Foster Care: Revenue Maximization Contractor IHHS in Review

Revenue maximization in foster care came to my attention in 1996, when an associate of mine filed a series of Freedom of Information Act requests in the state of Arkansas. What he sent me was astounding.

The very same agencies that claimed publicly to be unable to track, identify, or locate the children in their care for lack of agency resources in fact had highly detailed dossiers on individual foster children. These included a great deal of financial data concerning their eligibility for financial reimbursements under a variety of federal programs.

The revenue maximization contract that Arkansas held was with a company by the name of Institutes for Health and Human Services, Inc., also known as IHHS. To this day, there is precious little information available about this company. Here is its story.


On August 31, 1988, and September 8, 1988, a Memorandum of Agreement was entered into between Glenn Mazula, President of Management Systems and Services, Inc., Joe O’Hara, President of Institutes for Health and Human Services, Inc., and Michael Mielke, President of Health Management Professionals, Inc.

Under the terms of the Agreement, Health Management Professionals, Inc. was to serve as project manager for the “Indiana Project” and market the services of Institutes for Health and Human Services to state officials. Prior to the execution of this Agreement, all parties to the Agreement met in Indiana.

While this deal was being negotiated, O’Hara, in his capacity as President of Institutes for Health and Human Services, traveled to Indianapolis several times to meet with representatives of the State. On May 10, 1990, O’Hara, signed a contract to provide certain services to the State. O’Hara met in Indianapolis with representatives of the State to assure proper performance under the terms of the Project, and to obtain further contacts with the State for IHHS.

Although IHHS was a Missouri corporation with no permanent offices, it opened up an office in Indianapolis to manage the Project. O’Hara instructed Mielke to undertake certain activities in Indiana.

But things didn’t go quite as planned, as the United States District Court, Southern District of Indiana explains: “In Spring, 1991, O’Hara sought to terminate the Agreement, citing ‘aberrant actions’ taken by Mielke in his role as Project Coordinator for the Indiana Project. At about this time, O’Hara traveled to Indiana and directed staff in Indiana to review documents in Mielke’s Indiana files.

O’Hara directed the IHHS staff to remove all of Mielke’s belongings from the Indianapolis IHHS office and send them to O’Hara in New York. O’Hara also directed the IHHS staff to change the locks on the doors and refuse entry to Mielke. Additionally, O’Hara notified representatives of the State as to Mielke’s termination.”

The Court continues on to explain that: “After terminating the Agreement, O’Hara continued traveling to Indiana and dealing with the State. O’Hara has entered into further contracts with the State to provide similar (if not identical) services to those contemplated in both the Agreement and the Indiana Project. As a result, O’Hara and IHHS have profited.”

CLOSE UP

Even as they were putting together their “Indiana Project,” the partnership of Joe O’Hara and Glenn Mazula was jettisoning a project of another variety.

“Behind closed doors at the Providence Civic Center, the game goes on. Cards are dealt and bluffs are called, and the pot continues to grow,” Albany’s Times Union columnist Joe Layden explained on May 30, 1990.

“It goes on without the Albany Admirals and the Knickerbocker Arena. It goes on without Joe O’Hara and Glenn Mazula, a pair of gamblers who had come to believe they were playing in a rigged game, where the risks far outweighed the benefits. They have folded what once appeared to be the strongest hand in this elaborate poker game known as the Global Hockey League. And if it seems, at this late date, a cowardly, selfish move, it is also unquestionably the smartest move,” Layden explained.

High franchise fees, lack of anticipated tickets sales, and the threat of litigation ostensibly had combined to get the O’Hara and Mazula out of the deal. On the other hand, and entirely unreported by the Times Union, they’d found something that they’d deemed to be far more lucrative than a hockey franchise – federal revenue maximization.

NEW YORK

In July of 1992, the New York State Inspector General accused the agency responsible for drug prevention, treatment and rehabilitation of improperly awarding $600,000 in consulting contracts to friends and business associates.

“In a 62-page report, the Inspector General, Joseph A. Spinelli, cited improprieties by officials of the Division of Substance Abuse Services and said they had repeatedly sidestepped state rules on granting contracts. Mr. Spinelli said he had sent his findings to the United States Attorney’s office in Albany to determine whether Federal law had been broken,” the New York Times reported.

