When Edgar`s 36-member task force on health care reform gathered for its first meeting Nov. 30 in a second-floor conference room at the State of Illinois Center, task force member Arnold Kanter made an unusual self-introduction.
”I identified myself as chief legal counsel to the governor today, and tomorrow a vice president of Chicago HMO,” Kanter recounted.
So it goes in Illinois, where the revolving door between government and private companies with state contracts continually spins.
As Edgar`s top lawyer, Kanter devoted much of his time to health care policy, including funding mechanisms for the state`s 1.3 million Medicaid patients.
At Chicago HMO Ltd., Kanter`s duties will include efforts to renew the health maintenance organization`s state contract to provide care for more than 100,000 Chicago Medicaid patients. The contract, which expires April 1, is worth $9.7 million a month to Kanter`s new company. But its virtual monopoly on Chicago Medicaid business is being threatened: The Illinois Department of Public Aid is seeking proposals from other HMOs.
Kanter will remain a member of the Governor`s Health Care Reform Task Force, which has been charged with finding ways to pay for the Medicaid program-and Chicago HMO`s contract-when the current assessment plan expires next year.
Some businesses hire government officials for their own staffs to protect their contracts, but other vendors of goods and services seeking state business often hire brokers-private consultants-to coach them over the hurdles of government purchasing.
Many of the brokers are former public officials and adept political fundraisers who capitalize on their knowledge of government and exploit their connections for clients.
Brokers collect fees from vendors trying to land or retain state contracts-an indirect reward for their political activities. Vendors who might otherwise lack the clout needed to land contracts buy it by using a broker.
While the system helps brokers and vendors, it may be costly to taxpayers for two reasons: The fees may drive up prices paid by the state, and brokers` involvement may serve to reduce competition.
The operations of Illinois` brokers have ”to do with the good ol` buddy system. It`s not an even playing field, and what it means is the state won`t get as good competitive bids based on volume,” said James Brinkman, executive vice president of the National Institute of Governmental Purchasing Inc., an organization of 10,000 purchasing professionals.
”And any time you reduce competition, your prices are going to increase,” he said.
Brokers are the mavericks of lobbying in Illinois. Although they are a crucial link in state purchasing, their functions are secretive.
Unlike legislative lobbyists who try to influence laws, brokers, who seek to affect decisions made by the executive branch, do not have to divulge whom they represent or whose favor they try to curry.
Congress years ago prohibited former public officials from returning to the federal government as salesmen of wares and services for at least a year. ”What you have in Illinois would be illegal in the federal system,”
said William Montalto, the procurement policy counsel for the U.S. Senate Committee on Small Business.
Other large states, including New York, Pennsylvania, Texas, Florida, Missouri and Ohio, have placed similar restrictions on departing of-
ficials, according to a survey conducted by the National Institute of Government Purchasing Inc.
In Illinois, the practice remains legal.
”If a weary public had any idea what goes on in terms of the revolving door and with contracts, there would be a revolution on the prairie,” said state Sen. Penny Severns, a Decatur Democrat and advocate of purchasing reforms.
– – –
Before Louis Giordano collected his last public paycheck as head of the Illinois Department of Central Management Services in September 1984, he was back at government`s door selling his consulting services.
The next year, Giordano, who made $52,000 a year as the state`s chief purchasing agent, reaped $179,015 from state contracts. One of his first clients was Central Management Services, or CMS.
Last year, Giordano`s company, Systems Evaluation and Analysis Group, won $1.5 million in state contracts. More than half of that money, $834,000, was from no-bid contracts, records show.
Giordano also is one of Springfield`s top brokers. Since CMS has the final word on computer purchases for all state agencies, Giordano`s connections have proved particularly helpful to vendors of data processing equipment and software. William Vetter, who heads computer services at CMS, was put in that job by Giordano in 1982.
Giordano`s best-known client is IBM. That corporation`s grip on state business is ironclad: In 1991, the state paid more than $77 million for computer-related services; $40 million went to IBM.
Rivals complain of IBM`s dominance, saying it is due more to politics than to product and price. IBM representatives and state officials maintain the griping is sour grapes.
Recently, Giordano began representing Sears Business Systems, which sells IBM personal computers. The state had been buying only air conditioners and hand tools from Sears, but after Giordano came aboard with Sears, the state agreed to buy $3.9 million of personal computers from Sears, records show.
Big Blue`s state sales are boosted by another broker, Robert Kjellander, IBM`s marketing consultant for state government since 1989.
Kjellander was Thompson`s patronage chief until 1981 and managed Thompson`s 1982 campaign. Two years later, he became a consultant.
Like Giordano, Kjellander counts the state among his steady clients. He has held more than $600,000 in no-bid consulting contracts since 1984.
Kjellander said the media unfairly infer that his contracts stem from his insider status rather than from his expertise.
