VA Watchdog dot Org - VA NEWS FLASH

VA NEWS FLASH from Larry Scott at VA Watchdog dot Org -- 05-10-2006 #9

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UPDATE: PRINCIPI'S FIRM OFFERS REBUTTAL TO ALLEGATIONS OF

WRONGDOING -- GIVES POINT-BY-POINT REBUTTALS TO

CHARGES MADE IN L.A. TIMES STORIES

Here is the latest background story on this situation...all back links are included for a complete picture of the allegations... http://www.vawatchdog.org/old%20newsflashes%20APR%2006/newsflash04-30-2006-3.htm

Here is a link to the story about the House investigation into the matter... http://www.vawatchdog.org/old%20newsflashes%20MAY%2006/newsflash05-05-2006-8.htm

Now, Principi's firm strikes back with point-by-point rebuttals to allegations made by the L.A. Times.

Today's story here... http://www.qtcm.com/press_releases/times2.aspx

Today's story below:

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Point-by-Point Rebuttal of the LA Times Article

On Sunday April 23, 2006, the Los Angeles Times ran an inaccurate and misleading article about QTC. Below you will find a detailed response to the Times article in which QTC makes the following key points:

QTC is proud to provide more than 10 federal government agencies with high quality medical examination services. In 25 years of business, the firm has lost only one contract, which QTC won back just one year later. QTC is the largest provider of Social Security Administration exams in the country. Our quality compliance rate with the VA is at 92%, and 90% of veterans are seen within 30 minutes of their arrival for medical examinations. The firm’s overall customer satisfaction rate, as determined by a third-party survey, is 92%.
Anthony Principi, QTC’s Chairman of the Board, is a combat-decorated Vietnam Veteran, and a proud graduate of the United States Naval Academy. He has always held himself to the highest ethical standards, and any suggestion that he influenced the VA on QTC’s behalf is completely untrue.
QTC’s work with the VA predated Anthony Principi’s appointment as Secretary, and any suggestion that he influenced current or potential QTC contracts is untrue.
QTC provides quality medical evaluations for veterans. These evaluations are sent to the VA as part of a portfolio that determines disability decisions and adjudications. QTC is in no way involved in the adjudication process, or in any of the VA’s decisions regarding disability status.
QTC won all of its past and current contracts through open competitive bidding processes.

VA Contracts Go to Ex-Chief's Company

Anthony J. Principi has held key positions at the Diamond Bar medical firm before and after heading the agency. Fees could exceed $1 billion.

By Walter F. Roche Jr., Times Staff Writer
April 23, 2006

WASHINGTON — A Diamond Bar Company headed by former Veterans Affairs Secretary Anthony J. Principi could get fees exceeding $1 billion from the VA, much of it on contracts approved and amended while he ran the agency, records show.

Principi was president of the medical services company QTC Management Inc. before he joined President Bush's Cabinet in 2001. He ran the VA for four years, then returned to the firm as chairman of the board.

Response: Mr. Principi did not join QTC until July 19, 1999, 18 months after the VA awarded QTC its first contract. QTC won the VA bid in February 1998 following a comprehensive open bid process conducted by the VA. Mr. Principi was not at the VA or QTC at the time of the bid process and had not even heard of QTC until the spring of 1999.

When Mr. Principi was VA Secretary he gave up all financial interest in QTC, formally recused himself from any matter relating to QTC, and created a standing order that all matters related to QTC were to be referred to the Deputy Secretary.

Mr. Principi did not return to QTC until November 2005, almost a year after his departure from the VA. Mr. Principi never contemplated a return to QTC until he was approached by the financial group that ended up buying QTC.

While he was VA secretary, Principi's past and future corporate home collected about $246 million in fees, according to VA records. Congressional Budget Office projections show the contracts could be worth as much as $1.2 billion through 2008.

Principi said he had no role in awarding, amending or administering VA contracts with QTC.

"While at the VA, I had no contact with QTC on any business matter and recused myself entirely from any issues or business that QTC might have had with the VA," he said in e-mail responses to written questions. He said he complied with federal statutes barring contact with the VA after his departure.

Citing his two sons' recent combat service, Principi said: "Caring for these young men and women we send to war is the only thing that motivates me whether I'm in public service or in any aspect of business, where their interests are at stake."

Whether, or to what extent, Principi stands to benefit from QTC's success was not determined. He said he held nonvested stock options in QTC, but did not say how many shares.

Principi's firm administers medical exams to veterans seeking disability assistance. It also examines soldiers before they are discharged. The results of the exams play a substantial role in VA disability benefit decisions.

