Privatization Fail: The Troubled History of Maximus Inc.

-- by Jonas Persson and Mary Bottari

Based in Virginia but with offices all over the world, Maximus Inc. rakes in more than $1 billion a year from U.S. states and governments outsourcing social service and administrative functions. Wisconsin and the privatizing giant have a long and very troubled history, but breaking up, it seems, is hard to do.

Between 1997 and 2001, the Wisconsin Department of Workforce Development awarded Maximus three contracts to administer the newly created Wisconsin Works (W-2) program for $107 million. W-2 provides employment counseling and cash assistance for families living below the poverty line. There is no entitlement to assistance; it must be earned through "work participation and personal responsibility."

While the struggling Wisconsin families kept their part of the responsibility bargain, Maximus did not. In 2000, it transpired that the company had improperly billed the state hundreds of thousands of dollars for expenses that had nothing to do with W-2, including "social functions and entertainment." In the end, Maximus was forced to pay back $500,000. As a show of "good faith," it also wrote a check for a further $500,000.

Whether it was the show of good faith or its impressive history of maximizing profits is impossible to say, but in 2004 Wisconsin once again contracted Maximus, this time as a "revenue-maximization consultant." The company was charged with helping the Department of Health Services prepare and file Medicaid claims to extract more money in federal reimbursement. The $3.4 million dollar contract -- footed by Wisconsin taxpayers -- ran until 2009. And initially, things seemed to be going fine. Perhaps the appropriation of $500,000 some years earlier was just a bad day in the office for Maximus?

When the contract expired, DHS continued filing in accordance with the "best practices" developed by the company. In 2013, these practices caught the eyes of the inspector general for the U.S. Department of Health and Human Services, who found that they did not comply with federal requirements. Out of $41 million claimed for residential care services between 2004 and 2006, $39 million was deemed "unallowable" by the federal government. That translates into $19 out of every $20 and the feds are demanding Wisconsin pay back $23 million. Chances are that this number will increase by a magnitude when the claims made after 2006 get the fine-tooth-comb treatment.

W-2 and Medicaid consultancy are not the only services that have been outsourced to Maximus in Wisconsin. After spending more than $114,000 on lobbying the legislature on bills related to the "W-2 budget allocation process," Maximus was awarded a renewed six-year contract with the Wisconsin Department of Children and Families worth some $21 million in 2011. Once again, Maximus was charged with deciding whether cases (this time children placed in foster care) met the criteria for federal reimbursement.

Indeed, Maximus has experience providing this type of service. In July 2007, Maximus paid $30 million to the federal government to settle criminal charges related to falsifying foster care claims. "Even after Maximus was paid $30 million for false claims in the DC foster care system, Wisconsin went ahead and signed a contract with the firm for the same type of service. States are failing to learn from each other's experiences or in Wisconsin's case, even their own," said Shar Habibi an expert on privatization at the nonprofit resource center In the Public Interest.

But in some states, citizens are stepping up and speaking out. In neighboring Illinois, a Maximus outsourcing experiment came to a sudden halt in December 2013. Facing a shortage of staff, the Department of Healthcare and Family Services had contracted Maximus to deal with a backlog of Medicaid cases up for re-determination. An investigation of the redetermination data found that Maximus's work was sloppy and had high error rates, as opposed to the work carried out by state employees. The case went to arbitration, and during the proceedings, a state employees union showed that Illinois could save $18 million by hiring more staff to make up for the shortfall, instead of using a contractor. The independent arbitrator issued an order canceling the $77 million dollar contract with Maximus.

In Wisconsin, on the other hand, things are not as straightforward. The foster care contract is still in effect, and Maximus continues to provide W-2 services, with an office in Milwaukee.

How does the firm get states to look the other way? Maximus ladles on the campaign contributions and lobbying dollars, contributing $5,000 toward Governor Scott Walker's recall election campaign. Maximus also paid $100,000 a year for exclusive access to Republican governors through the Republican Governors Public Policy Committee, a secretive group recently exposed by Citizens for Responsibility and Ethics in Washington and the New York Times.

In a recent tweet, the state's W-2 program urged job applicants to "Check Check & Double Check your resume." Good advice indeed.

Perhaps some résumé-checking would not be amiss the next time Wisconsin officials evaluate a Maximus bid.

For references and more examples of outsourcing run amok, please see CMD's new report Pay to Prey: Governors Facilitate the Predatory Outsourcing of America's Public Services and follow the conversation at #OutsourcingAmerica.