Last week's General Accounting Office report criticizing CMS Administrator Tom Scully for rescinding a Medicare contract raises questions about his job performance and judgment. However, like earlier volleys fired at Scully, it's unlikely to damage him politically, Washington insiders said.
The GAO report concluded that Scully acted improperly and illegally when he intervened to exclude a Medicare contractor from a three-year, $1.6 million contract. Senate Finance Committee Chairman Sen. Charles Grassley (R-Iowa) a longtime adversary of Scully, requested the 32-page GAO report after hearing that Scully had rescinded a nursing home study subcontracted to the University of Wisconsin's Center for Health Systems Research and Analysis by Rand Corp., a Washington-based independent not-for-profit research and policy organization, the primary contractor.
The GAO report said Scully "was not authorized to effectively change the substance of the proposal" and that his action "undermined the integrity of the procurement process at the CMS." GAO investigators wrote that Scully appeared to have been acting in retaliation against the center's director, David Zimmerman, who had criticized previous CMS nursing home quality initiatives.
Gail Wilensky, administrator of HCFA-now the CMS-from 1990 through 1992, said Scully's action was "a self-inflicted wound unlikely to hurt him in the long run." Still, Wilensky, now a senior fellow with Washington-based Project HOPE, said the GAO report is a clear warning for Scully to be more careful.
"It's not a mortal wound, though in no way is it a good thing for his career," Wilensky said. "When you're a presidential appointee in such a publicly visible position you need to exercise better judgment."
American Hospital Association Vice President Richard Wade said Scully has set an ambitious agenda for reforming the CMS.
"And sometimes he gets frustrated with the process and the system and people not seeming to work together," Wade said. "This is a tempest in a teapot. Heavens no, it won't hurt him."
Richard Coorsh, a spokesman for the Federation of American Hospitals, declined to comment on the report or how it might affect Scully. Scully was president and chief executive officer of the federation before he was tapped to head the CMS. Other providers and association officials declined to comment.
But Grassley was not shy. In a letter to Scully's boss, HHS Secretary Tommy Thompson, Grassley wrote that Scully's conduct was inappropriate. "Simply put, Mr. Scully's actions are unacceptable. Action by a high government official to unfairly deny a contractor the opportunity to compete for a contract is an intolerable threat to the integrity of the procurement process. In any event, Mr. Scully's actions have jeopardized the integrity of the CMS's procurement process and have threatened the frank and free exchange of views by contractors," he said.
The brouhaha that led to the report began in September 2002. On the same day that the CMS awarded a $2 million competitively bid contract for a nursing home study to Rand and the center, Scully notified the CMS staff that the subcontract with the center should be canceled, according to the report. Saying he had the legal authority to nullify the contract, Scully later e-mailed Zimmerman, who also is a University of Wisconsin professor of industrial engineering, to explain his actions.
"I am happy to talk to you-but if you want to continue to yank my chain-I will continue to disconnect you from this agency. ... There is no entitlement to government contracts-especially when you try to sandbag the agency you contract with," Scully wrote Zimmerman, according to the GAO report.
Through a CMS spokesman, Scully declined comment on the report.
But in a written response to the report, Jacquelyn White, director of HHS' Office of Strategic Operations and Regulatory Affairs, defended Scully's actions, saying he had good reason to believe Zimmerman was "obstructing and deterring the consensus-building process." White said she disagreed with the GAO assertions. She said the center "had become part of the problem, not the solution." The GAO recommended rebidding the job and White concurred, saying the agency is "looking for new ideas-with a strong results orientation."
For his part, Zimmerman said he is perplexed. While he agreed with the GAO's portrayal of events, he said the report did not explore whether Scully's allegations that he was sabotaging the process had merit.
"At no time was I ever informed by anybody at the CMS, including the administrator, about what I had done that was supposed to have been inappropriate and would have created an obstacle to the national quality initiative rollout," Zimmerman told Modern Healthcare. "In fact I'd been supportive of the rollout from the beginning and had publicly stated that support."
Zimmerman earlier said some of the quality initiative measures seemed too complicated for consumers. He also questioned the risk adjustment strategies of the earlier CMS initiatives as improper. However, "in every instance I reiterated my support for the initiative's concept," he said.
Zimmerman said Scully's action in canceling the center's contract would discourage disagreement with the CMS.
Earlier this year, Grassley accused Scully of attempting to circumvent whistleblowers and weaken the federal False Claims Act during the CMS' settlement negotiations with Nashville-based hospital chain HCA. Grassley and his staff questioned whether Scully may have interceded on behalf of his former members at the federation-an allegation Scully vehemently denied. Nothing came of the Grassley accusations.
And in August 2001 the senator criticized Scully for contradicting earlier commitments to strengthening nursing home inspection standards.