The accusations focused on Arthur Y. Webb, the former director of the agency, and Robert Quick, the agency’s assistant director of management and analysis.

“The Inspector General’s report says that Mr. Quick directed a contract worth $169,500 to develop a computer plan for the agency to Diversified Business Enterprises of America, a company owned by a friend, Glenn Mazula. Mr. Mazula, an Albany-area sports entrepreneur, then gave $65,000 to a professional softball team organized and managed by Mr. Quick,” the Times explained.

In addition, the report said, “Mr. Quick spent 11,000 minutes — five full weeks — of state work time making long-distance phone calls related to the softball team.”

Diversified Business Enterprises of America, a New York Corporation, was the parent company doing business as the Institutes for Health and Human Services, Inc., as well as Management Systems and Services, Inc., and these “improprieties” took place around the time that O’Hara and Mazula were putting together their Indiana Project under the Institutes for Health and Human Services and Management Systems and Services business names.

These were not the only alleged “improprieties” involving Mazula to surface at the time. And, by wielding his considerable influence in New York he was able to derail some major industry players. On June 4, 1991, Data General, Hewlett Packard, and Digital Equipment Corporation submitted final proposals to New York’s Division of Substance Abuse Services for a new computer system. After reviewing the proposals, Robert Quick informed the vendors that Hewlett Packard had submitted the lowest bid. However, he requested they resubmit their proposals. The results changed after second-round bids, with Data General being the lowest bidder.

On September 5, 1991, Data General sales representative Daniel Snell received an appearance subpoena, issued by New York’s Office of State Inspector General. Snell had developed a close relationship with Quick during the course of the sale, having made donations to a scholarship fund in honor of Quick’s deceased son. In addition, Snell and his manager had held several discussions with Mazula, who, as head of Diversified Business Enterprises of America, was advising the Division on the computer system decision.

It gets even more interesting. According to an Audit Report dated April 24, 2001, the New York State Department of Family Assistance, formerly known as the New York State Department of Social Services, awarded a contract to the New York State Association of Counties “to implement and administer a Federal Revenue Maximization Project designed to generate increased Federal funding.”

According to the terms of the contract, the Department of Family Assistance was to pay the New York State Association of Counties a fee contingent on the revenue generated under the Federal Revenue Maximization Project.

The Association of Counties identified eight distinct areas – broken into eight discreet “modules” – in which increased Federal funding could be generated. Module 3 involved identifying Federal nonparticipating foster care costs and kinship foster care costs that the State Department of Family Assistance considered eligible for Federal reimbursement under the Title IV-A Emergency Assistance program and the Title IV-E Foster Care program.

To develop Module 3 statewide, the Association of Counties subcontracted with the Institutes for Health and Human Services, which was deemed “responsible for reviewing local social service case records and obtaining documentation to support that the costs were eligible for Federal reimbursement.”

The result? According to an HHS Inspector General’s audit released in February 2000, of 100 sampled cases for retroactive claims, “74 cases contained claims that were not allowable for reimbursement” under the EA program. In total, using module 3, New York state had claimed foster care costs of $13.2 million, the federal share of which would have been $6.6 million, endeavoring to pass these retroactive claims on to the Emergency Assistance program.

THE INDIANA PROJECT

In 1990, the Indiana Family and Social Services Administration, Department of Families and Children, entered into a contract with IHHS to identify additional retroactive Title IV-E cases for reimbursement . The actual work performed under this agreement commenced in July of 1990. This agreement was later modified to include enhancing Title IV-E eligibility enrollment, enhancing Title IV-E rate reimbursement systems, and seeking way to allocate training cost to the Title IV-E program.

The agreement initially provided for a contingency fee of 20 percent to IHHS, however this fee was subsequently reduced to 10 percent for “prospective claims” and 15 percent for “retroactive claims.”

A federal review that covered IHHS-prepared claims for the period 1991 to 1993 disallowed $6.4 million.

The results of the first review prompted yet another one – only this time for the year 1993. The audit recommended a disallowance of $8.5 million, which Indiana ultimately repaid to the federal government.

The Inspector General requested information said to be contained on computer disks and printouts, however, as the Inspector General explains “the records were never provided to us by IHHS and our follow-up phone calls were not returned.”

