Louisiana Health Cooperative's then-Chief Executive Officer Terry Shilling signed a $4 million, four-year contract with a consulting firm last year in which he is a principal, according to documents obtained by the Washington Examiner.
Louisiana Health Cooperative is one of 24 health insurance co-ops established in 23 states since 2011 through a $2 billion Obamacare program intended to create competition for private-sector health insurance providers.
Federal officials with the Centers for Medicare and Medicaid awarded Louisiana Health Cooperative $65 million in startup loan funding in September 2012.
The Examiner also found that Louisiana Health Cooperative's leadership ranks include seven of Shilling's business associates, and the new co-op agreed to pay an additional $3.3 million annual fee to the consulting firm, which is registered in Georgia as Beam Partners.
Besides Shilling, individuals from Beam fill three of Louisiana Health Cooperative's director positions, two vice president slots and the chief financial officer. Eight of the top 11 co-op managers are from Beam.
On top of the $4 million contract and $3.3 million annual consulting fee, Louisiana Health Cooperative also agree to an additional 20 percent "performance fee" to be paid to Shilling's firm.
Finally, Beam also will reap commissions of as much as 50 cents for every new member joining Louisiana Health Cooperative.
The Examiner obtained the $4 million contract and other Louisiana Health Cooperative documents from the Louisiana Insurance Department under the state's public records law.
Shilling incorporated Beam Partners in 2004 in Atlanta, Ga., and still owns it, according to the Georgia Secretary of State.
Under the four-year contract, Louisiana Health Cooperative will pay Beam $66,667 per month for benefit payment services in 2013, increasing to $72,917 each month in 2016, according to co-op founding documents.
Beam will also get $12,500 per month for pharmacy benefit services, increasing to $15,000 per month in 2016.
State insurance commissioners must license all co-ops before they can sell health care insurance. The Louisiana Health Cooperative isn't the first of the Obamacare co-ops to be found with insider contracts.
Last May, Vermont's insurance commissioner denied in part an insurance license to the Vermont Health Co-op because its president awarded a sole-source contract to his consulting firm.
The Vermont commissioner depicted the contract as "illegal" and blasted the co-op president for directing as much as $500,000 to his private firm. The president resigned from the co-op's board but the health nonprofit is still barred from operating in the state.
Like Vermont, the Louisiana contract came to the attention of state regulators. Louisiana's insurance commissioner told the Examiner his office is reviewing the propriety of the $4 million contract.
Louisiana Insurance Commissioner Jim Donelon told the Examiner his department would take a look at any conflicts of interest concerning the contract, saying, "that is a matter under review."
Shilling signed the contract with his consulting firm Oct. 8, 2012, two weeks after CMS announced the $65 million award, but a month before he signed the actual loan agreement with federal authorities. CMS is part of the U.S. Department of Health and Human Services.
Based in Metarie, La., a spokesman for Louisiana Health Cooperative refused to respond to an Examiner inquiry about the Beam contract and refused to make Shilling or another executive available for comment.
Shilling is no stranger controversy. The U.S. Securities and Exchange Commission sanctioned him in May 1998 for insider trading while he worked as a health care executive in Georgia.
The Obamacare co-op loan program has operated in the shadows from its beginning, refusing to make public information about the standards underlying its selection process in picking loan recipients.
Rafael Goyeneche, president of the New Orleans-based Metropolitan Crime Commission, a nonprofit dedicated to exposing public corruption in Louisiana, said he is not surprised by the possibility of trouble with the new co-op.
"Any time you launch an initiative, there are going to be unforeseen consequences," said Goyeneche, who is a former prosecutor. "Money is going to attract not just qualified and honorable individuals, but also people who aren't qualified and are not honorable."
Grace Marie-Turner, president of the Galen Institute, a health care reform think tank, said there will be more problems with the Obamacare co-ops.
The Louisiana case is an example of what will be "an absolute avalanche of people profiting with special favors from this law. It is absolutely ripe for that form of abuse. We're going to see much more of it," Turner said.
The National Alliance of State Health Cooperatives, the trade association representing the 24 Obamacare health insurance cooperatives, did not reply to an Examiner inquiry about ethical guidelines it requires of its members. The CMS does not include ethical performance standards in its loan contract with Louisiana Health Cooperative.
The contract with Louisiana Health Cooperative specifies that Beam Partners will provide a broad range of management services, including providing advice to the CEO and CFO, to group services, compliance support, clinical care, information technology services and provider relations.
The Louisiana co-op's bylaws state that all parties representing the organization are to "avoid self-dealing" and defines a conflict of interest as applying to any person who had "a direct or indirect financial interest in a contract, transaction, or other arrangement, or in the same or related business as the cooperative."
But the bylaws add that "a person who has a financial interest may have a conflict of interest only if the board decides that a conflict of interest exists."
After signing the contracts, Shilling stepped down as CEO but a document filed by Louisiana Health Cooperative with the state insurance regulator listed his title as "executive director."
He was replaced as CEO by state Rep. George Cromer, a Republican who is chairman of Louisiana's House Insurance Committee.