Feeding off the Pentagon

How did a former Bush official win an $800 million Department of Defense contract for his healthcare firm? That's what government watchdogs want to know.

Topics: Iraq war, Pentagon,

In April 2007, William Winkenwerder Jr. retired from his position as assistant secretary for health affairs at the Department of Defense, where he had been in charge of all military healthcare. On June 1, he went to work for a Wisconsin-based private contractor named Logistics Health Inc., which hired him to serve on its board of directors and “advise and counsel LHI on business development,” according to a company press release. It was a hire that seems to have paid quick dividends.

On June 13, 2007, the Department of Defense began accepting bids for a contract to give soldiers medical and dental exams before they head off to war. Logistics Health was among the companies bidding on the contract, which was worth hundreds of millions of dollars over four years. Before he left the DOD, in addition to running military healthcare, Winkenwerder had also been in charge of the office that wrote the contract.

On Sept. 25, Logistics Health won the contract despite bidding $800 million, meaning it was not the low bidder. At least one other company bid $100 million less.

After objections by competing companies, the contract has now been “stayed,” or put on hold, while the Government Accountability Office, the investigative arm of Congress, evaluates those complaints. At least one firm alleging unfair bidding practices has also asked congressional watchdog Rep. Henry Waxman, D-Calif., to investigate. But the contract may still be awarded to Logistics Health; the GAO will issue a decision by Jan. 14. The contract, which at one time was also going to benefit a second firm with its own revolving door to the federal government, exemplifies the culture of cronyism in privatized military healthcare. Military healthcare is a lucrative wartime bazaar for private contractors that is largely free of oversight — and of Halliburton- or Blackwater-size headlines.

You might remember William Winkenwerder from earlier this year. While still at the Pentagon and responsible for military healthcare, he expressed shock at reports in the Washington Post on neglect of outpatients at <a href="Walter Reed Army Medical Center, even though Salon had reported the same neglect two years earlier. “This news caught me — as it did many other people — completely by surprise,” he said at a Feb. 21 press conference.



On paper, the process of awarding the contract for soldiers’ medical and dental exams was handled through the U.S. Army Medical Research Acquisition Activity, a contracting shop at Fort Detrick in Frederick, Md. Winkenwerder didn’t control that office when he was at the Pentagon.

But as assistant secretary of defense for healthcare, Winkenwerder was also director of a DOD office called TRICARE Management Activity. When the government contracts out for services, the details of the services it wants from a bidder are contained in a document called the “statement of work.” In the case of the medical and dental exam contract, the “statement of work” was not written at Fort Detrick, where it belonged officially, but by Winkenwerder’s office, TRICARE Management Activity. “We are just the contracting office,” explained Christopher Sherman, a civilian official at Fort Detrick. “That contract is managed by the TRICARE Management Activity … We have them put together the statements of work and the solicitations.” Sherman said Winkenwerder’s office had been preparing the contract since late 2006.

Dina Rasor, author of “Betraying Our Troops: The Destructive Results of Privatizing War,” said it was likely that Winkenwerder’s office configured the statement of work in such a way that a contract would be awarded to a favored company over its competitors. Though she had not reviewed the statement of work in question, Rasor said manipulating these documents is a common abuse in government contracting. “They take something unique about the company and they put that in the statement of work or [add] requirements that the other companies [can't meet],” said Rasor. “It is the kind of thing that is hard to put your finger on. These people have become very sophisticated at doing this.”

The competing companies that protested the Logistics Health deal have taken note of Winkenwerder’s role. “I think it is a conflict scenario,” said Charles Roché, chairman of United States Military Dental Service Corp. He expressed the alleged conflict of interest in a rhetorical question. “You end up being employed by the very people that you are helping put together the deal for?”