A critical computer diskette came up “missing,” and the state agency claimed to be unable to locate it. Imagine such vital financial information being maintained by a state agency on only a sole computer diskette – and with no backup disk. Frankly, I dare say that this strains credulity.

In any event, what little financial information was there simply could not be reconciled. Problems were found in nearly all areas, including how certain “administrative costs” were past on to the foster care program. Clearly, the revenue maximization effort had not gone at all as anticipated.

IHHS stopped answering not only from the feds, but the state agency as well. In a letter dated November 26, 1997, Katherine L. Davis, Secretary of the Indiana Family & Social Services Administration wrote to Paul Swanson, Regional Inspector General for Audit Services for the Department of Health & Human Services, saying: “In response to your report, the State of Indiana continues to search diligently for the missing diskette with the information necessary to complete the audit of IV-E retroactive funds. This agencys latest attempt to contact the Institute for Health and Human Services (IHHS) resulted in no response or acknowledgment by the officers of IHHS.”

What is unclear is how much in total had actually been paid out to IHHS in contingency fees by the state of Indiana, and whether the state had been reimbursed by the company for any portion of the fees after the disallowances.

THE MASSACHUSETTS LAWSUIT

In 1993, The Institutes for Health and Human Services filed a lawsuit against 11 Massachusetts state officials after failing to win an extension of its multi-million dollar contract with the Department of Social Services, sending a letter to 10 key legislators urging them to intervene. The missive attacked the winning proposal presented by two Boston-based firms — Andersen Consulting and Public Consulting Group — berating the state officials who had made the selection.

The Andersen/Public Consulting proposal “should not have even been reviewed by” DSS since it “failed to meet at least five of the mandatory requirements” set by the department, wrote Joseph O’Hara.

Andersen also made “numerous errors and misrepresentations” that resulted in overstating by at least $25 million the social service grants it could collect from the federal government, O’Hara said.

The Andersen proposal would cost the state as much as $10.9 million more than the Institutes plan, the letter to legislators added. And it repeated the charge outlined in the original suit that Andersen and Public Consulting ”would not have been selected to oversee the DSS project if the selection process had been rational, fair and unbiased.”

“Hopefully you will be able to do something to prevent this travesty from proceeding any further,” O’Hara concluded.

Andersen and Public Consulting told a very different story, insisting that their plan is cheaper under every contingency envisioned and that The Institutes, which has held the contract for five years, failed to collect as much as $70 million a year in federal grants to which the state was entitled.

“The Institutes’ letter is a desperation move of someone who lost,” said an Andersen official who asked not to be named. “They can’t demonstrate their case to the commission or in court so they’re trying to put if over on Beacon Hill.”

During a hearing held on April 5, 1993, Superior Court judge Martha Sosman said that she had a “hard time” seeing how the state’s top human services officials had abused their powers in choosing the two new private firms to collect money the federal government owes the Department of Social Services.

IHHS asked the judge to issue a preliminary injunction prohibiting the contract from being awarded until its lawsuit goes to trial. Sosman took the motion under advisement.

Stephen Jones, a lawyer for IHHS, asserted that even though his client offered the cheapest bid, it did not win the contract because top human services officials had created an uneven playing field. While a DSS deputy commissioner and three of eight members of the contract selection committee were allowed to take part in the review process despite having ties to Public Consulting, a DSS official with a link to IHHS was barred from participating, Jones said.

Michael Gardener, a lawyer for Anderson/Public Consulting, countered that the DSS official involved with IHHS had as much involvement in the review process as the deputy commissioner.

Moreover, Gardener said, the DSS awarded the contract to Anderson/Public Consulting because the two firms had put together a more attractive package in which the firms agreed to greater penalties than IHHS if they did not meet projected collection goals.

During a subsequent hearing held on March 29, 1993, IHHS disclosed the existence of a letter to secretary of Health and Human Services Charles Baker from William S. Dolan, a DSS official who had worked closely with IHHS to ensure that Massachusetts would get the more than $100 million in federal social services grants a year it was entitled to.

Dolan was barred from the contract selection committee because of his close work with IHHS, but he wrote that he has deep concerns about the winning plan, submitted by Andersen Consulting and Public Consulting Group. Dolan said their proposal overestimated how much they could collect from the federal government, was longer than allowed under bidding rules and improperly relied on DSS workers to do contract work.

