In Indiana, deaf woman denied welfare because she couldn't do a phone interview; state wants IBM to pay for those problems it caused

From the Indy Star:

Medicaid cut off to a Hoosier who missed her welfare appointment -- because she was hospitalized with terminal cancer.

Welfare benefits denied to a deaf person -- because she couldn't do a telephone interview.

A nun who lost Medicaid benefits and was deemed uncooperative when she missed a telephone interview because she had to play the organ on a Holy Day -- though she repeatedly tried to reschedule.

Indiana now wants IBM to pay for those horror stories and more, arguing in a lawsuit filed in Marion County on Thursday that the company failed to deliver a welfare system that gave the neediest Hoosiers timely, accurate help.

IBM has countered with its own lawsuit, arguing that it gave Indiana the centralized, privatized welfare eligibility system the governor's administration wanted, and that the state was responsible for many of the problems by underestimating the number of welfare applicants.

The state wants to recoup the $437 million IBM has been paid for the 10-year, $1.37 billion contract that Gov. Mitch Daniels canceled in October.

In addition, the state wants IBM to foot the bill for any federal fines that might come for the welfare fiasco and to pay damages from lawsuits Hoosiers have lodged because the welfare assistance they were entitled to was delayed or denied.

Far from giving back any money, IBM argues that it's owed about $100 million more, including $43 million in deferred fees and $9 million for computer equipment and furniture.

Regardless of who pays, there may be a political price for Daniels.

He came to office in 2005 as a champion of putting public business in private hands wherever it seemed to make economic sense. Ignoring critics who argued that welfare wasn't the right venue for such changes, and the fact that similar efforts had failed in Texas and Florida, Daniels announced the contract with fanfare in late 2006.

Now, the episode threatens to be a blot on his legacy as governor, and could tarnish his luster as a potential Republican candidate for president.

Mark St. John, who lobbies for social service groups including Indiana Family Services, said the lawsuits show the welfare privatization was every bit as bad as he and others feared.

"Initially, they were blindly defending the process," St. John said of state government.

The question now, he said, is "how did it get to be such a mess to begin with? What kind of contract management was the Family and Social Services Administration really doing upfront?"

The governor's office referred all questions about the lawsuit to FSSA.

John Cardwell, a social services advocate who was among the first to raise questions about the privatization contract, said he found it ironic that many of the complaints he and others had raised and the state had long disputed, were in the state's lawsuit.

"As a citizen, I kind of wish the judge would take action against both parties," he said.

IBM and the state blame each other for the fight, which could go on for months -- even years.

The state lawsuit says IBM gave it inaccurate cost estimates -- information critical in winning the contract -- and "proposed a modernized system that included moving away from FSSA's client-based, face-to-face system to a task-based, centralized system, emphasizing IBM technology."

The IBM lawsuit claims the state's review committee, which examined the contract before it was signed, emphasized that the final plan was not IBM's but "primarily the product of significant review committee revisions."

And, IBM asserts, the state wanted -- and got -- a system that reduced face-to-face contact between caseworkers and clients. Restoring that face-to-face contact, the state now says, is the key to the success of the new hybrid system it is adopting to replace the IBM system.

IBM is particularly miffed that the state now declares that IBM has had no part in the success of the hybrid system.

"It's our services. It's our hardware. It's our software. It's our databases, our whole system that we set up, and now they're using and they don't want to pay for it," IBM spokesman Clint Roswell said.
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The state's lawsuit, in contrast, says FSSA "was left with virtually nothing of value from IBM's failed performance and indeed is faced with expending hundreds of millions of dollars in reprogramming and eventually entirely replacing IBM's failed systems."

IBM answers those charges by using Daniels' own words in its defense. When Daniels canceled the contract, he praised IBM for bringing in a thousand jobs, while reducing fraud and saving the state money.

Roswell blames the problems in part on Daniels for underestimating the numbers of people who would need welfare.

"Governor Daniels decided that he thought the economy was going to be good for the next few years," he said.

Instead of the 4,200 applicants per month the state expected, Roswell said, the tanking economy drove more than 10,000 people to seek help monthly -- numbers that grew when floods forced more people to seek help. When the state introduced the Healthy Indiana Plan to bring health care to more of the uninsured "it skyrocketed," Roswell said.

The state accuses IBM of not merely failing to handle those numbers but of trying to cover its tracks. "IBM Coalition workers were so far behind in processing applications that they would often recommend denial of an application to make their timeliness numbers look better, but then would tell the applicant to appeal the decision."

The result, the state argues, was unnecessary pain for Hoosiers seeking food stamps or health care, and multiple pending lawsuits and contempt proceedings against the state.

In its lawsuit, IBM asserts that it was not the company's performance, but political pressure that led to the termination of the contract.

"Clearly there was political pressure on the governor throughout," Roswell said, adding that politics were "part of the dynamic that took this where it went."

The company cites the March 2009 passage of House Bill 1691, legislation that would have prevented the state from providing privatized welfare services, despite the IBM deal.

That bill passed the House with 51 Democrats and 22 Republicans supporting it, but never got a hearing in the GOP-controlled Senate.

"Just weeks after HB 1691 threatened to halt the modernization project, the state abruptly demanded that the IBM Coalition stop work on all improvement projects, even though many were ready to be implemented," IBM states.

Rep. Suzanne Crouch, R-Evansville, who co-authored the bill with Rep. Charlie Brown, D-Gary, acknowledged the heat had been turned up on Daniels, but said it was IBM's fault.

"Needy Hoosiers were being affected adversely, political pressure was put on," Crouch said. "Had their performance been what it should have been, there would never have been any political pressure."

Brown agreed.

"It wasn't a partisan issue, because both sides were feeling the pain and anguish over this debacle of the services being delivered," he said. "So, I think the governor recognized -- from those who were screaming to be recognized -- that the service was not out there."

House Speaker B. Patrick Bauer, D-South Bend, said he'd called on the state to sue IBM, so he was glad the state was now trying to recoup its money. But, he said, "I'd also called for them never to do the deal in the first place."

Bauer said he hopes this will be the last such deal in Indiana.

But he doubted that it would affect Daniels' political legacy or future.

It's clear, though, that the IBM debacle has tarnished Daniels some, Brown said.

"I would think this hurts him, because he's gotten rave reviews on this issue of privatization and now some of it is crumbling down around him," he said. "He may not be the golden boy much longer."