Watchdog Faults Medicare Agency’s Use of Contractors to Burnish Its Image

WASHINGTON — The Centers for Medicare and Medicaid Services violated federal contracting rules when its leaders misused communications consultants to burnish the image of the agency and its chief, Seema Verma, according to the Department of Health and Human Services’s inspector general.

In a 70-page review of three contracts that totaled more than $6 million from 2017 to 2019, Christi A. Grimm, the department’s principal deputy inspector general, wrote that she found “significant deficiencies” in the agency’s use of outsiders to perform duties that should have been assigned to civil servants. Contractors were allowed to manage government employees, the review found.

The agency, one of the largest and most powerful in the government, controlling $1 trillion in health care spending that influences virtually every aspect of the American health care system, employed more than 220 communications aides during the 18 months that the office investigated. Yet it still hired outsiders to perform functions that violated federal rules, investigators found.

The agency’s extensive use of private communications contractors was first reported by Politico last year, and has become the subject of a congressional investigation as well as the inspector general’s 15-month audit. The contractors helped hone communications strategies, revise speeches, arrange interviews with the news media and review social media posts, according to the report.

The report details a series of episodes involving the agency’s use of the contractors. In one instance, a special assistant to the agency’s administrator, Ms. Verma, invoked one of the contractors when seeking permission from the health and human services general counsel’s office for Ms. Verma to attend a “Girls Night Out” event at the home of a CBS reporter. The assistant said the contractor was a “personal friend” of Ms. Verma. A lawyer in that office soon approved the request because Ms. Verma’s relationship with the contractor was a “professional one,” the report said.

Another contractor, a former private-sector colleague of Ms. Verma’s, posted on Ms. Verma’s Twitter account. Ms. Verma also directly corresponded with him in a series of emails in late 2017 about public comments he was drafting for her, and about his help with a “rollout” of her priority projects.

The relationship created the impression that the contractor was being treated as an employee for the Centers for Medicare and Medicaid Services, the report added, and “contributed to the appearance of strategic communications services contracts as personal services contracts.”

“C.M.S. improperly administered the contracts and created improper employer-employee relationships between C.M.S. and the contractors,” the report said.

Key Democratic lawmakers on health-related committees zeroed in on how the contractors worked to improve Ms. Verma’s personal reputation, saying her “blatant refusal to acknowledge” the audit’s findings or take steps to fix the problems identified raised concerns about her ability to continue to run the agency. They said they were finishing their own report on the contracts, which would provide additional details on what they said was her “inappropriate use of private consultants for her personal benefit.”

Another group of lawmakers wrote a letter to President Trump calling on him to fire Ms. Verma, accusing her of lying when she testified in October that “all of the contracts that we have at C.M.S. are based on promoting the work of C.M.S.”

Michael R. Caputo, the top spokesman for the Department of Health and Human Services, dismissed the report as a series of minor technical complaints, saying investigators made “a mountain out of a molehill.”

“Its findings are based on arcane contracting rules that remain the subject of longstanding confusion and debate across the entire federal government,” he said in a written statement.

The report found other deficiencies as well, noting that some contracts were the wrong type for their purposes, and that some contract modifications were not properly documented, for example.

In a statement, Tesia Williams, a spokeswoman for the inspector general’s office, said that “improper administration and management of contracts can put the government at increased risk for waste and abuse.”

In a series of recommendations, the inspector general called on the Department of Health and Human Services to respond to its findings by offering training to political appointees on the correct forms of contract administration, and for the Medicare centers and the department to find out whether other contractors are conducting government functions.

Robert Burton, a partner at the law firm Crowell & Moring, who oversaw government procurement in the George W. Bush administration, described the recommendations as “ho hum.”

“So much in federal procurement is subjective and subject to debate,” he said.

In written comments to a draft version of the report, the department, which includes the agency, concurred with the recommendations. But the agency did not concur with several of the report’s findings and disputed several of its policy recommendations to avoid such problems in the future.

In a direct response to Ms. Grimm folded into the report, Ms. Verma wrote that her conclusions were the result of a “few handpicked email records,” and that the inspector general had failed to substantiate her conclusions by interviewing the contractors.

“It is therefore disingenuous to say that these individual contractors were engaged in ‘directing’ career agency officials when all that is shown is typical collaboration among team members,” she said.

Ms. Verma also accused the inspector general’s office of bad timing, saying that it had wasted resources on the investigation in the throes of a public health crisis.

“As the entire country is dealing with a national public health emergency, C.M.S. staff should be solely focused on responding to an unprecedented global pandemic,” she said, “but instead had to spend precious time responding to the numerous mischaracterizations and technical inaccuracies in the O.I.G.’s findings and conclusions.”

Ms. Williams, the spokeswoman for the inspector general’s office, defended the timeline of the audit, saying that “field work was conducted between June 2019 and February 2020, before the Covid-19 pandemic significantly impacted the U.S.”