. CODE ANN. § 25-15-301 (1) (c) (ii) or any other statutorily required audit.

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