To give Andersen and Public Consulting the contract, Dolan concluded, would be “perhaps the most disturbing situation I have witnessed at DSS since its inception in 1980.”

IHHS’ lawyer Stephen Jones raised in court some other evidence that he said proved that DSS secretary Baker was biased towards Anderson and Public Consulting, including that:

  • Public Consulting listed Baker as a reference on a list outlining a project it did for the state in 1991.
  • Baker took nearly two weeks to sign off on the DSS selection committee’s recommendation, during which time he went to a strategic planning session hosted by Andersen Consulting.
  • Public Consulting was so well connected to agencies under Baker’s control that so far this year it has been given seven no-bid contracts, worth $240,000.

The lawsuit eventually ran its course, and failed. On March 16, 1994, the Boston Globe’s State House Bureau
reported that: “Two Boston firms will boost federal reimbursements for the state’s child welfare agency by 20 percent by the end of June and at substantially less cost to the state than in the past, the administration said yesterday.”

“A lot of people doubted that the decision to do this was a good idea in the first place, and a lot of people didn’t think we would hit” the target of $160 million in revenue collections, said Health and Human Services Secretary Charles D. Baker. He said that not only has the contract hit the number, it also reduced the cost to the state by 35 percent.

Under the new contract with Anderson/Public Consulting, the firms’ fees were tied to the amount of reimbursements they collect, and they were prevented from receiving any fees if they failed to collect at least $120 million in federal revenue per year.

Administration sources said Anderson/Public Consulting was expected to bring in $160 million by the end of the fiscal year at a cost to the state of 2.9 cents per dollar, compared with a previous average of 4.5 cents.

THE MISSISSIPPI EXPERIENCE

In 1995, the Mississippi Department of Human Services entered into a contract with the Institutes for Health and Human Services for the purpose of identifying additional federal revenues that the Department could claim under Title IV-E of the Social Security Act – which specifically provides for assistance to the states for foster care, adoption assistance payments, and – to be sure – administrative costs.

IHHS had managed to push out competitors MAXIMUS, Davis and Associates, and Health Management Associates – all of whom had submitted proposals to the state for maximizing federal revenue.

The result? First, in February of 2000, the Mississippi State Auditor’s office issued an audit that was critical of $7 million worth of “retroactive” claims filed by IHHS.

In August of 2000, the Department of Health and Human Services Inspector General’s office recommended a disallowance of $14.7 million in federal reimbursements. In October of that same year, the Administration for Children and Families accepted the recommendation.

IHHS was paid on a fee contingent basis, and as of November 14, 2000, the state had paid IHHS $7,247,540.84 for revenue maximization efforts, and $983,533 for a new timekeeping system used by social workers.

In its review of this financial chicanery, the Mississippi Joint Legislative Committee on Performance Evaluation and Expenditure Review explained that: “Nationally, the troubling policy issue arising with use of revenue maximization practices for these types of services is that an agency may have a greater financial interest in removing a child from a home if the child is eligible for federal foster care funds.”

Addressing the other side of the proverbial coin, it also noted that: “Conversely, in trying to take full advantage of available federal funds, some children might not receive needed services if they do not qualify for federal programs.

WHO’S WHO: REPRISE

In June of 1997, Albany’s Business Journal described O’Hara as a “Saratoga Springs businessman, who has owned teams in the Arena Football League and the Continental Basketball Association,” and as having made an offer during the previous month to buy the Albany River Rats, an American Hockey League franchise.

O’Hara declined to say what he was willing to pay for the team, but said “the package was in seven figures.”

As for his business relations with Mazula, the Journal continues on to explain: “O’Hara has a long history in area professional sports. At one time he was a part-owner of the Arena Football League’s Albany Firebirds, now wholly owned by nursing home operator Glenn Mazula of Saratoga Springs, and he currently is in the process of selling the Mass Marauders, an AFL franchise in Worcester, Mass. O’Hara also owned the Albany Patroons of the Continental Basketball Association, for a time in partnership with Mazula.”