Response: QTC provides high-quality medical exams for a variety of government and private clients, and has gained a reputation for integrity and leadership in the field. The exams that QTC conduct are submitted to VBA ratings examiners. These individuals use medical evidence as part of their consideration of veterans’ claims for disability compensation. QTC does not make decisions about disability claims – it provides timely and accurate clinical information to those who do.

Though the VA is QTC's biggest customer, the company does similar exams for other agencies and private insurers.

According to its website, QTC owns and operates 31 medical evaluation facilities and has produced "more than 2.5 million" medical exams and reports.

Principi, deputy VA secretary and acting secretary under President George H.W. Bush, also served as Republican chief counsel and staff director of the Senate Armed Services Committee a decade ago.

Principi graduated from the U.S. Naval Academy in Annapolis, Md., and is a Vietnam veteran. He was a partner in the San Diego law firm Luce, Forward, Hamilton & Scripps, according to his White House biography.

In 1996, he was named chairman of a congressional task force on veterans’ issues. His panel recommended having a standardized, comprehensive physical exam for outgoing military personnel. That recommendation led to exams conducted by QTC.

Response: The Commission to which the article refers was the Congressional Commission on Servicemembers and Veterans Transition Assistance. The recommendations of this commission were geared toward “improving servicemembers transition and readjustment to civilian life and increas(ing) their opportunities to succeed in civilian life.” No mention was made in the report of outsourcing compensation exams whatsoever. The first contract that QTC won was mandated by Congress as a pilot before the Commission was formed and the VA awarded the contract to QTC in 1998, prior to the commission’s hearings and findings. The Commission did not submit its report to Congress until January 1999. This report made no mention of QTC or any recommendation for QTC.

The firm began its relationship with the VA in 1998, conducting disability exams under a pilot program. Principi joined the company in 1999.

Response: Mr. Principi was recruited by an executive search firm in the spring of 1999, and was unfamiliar with QTC and the services the company provides until that time.

QTC's initial performance drew some criticism. As mandated by Congress, its work was reviewed by a private consulting firm, which said QTC's fees were much higher than expected.

A QTC hearing exam, for instance, averaged $495.55 compared with $89.80 for an in-house VA exam. Even with an adjustment for possible hidden VA costs, the difference exceeded 400%. For a general medical exam, QTC's average fee was $393.52 compared with the VA's $225.58, the consultants found. They recommended further cost-comparison studies, but such an analysis was not done.

Response: The outside review cited in the article is, by its own admission, “an apples-to-oranges comparison” and accordingly “no conclusions can be made about the differences in cost between QTC and VHA exams.” The report acknowledges that various factors contribute to the lack of a valid comparison, including differences in the composition of examinations, varying levels of service providers used, and major differences in the accounting treatment of overhead charges.

VA officials, in a written response to Times questions, said a follow-up study was not done "because the [QTC] fee schedule was studied carefully by the technical evaluation teams and found to be reasonable and fair."

In the program's third year, Principi was nominated to be VA secretary. He told the Senate panel considering his confirmation that he had "terminated all relationships with QTC and waived any and all future rights or benefits that could flow from [his] relationship with that organization."

Still, Principi's 2001 financial disclosure listed a $250,000 bonus he said he received from QTC before his confirmation Jan. 23.

Response: Mr. Principi received a cash bonus that was part of his annual compensation for FY2000. Mr. Principi had no ongoing financial interest in QTC, as he indicated to the Senate panel.

The next year, he was photographed with QTC officials at a business forum in Orange County. Principi was the featured speaker, and QTC's founder and then-principal owner, Steeve Kay, was a sponsor.

Response: Mr. Principi’s speech was completely unrelated to QTC. He was invited to address the Orange County Business Forum, and individuals from QTC attended the event. After posing for photos with them and many other individuals in attendance, Mr. Principi departed. He did not speak about business issues with the QTC employees who attended.

Right after becoming head of the VA, Principi appointed a task force on the backlog of veterans' claims. In its report to Principi, the panel lauded QTC's performance and recommended that the medical exam program continue or expand.

Response: President Bush made a campaign promise to reduce the backlog of veterans’ claims. Several leaders of Veteran Service Organizations (VSOs) sat on this task force, including Dave Gorman, Executive Director of the DAV, and made independent recommendations to the Administration.

Principi said he had nothing to do with that review or the recommendation. The head of that panel later was appointed a top deputy to Principi.