Records show Kjellander`s state consulting assignments have ranged from analyzing the soundness of 94 state fairgrounds buildings to surveying providers of long-term health care.
”In general there`s nothing wrong with people who understand government bringing ideas back to government,” he said. ”It isn`t corrupt. It isn`t bad. I have an appreciation for what government needs because of the years I spent in government.
”Large state procurements are big business. The more sophisticated companies become, the more experts they involve. We`re just one in a number of components of a team: lawyers, accountants, lobbyists. It`s not magic.”
Magic, no. But brokers` influence over Illinois purchasing can bedevil competitors who seek state business on their own.
Kentucky insurance broker Terry Havens has been trying since 1986 to divine how a rival won an Illinois deal worth an estimated $7 million.
The winner was Asher Schapiro, a New York insurance broker whose two companies, Investors Marketing Associates Inc. and Employee Benefit Services Inc., provide employee-benefits counseling services.
Schapiro`s companies explain health and pension plans to employees of client companies free of charge. In turn, employers let Schapiro`s salesmen pitch life insurance to their employees. Schapiro gets commissions from insurance underwriters.
Schapiro set off to capture the Illinois market, armed with a political grapevine nurtured with a series of campaign contributions. His successes were swift and bountiful.
In 1986, Schapiro`s attorney was Kanter, now with Chicago HMO. Kanter introduced Schapiro to Kjellander and Giordano, who in turn put Schapiro in touch with state purchasing officials.
At the time, the state was making sweeping changes in benefits for its 112,000 employees.
Schapiro offered his standard deal. He would publicize the changes through brochures and counseling sessions. In return, he would get a captive audience for his insurance sales pitch; state employees attended the sessions during their workdays.
State officials liked the offer because it required no cash outlay. Because no money was being spent, no bids were required. Schapiro got the business.
Others in the insurance industry protested almost immediately, according to records and interviews.
Havens, the Kentucky broker, urged state officials to seek bids. He asserted that the insurance policies of Employee Benefit Services cost more than others and criticized the huge commissions Schapiro`s company was to collect: 74 percent of the first year`s premiums.
”Left in its current form, the huge level of compensation would mark the largest payday our industry has ever witnessed,” Havens wrote to Michael Tristano, then director of CMS.
The state, however, went ahead.
Records show that Schapiro sold 12,700 policies to state workers, with premiums totaling $4.9 million. Based on Havens` calculations, Schapiro got about $3.6 million in commissions.
A spokesman for Employee Benefit Services declined to disclose the company`s commissions but said 55 percent commissions are considered average. At that rate, Schapiro`s earnings would have totaled roughly $2.7 million.
State officials forced Schapiro to cancel at least 100 policies after employees, some of whom were spending a third of their incomes on life insurance, complained of high-pressure sales tactics.
Despite the complaints, Schapiro`s company landed another state deal in 1990, when Schapiro sold 16,143 policies with premiums totaling $10.6 million. Schapiro`s other local clients have included Cook County, the Chicago Transit Authority and the City of Chicago.
His county contract was canceled last summer when federal authorities in Detroit charged Schapiro with conspiracy and money laundering in connection with an alleged bribery scheme aimed at securing a contract with a now-defunct auto manufacturer. He has denied wrongdoing.
In Illinois, Schapiro has been a frequent contributor to political campaigns. Governors in Indiana, Rhode Island and West Virginia recently returned $11,000 in contributions to him because of questions about his contributions and operations in those states. From 1990 to 1991, he contributed $3,500 to Edgar`s committee.
”No political contribution gets you a piece of business,” Schapiro said in an interview before he was indicted. ”You get business because your product is a good product and it makes sense to the client. I can`t think of one example where making a political contribution got someone to hand me a contract.”
To avoid the appearance of quid pro quo, Ohio bars any company contributing $1,000 or more to a candidate from receiving a no-bid contract from that candidate`s office for two years.
Such appearances are less troubling to Illinois officials.
”I have never been in favor of telling people you can`t contribute or you are limited in your contributions,” Edgar said.
In fact, state officials may even encourage the perception that contract awards are tied to campaign donations.
”If you were a political fundraiser, you wouldn`t make a point of telling people it wasn`t so,” said Reilly, Thompson`s former deputy governor. Sources close to the Michigan investigation say contracts held by Schapiro`s company in Pennsylvania and Illinois also are under federal scrutiny.
Kjellander continues representing Schapiro and in recent months has pitched the state on a proposal by Schapiro`s company to sell workers coverage for catastrophic illness and nursing home care, state sources said.
Kjellander said he believes Schapiro will be acquitted.
”And I stand behind the EBS program and what it did for the state,” he said. ”It is a good product. . . . And it didn`t cost the state a dime. People keep forgetting that.”
———-
Tomorrow: Consultants.
