Republican lawmakers are asking a contractor building Obamacare’s federal data hub and health care exchange to explain how it’s going to resolve its massive conflict of interest. Why?

Maryland-based Quality Software Services, Inc. (QSSI), was awarded the contract to build the federal data hub and other technological components of the federal exchange early this year. It was then bought by UnitedHealth Group, which also owns UnitedHealthcare— one of the nation’s biggest providers of health plans. Industry experts and competitors of UnitedHealthcare worry quite reasonably that if an insurance carrier which is supposed to compete inside the exchange shares an owner with the company building that exchange, that might turn out pretty darn well for…UnitedHealthcare.

One critic familiar with the business rivalries of the insurance industry compared UnitedHealth Group’s purchase of QSSI to the New York Yankees hiring the American League’s umpires.

This week, Sen. Chuck Grassley (R-IA) and Rep. Fred Upton (R-MI) asked UnitedHealth Group’s and QSSI’s heads to clarify the relationship between their companies and whether they’ve taken steps to mitigate conflicts of interest. Their concerns:

News outlets have reported that QSSI will likely “finalize technical and systems requirements to develop and deliver plan management services, which includes the certifying and decertifying of health plans offered on the exchange,” and “also entails monitoring agreement with health plans to ensure compliance.” This raises serious questions about the conflicts of interest that may exist as a result of the acquisition of QSSI by [UnitedHealth Group subsidiary] Optum. For example, this contract creates a situation whereby the exchange’s ultimate designer, QSSI, is in a position to tailor the system to favor the interests of its parent company, UnitedHealth Group and further maintain a monopoly over information that is unavailable to competitors, potentially allowing such information to be exploited as invaluable market intelligence and used to gain an unfair advantage over competitors.

The UnitedHealth Group response, for now:

In response to the letters, UnitedHealth Group spokesperson Matt Stearns said, “Putting our customers’ secure and proprietary interests first is a hallmark of our service and has earned us the strong confidence and trust of those we serve every day.”
Stearns added, “We look forward to responding to (lawmakers’) questions” (“Healthwatch,” The Hill, 12/10).

If you’re not impressed with the appearance of impropriety, how about actual impropriety? Sen. Orrin Hatch (R-UT) first noticed this red flag in November:

The quiet nature of the transaction, which was not disclosed to the Securities and Exchange Commission (SEC), has fueled suspicion among industry insiders that UnitedHealth Group may be gaining an advantage for its subsidiary, UnitedHealthcare.

UnitedHealth Group’s acquisition has caught the attention of Sen. Orrin Hatch (R-Utah), the ranking member on the Senate Finance Committee. He has expressed alarm over what he calls a lack of transparency in setting up a national insurance marketplace covering more than 30 states.

He asked Health and Human Services (HHS) Secretary Kathleen Sebelius in an Oct. 19 letter for a full account of contractors hired to set up the national exchange and a list of administration officials who signed off on those awards.

And, finally, there are these allegations from The Weekly Standard‘s Jeffrey Anderson, whose source suggests it was Sec. Kathleen Sebelius at Dept. of Health and Human Services who discouraged reporting to the SEC to avoid detection of exactly this conflict of interest:

When HHS became aware of UnitedHealth Group’s purchase of QSSI, it couldn’t realistically void the contract, because the Obama administration was already too far behind in setting up the federal exchanges. To void the contract would mean delaying the exchanges’ implementation by many more months. The Hill writes: “[G]iven how late the administration has been in issuing rules for the exchanges, it would be extremely difficult to void a key contract, find another company to perform the work and still meet the 2014 deadline.”

Unwilling to void the contract, HHS instead went to work on setting up a firewall designed to block United-Health Group from gaining access to QSSI’s data, presumably out of a desire to keep UnitedHealth Group from gaining an unfair advantage. Then, likely in concert with the White House — and to the chagrin of many HHS employees — Sebelius and other senior HHS officials decided that word could too easily get out about the firewall project. If it did, it would alert people to UnitedHealth Group’s having gained a potentially huge competitive advantage — a political concern for the White House on the cusp of the election, especially in light of the crony capitalism charges that have plagued this administration. Therefore, HHS, under Sebelius’s leadership, suspended work on the firewall and told United-Health Group not to alert the SEC to the purchase — as UnitedHealth Group was legally required to do within four days of the transaction — until after the election.

HHS’s actions have drawn the attention of the Senate Finance Committee. The committee’s ranking Republican, Sen. Orrin Hatch, has asked Sebelius for information, but Sebelius has not complied with his written requests and deadlines.

And, the icing on the crony cake? At the time QSSI got its contract, “the director of Obamacare’s newly established Center for Consumer Information and Insurance Oversight (CCIIO) — which the Hill describes as ‘the office tasked with crafting rules for the national exchange’ — was Steve Larsen.” Larsen left CCIIO in June and got a job with—guess who?— UnitedHealth Group. To be exact, he took a job with Optum, the exact subsidiary of UnitedHealth Group that bought QSSI.

A whopping six states got “certified” by the administration to be official state exchanges this week, and only 15 states have applied. As I’ve noted before, the administration foolishly assumed that all the states would build exchanges and it wouldn’t have to work too hard on a federal exchange. There will be only 15-17 states obliging and only a handful of those ready for open enrollment by October 2013, as required. The contract with QSSI and UnitedHealth, therefore, becomes simultaneously more important as the clock winds down to implementation and more problematic, as the company will have control over a growing number of Americans’ health coverage.

And I’m not even getting into the privacy and security concerns with creating “a central database linking critical state and federal data on every U.S. citizen for real-time access” on a tight timeline with little oversight. Good times.