Response: Mr. Principi, as previously stated, was not involved in the review. Dan Cooper, the head of the panel, was the unanimous choice of the VSO’s on the Task Force, and confirmed by the Senate as the Under Secretary of Benefits. Cooper’s confirmation was unrelated to his opinions regarding QTC or their services rendered.

The favorable Principi task force report was cited as justification for language inserted in the 2003 VA budget authorizing continuation and expansion of the program. That extension and expansion had been requested by Principi's agency.

Response: The article refers to this independent task force as the “Principi task force” in an attempt to suggest favoritism in the process. In fact, Mr. Principi was not involved with its deliberations in any way. The expansion was not an issue during budget deliberations, and never came to Mr. Principi’s attention. As previously stated, Principi was steadfast in his commitment to recuse himself of decisions related to QTC and its potential or ongoing business with the VA.

The task force urged that the expansion and continuation be done on a competitive basis; the VA awarded a new contract to QTC after giving rival contractors 30 days to submit proposals. No other bids were submitted. Some competitors said they learned of the new contract only after it was awarded.

Response: As the article states, a full and open bid contract process occurred, as is common protocol for VA contracts. The presolicitation was announced on the Federal Business Opportunities (FedBizOpps) Web site on March 1, 2002. The actual RFP release was posted on the Federal Business Opportunities Web site on August 2, 2002. On September 9, 2002, the VA Contracting Officer issued an amendment to the original RFP. That amendment was addressed to “ALL PROSPECTIVE OFFERORS” and was “issued to answer the questions that were received on the draft” RFP, none of which were submitted by QTC. A subsequent RFP amendment issued by VA changed the proposal due date to Monday, October 7, 2002, some 66 days after the initial RFP.

QTC responded to the RFP by the amended due date and cannot speak to whether or not other offerors submitted proposals for consideration on this matter.

Sahniah Lambert, a physician with MSLA, a competing firm based in Pasadena, said she contacted the VA about bidding, but no one returned her calls.

Response: The VA and most other government organizations do not respond to individual inquiries during the active procurement process. This is designed to protect the integrity of the bidding process. Rather, applicants are urged to look at FedBizOpps for RFP listings, and can contact the designated agency contracting official in writing only.

During Principi's leadership of the VA, his agency also awarded QTC performance bonuses, as provided for in the contract.

Response: QTC’s VA contract was structured by the VA as a performance based service contract. This approach to contracting was begun as part of the Clinton era Reinventing Government Initiative, in which contractors are awarded bonuses for outstanding performance and are levied financial penalties if they do not perform satisfactorily.

The firm emerged in 2003 as the sole private contractor selected to perform the comprehensive joint discharge physical exams recommended by the Principi task force.

Response: QTC won a re-compete of the contract it previously held, which VA determined would be awarded to one successful vendor.

QTC won both contracts through full and open procurements and provided the required written and oral proposals and presentations.

The VA has since made multiple amendments to two successive QTC contracts, increasing the number of approved sites for the exams and thereby adding to the contract's value. As the number of sites multiplied, so did QTC's revenue — from $8 million in fees in 1998 to $69.1 million in 2005.

Response: Revenue expanded as QTC proved that it could meet the VA’s contract requirements for timeliness, quality and claimant satisfaction. Additionally the underlying VA demand for these examinations grew based on the increasing number of veterans coming back to the U.S. from world conflicts.

Principi wrote in response to questions that he had nothing to do with the expansion of sites while he was secretary.

Response: Congress created the authorization to empower the VA to expand sites because the original pilot was limited to ten sites. Due to programmatic success, the VA and Congress felt that the VA should be able to expand the program wherever it was needed. No expansion whatsoever occurred during the Secretary’s tenure, nor has it been expanded to date.

Veterans groups and radio talk shows recently have seized on Principi's ties to QTC and accused him of conflicts of interest.

Response: The major National VSOs have continued to support QTC and Mr. Principi. As an example, the Executive Director of the Disabled American Veterans (DAV) has written a letter to the Editor of the LA Times, which has remained unpublished, that states “The DAV has intimate knowledge of QTC’s role in the disability evaluation process and has found no serious problems associated with the work the firm has performed for more than eight years… It has been our experience that QTC and its chairman of the board, Anthony Principi, have consistently adhered to the highest ethical standards…The DAV strongly rebuts the April 23 article by Walter Roche that unfairly impugned both QTC and Mr. Principi.”

John Hennon, who broadcasts a veterans show in Illinois, said he was convinced that QTC "was contracted to deny as many claims as it could." He blamed Principi. He said it was "not a surprise" that the former secretary had an interest in QTC.

