Auditor suggests Gruber may have overbilled

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Posted on February 23, 2015 in In The News
MIT economics professor Jonathan Gruber is a consultant on Vermont’s examination of a publicly financed health care system. Courtesy photo

MIT economics professor Jonathan Gruber is a consultant on Vermont’s examination of a publicly financed health care system. Courtesy photo

FEB. 23, 2015, 1:40 PM BY 

State Auditor Doug Hoffer says the Shumlin administration failed to provide sufficient oversight of Jonathan Gruber’s contract and it appears the economist may have overbilled for the work of a research assistant.

The MIT professor was hired to use his proprietary economic model to project the impact of various single-payer financing options. State officials have praised Gruber’s work as essential to their decision not to move forward with a public health care program in the near-term, but his involvement has created problems of its own.

Last year, a series of impolitic remarks captured on video turned into a public relations nightmare for Gruber and his public clients (including the Obama administration, Vermont and several other states with which Gruber had contracts). In the wake of that episode, Gruber agreed to forgo $120,000 of his original $400,000 contract.

However, the lack of detail in Gruber’s invoices to Vermont caught the attention of several lawmakers, who brought their concerns to Hoffer.

State officials originally said they were unconcerned about the way Gruber was billing, because officials overseeing the development of a single-payer financing proposal were in near daily contact with him and satisfied with the work he was producing.

Gruber’s contract included an hourly rate of $500 for his work and $100 for his research assistants. Both invoices the state received were for $100,000. The state was billed for 100 hours for Gruber’s time and 500 hours for his research assistants.

The invoices do not include a breakdown of when those hours were worked, or what work was performed. They also do not identify how many research assistants worked the 500 hours, nor do they list the names of the assistants.

In a memo to the Agency of Administration, notifying them that he has referred the matter to the attorney general, Hoffer writes that it’s “implausible” the actual work would fit neatly into two identical invoices, and suggests the state was remiss not to have challenged that reporting.

Furthermore, public records and Hoffer’s own investigation have shown that Gruber had only one research assistant working on the project. That means the researcher would have to have worked 1,000 hours in a 10-week period to cover the time Gruber billed, or 14 hours per day every day — a feat Hoffer describes as “unlikely.”

“The evidence suggests that Dr. Gruber overstated the hours worked by the RA and that the Agency of Administration ignored the obvious signs that something was amiss,” Hoffer writes.

Administration Secretary Justin Johnson said Monday that Gruber completed the work specified in his contract, but he shares Hoffer’s concern that the hours billed weren’t well recorded. He’s sent a note to his staff that oversees contracts to ask that they “fully document” all relevant information going forward.

The state has paid $80,000 on each of Gruber’s invoices, revoking a 20 percent retainer included in the contract — bringing the total amount Gruber was paid to $160,000.

Johnson, who became secretary after those invoices were partially paid out, said at the time state officials didn’t realize Gruber only had one research assistant working on the project.

“My understanding is they just didn’t give it much thought. They were dealing (directly) with Gruber, and the contract referred to assistants, and he referred to his team. I don’t think they sat down to parse out ‘does he have more than one?’” Johnson said.

Gruber’s proposal to the state of Vermont identifies one research assistant and states that more could be hired as needed. His contract includes a line item for “Programmers,” which was the result of a compromise over language detailed in emails released by the administration.

After receiving a draft of his contract Gruber writes in an email to Michael Costa, deputy commissioner of health care reform, “I’m not sure yet of the name of the programmers nad (sic) the absolute allocation of dollars between myself and htem (sic). Is it possible to just make one line item for myself and programmers for $400k?”

Costa replies that he will check the “flexibility” regarding “how to phrase the split between you and programmers” with the Attorney General’s Office. The two ultimately agree to a single line item that specifies the programmers be paid no more than $100 per hour and that the total contract not exceed $400,000. An additional $50,000 for Moody’s analytics was later dropped. In reviewing 2,253 pages of emails and attachments sent between Gruber and state officials Gruber makes several references to his “team.”

Vermont has since received two more invoices, totaling $90,000, submitted by Gruber in December, which it is now contesting. Officials contend that Gruber is billing for his own time in violation of their amended contract (Gruber agreed to take less money, but asked that his research assistant continue to be paid).

“The state, however, is not satisfied with the last 2 invoices received [from] Dr. Gruber, which are dated December 30, 2014. … In essence, we are concerned that one invoice bills for Dr. Gruber’s time in violation of the contract amendment. Additionally, we are no longer satisfied with the level of detail provided,” wrote Robin Lunge, commissioner of Health Care Reform, who had primary oversight of Gruber’s work, in an email to Hoffer this month.

Those invoices bill for 500 hours of Gruber’s research assistant’s time, which would mean he or she worked on the project eight hours every day or 11 hours each weekday from Oct. 15 to Dec. 19. Again Hoffer is skeptical: “Though possible, this is not realistic,” he writes.

Johnson said Vermont has requested additional documentation to substantiate the sums in Gruber’s latest invoices, and he won’t be paid until that’s received.

Gruber originally told the administration that his research assistant was a private contractor, but when asked for documentation, he submitted W-2, indicating the researcher was actually his employee. Lawmakers had voiced concerns that the research assistant might have been one of Gruber’s students, which would violate MIT’s ethics policy.

The W-2 indicates that Gruber may have kept much of what the state paid him for his research assistant’s work. The researcher, whom public records show is a recent college graduate, made $32,000 while working for Gruber in 2014, which Gruber acknowledged to Hoffer includes “some work on other projects as well.”

The total is far less than the $100,000 Gruber billed for the research assistant’s time, or the $80,000 Vermont paid Gruber for his assistant’s time.

Gruber billed at the contractual rate for his research assistant’s time and is under no obligation to pay him that amount. It’s common for an employer or contractor to bill an hourly rate that is higher than what is actually paid to an employee, Hoffer writes, and the difference allows them to pay for any benefits they offer, payroll taxes, overhead and to earn a profit.

The evidence suggests Gruber “overstated” the hours worked by his research assistant, according to Hoffer, and the auditor has referred the matter to the Attorney General’s Office.

Attorney General Bill Sorrell said the invoicing raises “major questions” and his office will sit down with administration officials to determine “what evidence and records are available to justify the billing amount.”

The state has withheld $40,000 in retainers on the first two invoices and has paid nothing toward the second two, which gives it “significant leverage” in winding down the contract, Hoffer notes.

Still, Hoffer concludes the Agency of Administration “failed to exercise due diligence” in managing Gruber’s contract, and it should do a better job of oversight to assure accountability going forward.

Gruber declined to comment for this story.

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