Roché and other contractors have also seized on what they say is an additional anomaly with the contract. When Logistics Health put together its bid, it partnered with other firms, including QTC Management Inc., another contractor that is the largest private provider of government-outsourced disability examination services in the country. The company has raked in hundreds of millions through contracts with the Department of Veterans Affairs. Anthony Principi, the former secretary of the VA, is chairman of the board. And President Bush recently nominated QTC Management chief operating officer James Peake to be the next VA secretary. (Peake was also the former Army surgeon general through 2004.) His confirmation hearing is slated for Dec. 5.

The details of the proposal that Logistics Health submitted to the Defense Department are not public. It is known that QTC Management was supposed to be a partner in the deal; competitors like Roché believe QTC Management was supposed to be a significant partner, since it employs more than 600 clinical associates to perform the sort of medical exams the contract would require. This fall, investors from Logistics Health and QTC Management were even in merger talks.

But on Sept. 10, just days before the contract was awarded, QTC suddenly withdrew from the Logistics bid and pulled the plug on merger talks, both for reasons unknown.

In a telephone interview, Principi, the QTC chairman, would not say why his company suddenly cut off relations with Logistics Health mere days before the $800 million contract was awarded. “It was just a business decision that was made,” Principi said. “QTC decided not to have anything to do with LHI.”

But more important, other contractors say the Defense Department was aware of the falling out. And that means that right before Logistics Health won the contract, the company lost what was probably a significant partner — a partner whose potential contribution DOD must have evaluated when considering which bidder was most qualified to get the contract.

Other contractors were flabbergasted that Logistics Health was still awarded that $800 million contract, despite QTC’s exit just days earlier. “That’s like saying I made a deal with you and this is what you are supposed to do, and I am going to sign this deal,” explained Roché. “But … the very people that were part of the deal are no longer present on your side of the desk. So how can you tell me you are able to make a deal when half of your business fell apart?”

Roché’s protest was dismissed by the GAO on technical grounds. But another company, Comprehensive Health Services, has also objected to the award of the massive contract. The GAO will decide the merits of the protest by Jan. 14.

And Roché has also appealed to Congress for help. “At the time the contract was awarded, LHI had lost its partner in the bid,” Roché recently wrote Henry Waxman, the pugnacious California Democrat who has subpoena power as chairman of the House Committee on Oversight and Government Reform. “The offering made to the government was substantively altered by the withdrawal of a key partner in the bid.”

Waxman’s staff did not return a call from Salon seeking comment. But on Nov. 8, Waxman wrote Roché saying his investigative staff would review information passed along by Roché.

In a statement to Salon, Diana Henry, the Logistics Health corporate communications manager, said, “Logistics Health Incorporated (LHI) has established a reputation as an outstanding company with a track record of superior service to its customers.” She added that the company “conducts all of its business activities in a highly ethical and professional manner.” She did not respond to questions about Winkenwerder.

In an Oct. 26 Los Angeles Times article, Winkenwerder was quoted as saying that he had nothing to do with the procurement process, had not talked to Logistics Health about working there until after he left the government in April, and had not lobbied the government for the contract after leaving the Pentagon. The Los Angeles Times article contained the first report that other companies had protested the contract, and that one losing bid from another firm was for $100 million less than the Logistics Health proposal.

Interestingly, prior to this award Logistics Health had already had a contract to perform medical and dental exams on guard and reserve soldiers, which ended in 2006. But that contract was administered through the Department of Health and Human Services, a major client that has paid the company more than $185 million since 2000, according to data available through the nonprofit group OMB Watch. Logistics Health’s president is Tommy Thompson, the former secretary of that department, who joined the company in March 2005 two months after leaving DHHS.

In September 2006, the government announced that the responsibility for the contract would be transferred from DHHS to the Department of Defense. Winkenwerder joined Logistics Health in June 2007, two months after leaving the DOD, and in September the company won the new contract from the DOD for performing medical and dental exams.

Mark Benjamin is a national correspondent for Salon based in Washington, D.C. Read his other articles here.

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