“O’Hara, who has restaurant and other development interests, operates the Institutes for Health and Human Services in Saratoga Springs, a financial consulting firm that markets its services to state agencies,” the Journal explains, adding that it was reportedly one of his ventures, a sports bar at the Pepsi Arena in Albany where the River Rats play, that sparked his offer for the team.

WHERE IS IHHS TODAY?

By 2002, Glenn Mazula was reportedly no longer in a position to compete with his deeper-pocketed peers. In late July of 2002, he “quietly sold his majority interest” in the Indiana Firebirds to Dave Lageschulte, one of the founders of Hooters America. As the Indianapolis Business Journal explains: “As the team’s annual budget rose from $750,000 to $4 million, Mazula moved the franchise to Indianapolis, hoping to draw bigger crowds, more sponsors and increased revenue. While attendance was a strong 10,851 during the team’s first season, revenue wasn’t pushing the team to the breakeven point. After attendance took a tumble this year and corporate sponsorships showed no growth, Mazula, sources said, began more seriously considering selling out.”

In 2003, Nxivm, a company that specializes in “self-awareness training for professionals,” hired O’Hara to draft a plan to deal with the negative publicity arising from its litigation against the Rick A. Ross Institute of New Jersey, which had claimed that the company was in effect a “cult.” According to an article in the New York Law Journal, while employed by Nxivm, O’Hara engaged the private investigation firm Interfor, “which produced a report on Ross, including information on his personal banking transactions and telephone calls.”

In August of 2005, Albany’s Times Union reported that: “A local company that offers self-awareness training for professionals has sued an Albany businessman, alleging he defrauded it and several wealthy members through racketeering schemes that he allegedly masterminded while acting as the companys attorney.”

In the lawsuit filed by Nxivm, “the company and 11 plaintiffs charge that Joseph O’Hara, the former owner of the semi-pro Capital Region Pontiacs basketball team, cheated them of roughly $2.5 million in payments and loans from 2003-05,” the Times Union explained.

But there was more. “O’Hara bilked hundreds of thousands of dollars from Nxivm in business deals from which he profited, kickbacks and fraudulent claims,” the suit further alleged.

The suit also accused him “of unfairly obtaining $2 million in loans from Nxivm clients Clare and Sara Bronfman, the daughters of Edgar Bronfman Sr. of the Seagrams fortune.”

“I have an overwhelming case supported by extraordinary, documented evidence. My dog could try this case against a jury and find this case against Mr. O’Hara, Judd Burstein, Nxivm’s attorney said in a subsequent article regarding the company’s legal efforts to freeze O’Hara’s assets.

Mazula hasn’t lost his interest in sports. According to Albany County Resolution 18, introduced in February of 2008, Diversified Business Enterprises of America expressed an interest in leasing Corporate Suite No. 17 at the Times Union Center. The proposed Suiteholders agreed to pay an annual rental fee of $20,000 for the suite, and to pay $28,000 annually for advertising within the arena. The motion to approve was unanimously approved. At $48,000 a year, those Corporate Suites aren’t cheap.

According to the New York State Department of State Division of Corporations database listing Mazula is still listed as the active owner of Diversified Business Enterprises of America, Inc.

Even as former rival MAXIMUS is seeing many of its revenue maximization specialists making lateral transfers to Sivic Solutions Group, a New York based company that purchased the assets of MAXIMUS’ Federal claiming business, O’Hara and Mazula continue to live the high life – their abortive foray into the world of revenue maximization notwithstanding.

The pair of gamblers had perhaps come to believe they were playing in a rigged game, one in which the risks far outweighed the benefits. They had folded what once appeared to be the strongest hand in the elaborate poker game known as federal revenue maximization.

Some former IHHS executives include its Controller/Treasurer Matthew Sterling, who currently works as CFO for the LA Group, an architecture and planning firm in New York, and Solomon Malach, who is General Counsel of Seedco and Seedco Financial. His bio at Seedco explains that: “Previously, he served as General Counsel of the Institutes for Health and Human Services, Inc. and of New York City’s Human Resources Administration.”

As for Michael Mielke and Health Management Professionals, Inc., the Louisiana corporate database indicates that the company – originally founded in 1984 – had its licence revoked in November of 1990. Curiously, Mielke had reinstated his business license in 1995, however its current status is, again, revoked and inactive.