Nonprofit used in Michigan's COVID fight draws oversight abuse fears
Lansing — The budget of a nonprofit group that one official says has been used by the Michigan Department of Health and Human Services to "avoid oversight" has ballooned during the COVID-19 pandemic, spurring concerns about the accountability of millions of dollars in government spending.
Through a "master agreement," the Okemos-based Michigan Public Health Institute has quietly been able to execute contracts on behalf of the state health department. The group is so closely tied to the department that former state health director Robert Gordon once said "hundreds of employees" contracted through the nonprofit assist the state with work.
The relationship dates back decades under several administrations. During a recent Attorney General's office investigation into one contract run through the institute, multiple employees said the department uses the nonprofit to get contracts completed more quickly. And the institute, which was formed through state law to help with research, appears to be executing more contracts on behalf of the state than ever before, according to public records.
The group is not subject to the same audit, contract bidding and open records protocols as the department but reported $166 million in funded projects for the current fiscal year, nearly double the total from two years earlier. Meanwhile, the group's annual revenues have quadrupled over the last decade, according to filings with the Internal Revenue Service.
"It seems like they are shielded from disclosure laws, they are shielded from the civil service pay structure, and they get around competitive bidding," said former state House Oversight Chairman Matt Hall, R-Marshall. "All of these laws are in place for a reason. It’s for transparency. It’s for protecting the taxpayers from abuse."
A required annual filing with the Michigan Legislature shows the group has been heavily involved in the state's response to the COVID-19 pandemic through dozens of projects funded by both state dollars and federal dollars that flowed through the state.
They include $439,468 for crisis counseling services for populations affected by the virus, $25 million for a program to create personal protective equipment and COVID-19 testing and $20 million for the state's effort to combat health disparities.
In April, the institute was used to establish a nearly $200,000 contract with a Democratic-linked group as the state sought to ramp up its contact-tracing efforts at the peak of the pandemic. The contract was canceled amid media scrutiny. Gordon later said the contract was a well-intended mistake made by individuals who didn't understand the political implications of the contract.
But the public outcry and Republican censure over the contract eventually expanded to include the Michigan Public Health Institute.
State officials have defended the organization, which they said provides valuable insight and research to the state while complying with strict reporting requirements.
"All of the funds that we have within the department are very stringently regulated, both by the federal government and at the state level," said Elizabeth Hertel, who on Friday was named director of the Department of Health and Human Services after Gordon abruptly resigned. Hertel formerly served as chief deputy director of administration for the state health department. She's a board member at MPHI.
"We aren’t trying to bypass or hide anything," she said.
'To avoid oversight'
Last year, several state employees told investigators looking into the canceled contact-tracing contract that the institute presented an opportunity to create financial agreements more swiftly than if the contract were to go through the department's regular procurement and bidding process.
A procurement officer in a separate department was blunter. He believed "they often used MPHI to avoid oversight," according to the 2020 report from Michigan Attorney General Dana Nessel.
Like most nonprofits, MPHI receives outside financial audits, but the state's Office of Auditor General has never audited the institute. Audit division manager Steve Koshay told lawmakers in August the agency was "trying to determine whether we do have the ability" to audit the institute.
The institute rejected claims its contracts sidestepped oversight, arguing the institute was an "example of governmental innovation" and a "visionary creation" that has made Michigan well-poised to anticipate and respond to public health crises.
But MPHI's chief executive officer, Renee Branch Canady, said there is a need to remind lawmakers of the institute's purpose historically as well as its ongoing role.
"With that history of 1989 to now — 30-some odd years — what’s been interesting for me as second CEO of this entity is: How do you keep history alive?" Canady said. "We now have across-state-government colleagues who just don’t understand MPHI.”
The organization formed through a state law passed in 1989, allowing for the creation of a nonprofit to "plan, promote and coordinate health services research" with public universities. The group can research a wide array of topics, including "public health programs and policies."
Jim Haveman, a former health department director and former member of the MPHI board, described the organization as "kinda a hybrid between the nonprofits and the state of Michigan." The people who run MPHI are ethical people, he said, adding the state's contract bidding process can be "long and cumbersome."
"If I was going up in a space rocket, I wouldn’t want the bid to be the lowest bidder," Haveman said.
Growing list of projects
The state typically establishes a "master agreement" with MPHI through which it adds subcontracts throughout the year based on funding and priorities for the Department of Health and Human Services, which had a budget of about $28.5 billion for fiscal year 2020-21.
Each year, the nonprofit must file a report on its funded projects with the state Legislature. For fiscal year 2016, the group reported $83 million in projects. Five years later, this fiscal year, the amount grew to $166 million. In the last decade, the institute's employees expanded from about 330 to 935.