Response: QTC conducts a medical examination and never sees nor participates in the rating for the individual they examine.

Skip Dreps, head of government relations for the Northwest chapter of Paralyzed Veterans of America, said: "I'm disappointed in the secretary." He said he regretted "even the appearance of a conflict of interest."

Response: The Paralyzed Veterans of America has recently notified Mr. Principi of their intent to award him their highest honor, the “Speedy Award,” in September of 2006.

QTC has additional critics.

North Carolina attorney Hugh Cox, who frequently represents veterans, accuses the company of working with the VA to deny disability claims.

Response: QTC does not adjudicate claims. In fact, QTC exams have reduced the number of returns that are returned due to lack of information, increasing efficiency in the claims process. The role of QTC is in conducting the medical exams; its role never extends beyond these examinations.

"Significant numbers of QTC medical examiners issue addendums to previous medical reports creating an appearance that VA officials communicate off-the-record with the QTC examiners to alter the veteran's chance of receiving benefits," Cox wrote in an e-mail response to questions.

Response: QTC is required by the VA to conduct a medical exam for veterans claiming one or more service-connected disabilities if their earlier medical records do not suffice for the VA claim adjudication.

The exams QTC conducts provide veterans with the most current possible medical information that can be evaluated by the VA rating specialists. This information is only one component of the portfolio the VA utilizes to generate its decision, and QTC’s role is solely to provide current information, not to determine the VA’s decision on a veteran’s claim. There are no “off the record” conversations between the VA and QTC regarding any veteran’s disability claim.

Cox said Principi's involvement with the firm before and after he was VA secretary was "of special concern" while taxpayers continued to pay "increasing and unchecked amounts to QTC."

Response: QTC’s contract is not “unchecked,” but rather was bid upon competitively per VA regulations, and is constantly subject to oversight and review.

One of Cox's clients, Vietnam veteran Jimmy S. Pollock, was told to appear for a physical exam scheduled two days before he received the notice. "They put me down as a no-show," he said.

According to VA data, QTC has been paid $6.2 million since May 2003 for no-show exams. VA officials say QTC's no-show rate is 10.86%, "which is considered excellent."

Response: QTC’s no-show rate is outstanding by the standards of the industry. The fee for no-shows reflects an appropriate charge for lost time by the physicians that still have to be present for these appointments.

Seattle psychiatrist Philip B. Plattner, who has worked at veterans health facilities for 23 years, was one of the first to question QTC's expanded role. He launched a letter-writing campaign warning that veterans could be the victims of inadequate evaluations.

In a letter to several members of Congress, Plattner said the switch to QTC exams had the appearances of a "good old boys plan to privatize VA services, which will cost our country and our veterans dearly."

Plattner said the VA was paying double what it should. He cited data from a May 2005 VA inspector general's report that showed the average cost of a QTC exam was $590.

Response: As previously stated, the VA Healthcare system costs cannot be effectively compared to QTC pricing for a variety of reasons. Furthermore, it is misleading to talk of an “average exam” since veterans can make between 1-100+ claims across dozens of medical specialties.

Principi, in his response to questions, defended QTC's performance, noting that the company in its 25 years failed only once to get its contract renewed. "If mistakes are made," he said, "QTC employees strive hard to correct them."

The value of QTC's federal contracts became apparent late last year, when the firm was sold to Spectrum, a Massachusetts-based venture capital firm, for a reported $270 million.

A partner who spearheaded the Spectrum purchase was Steven Price, a colleague of Principi's in the George W. Bush administration who served as a deputy Defense secretary. Price was named to the QTC board immediately after the purchase, but has since stepped down.

Response: Mr. Price was a Deputy Assistant Secretary in the DoD offices of the CIO, and thus did not meet Mr. Principi until several years later when he considered the purchase of QTC. Mr. Principi and Mr. Price’s first contact was in regards to the potential acquisition of QTC, not during their respective tenures at government agencies.

Principi acknowledged discussing with Price his return to QTC before the sale. "Spectrum approached me about joining the company if they were successful in purchasing QTC," Principi wrote.

Spectrum and QTC refused to disclose whether QTC's VA contract was pledged as security for the $150-million-plus loan used to finance the purchase.

An investment firm's report on the sale noted QTC's "very close relationship" with the VA and said QTC "has integrated its process and systems with the VA and has even co-located offices at VA.

Response: QTC has co-located its offices near the VA at several locations, and at the VA’s request in order to provide better communication and workflow between the two organizations. Many government contractors are co-located with their client.

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Larry Scott

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