The state still has oversight of the projects, but MPHI provides the human resources to conduct direct oversight and reporting that would otherwise fall to the department, Hertel said.
In August, Gordon said MPHI was used for a variety of reasons, including its expertise and ability to relieve the department of time-consuming steps of the contracting process, such as liability insurance, the administrative transfer board and the state's cumbersome financial software.
The Department of Health and Human Services is required by law to competitively bid any contract more than $50,000. Contracts over $500,000 or involving information technology are bid out through the Department of Technology, Management and Budget, said Bob Wheaton, a management and budget spokesman.
To put a contract through MPHI, the department contract administrator must submit an application to a grants and purchasing bureau and acquire the signature of a budget liaison and administrator. When those are obtained, the institute is not required to go through a competitive bid process, Wheaton said.
Canady said the bidding process for each contract differs depending on the situation.
"In some circumstances, the state has done that due diligence on the front end. In other cases, they ask us to do a bid process," Canady said. "We also have a number of other projects that we do that are value-added.”
Hertel speculated the number of contracts pushed through MPHI had grown over the years because of an increase in federal grant money. The jump from 2019 to 2020 was an outgrowth of the COVID-19 pandemic, she said.
MPHI appreciates "the transparency we require for the funding that we do get, and they provide a lot of support for us," Hertel said. "We have a really good partnership with them.”
In addition to Hertel, the institute's board features Dr. Joneigh Khaldun, the state's chief medical executive, and employees of the University of Michigan and Michigan State University. A filing shows the organization has two $500,000 contracts with UM, and a $319,239 contract with MSU.
MPHI also has financial arrangements with the Michigan League for Public Policy ($75,000) and the Michigan Association of Health Plans ($200,000), two groups that also lobby the state on health-related issues.
Gilda Jacobs, president of the Michigan League for Public Policy, said her organization has had a formal partnership with MPHI for some time. The funding supports the league's work on the state's Medical Care Advisory Council, Jacobs said.
"Our longstanding relationship with MPHI recognizes our nonpartisan, data-driven work on health care research and analysis, as well as our vital role in raising the health-related concerns and issues faced by Michiganders with lower incomes, from expectant mothers and infants to our seniors," Jacobs said.
The line between where the state health department ends and MPHI begins is hazy.
MPHI hires hundreds of contract employees to work within the state's 14,000-employee Department of Health and Human Services. The institute's employees can drive state-owned vehicles. And members of the state health department, such as Hertel, are on the governing board of MPHI, an arrangement allowed for under state law. Board members aren’t paid for their work on the board, according to the institute's tax filings.
The largest difference between the state department and MPHI is that contracts don't have to go through the same oversight and processing requirements when made through the institute — a shortcut that has raised eyebrows among some state officials.
In August, Rep. Ann Bollin, R-Brighton Township, asked for more clarity on the role of the institute and speculated that MPHI's time had "come and gone."
"With over 250 contracts, we have key people in key positions in our state, directors of key divisions, that are contracted through an outside agency," Bollin asked.
"We’re spending a lot of tax dollars," she continued. "If this state feels that it is so important to have those positions and those roles, then why aren’t we hiring those professionals on our own?"
Gordon told lawmakers in August he didn't know the rules applying to the hiring of MPHI affiliates, but he said it wasn't an unusual occurrence. Wheaton added the institute is used often to fill temporary grant-fund positions.
"There are, I think, hundreds of employees who are hired through MPHI who assist with work, particularly as it relates to public health," Gordon said. "This is a practice that goes back certainly to the last administration, but I think for decades.”
Take the role of Andrea Taverna, a senior adviser on opioid strategy for the Department of Health and Human Services who resigned in December.
A former member of Whitmer's cabinet and transition team, Taverna was hired under a one-year contract through MPHI but worked under the direction of the Department of Health and Human Services. When COVID-19 hit, her duties shifted toward pandemic response.
When the state was struggling to expand its COVID-19 contact-tracing program in March, Taverna set up a contract with Kolehouse Strategies, a firm that usually works on Democratic campaigns.
Taverna and other state employees made the Kolehouse contract through MPHI, with input from the state along the way that included shifting the contract to a different subcontractor name and software platform — still linked to the Democratic firm — to avoid the appearance of partisan motivations.
But news of Kolehouse's involvement exploded the day the contract was announced, leading Whitmer to cancel it on the grounds it wasn't approved by the state emergency operations center. The canceled contract earned scrutiny from state lawmakers that eventually swept from the contract itself to the group through whom the contract was made.