Tennessee no-bid contract pays firm $55 million for COVID-19 contact tracing

Xtend Healthcare in Hendersonville had no experience with contact tracing when it secured its first state contract for $20 million. /Photo by John Partipilo/Tennessee Lookout

In the early summer of 2020, as the COVID-19 pandemic overwhelmed even the nation's most robust public health programs, Tennessee became one of a handful of states that chose to outsource contact tracing to a private vendor.

In June 2020, Hendersonville-based Xtend Healthcare, a for-profit medical billing firm without prior experience in infectious disease, inked its first no-bid contract for $20 million to do contact tracing, which means helping locate and warn people with potential exposure to someone with the virus.

The contract has since been extended by the Tennessee Department of Health five times. The last extension, on Oct. 25, gave the company a maximum total compensation of $75 million over the life of the contract, which now ends Jan. 31.

As of Nov. 17, the company had been paid $55.3 million, or an average of $3.1 million each month so far, according to invoices and information provided by the health department.

The pandemic forced every state to quickly ramp up contact tracing, which - in combination with widespread testing - has served as an important tool to help stop the spread.

(READ MORE: Tennessee lawmakers delve into no-bid contracts with eye on McKinsey deal)

Sixteen states chose to keep contact tracing entirely in-house. Most others - 26 states - formed partnerships with universities or private companies. Tennessee was among nine states that chose to mostly outsource contact tracing, according to a joint analysis of the states' contact tracing infrastructure by the National Academy for State Health Policy and Mathematica, organizations that provide analyses to public officials.

Tennessee's contract with Xtend is among more than $742 million spent by Tennessee's Unified Command Group - made up of the Department of Health, Tennessee Emergency Management Agency and Department of Safety and Homeland Security - from March 2020 through May 2021, a figure that does not encompass Xtend's payments since then.

In an urgent effort to respond to COVID-19's spread, most of those contracts were sole-source deals, meaning they were made without going through typical bidding procedures under the state's procurement system.

But lawmakers on both sides of the political aisle are increasingly raising questions about the high-dollar contracts quickly awarded in response to the pandemic, most of which are paid with federal pandemic response dollars, not state funds.

State Sen. Todd Gardenhire, a Chattanooga Republican who chairs the legislature's Fiscal Review Committee, earlier this month made clear he was investigating the state's reliance on no-bid contracts during the pandemic, saying "we just want to make sure everything is on the up and up and we understand why there's no competitive bids."

Gov. Bill Lee in August defended those contracts. Calling the non-competitive contracts "absolutely the right thing to do," Lee told Tennessee Lookout. "We moved away from that when it was no longer necessary."

(READ MORE: Tennessee officials, sock company defend 5-million-mask rollout amid coronavirus)

Two months later, on Oct. 20, the state issued a formal request for proposals for contact tracing, inviting bidders for the first time to enter a competitive process for selecting the state's contractor going forward. The request describes the one-year contract for $20 million, a cost that also includes vaccine outreach efforts.

Five days after the request for proposals was issued, Dr. Lisa Piercey, commissioner of the Department of Health, signed a contract extension worth $20 million with Xtend through the end of January 2022.

Asked last week if Piercey is satisfied by Xtend's performance, a health department spokeswoman said "the state is satisfied by the work of this vendor."

The vendor, however, has at times drawn criticism for its pandemic work.

In November 2020, four Xtend contact tracing workers told Nashville Public Radio of extended backups in reaching patients until after their infectious periods had passed - or after a quarantine period for close contacts.

And as the school year began for Tennessee public schools - coinciding with the rapid spread of the delta variant - school officials and parents in Knoxville, Clarksville, Sumner County and elsewhere began angrily criticizing the failure of the state's contact tracing efforts to provide timely notifications on positive cases to schools and families. Parents said they were learning of COVID-19 cases in their students' classrooms on Facebook, in car lines and often days after a quarantine period would be set to expire. A spokesman for the state said at the time it was the responsibility of state health officials through their contractor Xtend to provide contact tracing in schools.

A spokesperson for Xtend told the Tennessee Lookout in September that it relied on the state health department to supply them with a list of contacts related to schools to call and joined state officials in criticizing some school districts for their failure to cooperate.

"While many schools are routinely sharing information, unfortunately there are some schools that are choosing not to follow up with contacts or share information with the health department," Paul Hartwick, an Xtend spokesperson, said in a Sept. 22 email.

Hartwick did not respond to the Lookout's request to answer additional questions about the company's contact tracing efforts.

(READ MORE: House Speaker, Gardenhire push bill to force legislative review before no-bid contracts signed)

Xtend has also run into controversy over its pandemic contracts elsewhere.

New Jersey entered a $29.2 million contract for Xtend to staff a vaccine hotline making appointments for residents that earned criticism for giving out confusing information or redirected to other sources for the appointments.

Xtend has been operating in Hendersonville since 2009, primarily offering patient billing services to hospitals. By 2015, it was earning $70 million in revenue, according to a news release by Navient announcing it had acquired the Tennessee company. In 2019, Xtend received a $150,000 FastTrack grant from the state in exchange for pledging to create 200 jobs.

Xtend's contract in Tennessee has helped the bottom line of its corporate parent, Navient, during a turbulent time as it faced increased scrutiny by Congress and government regulators over its federal student loan servicing business. The company is facing multiple lawsuits from state attorneys general and the U.S. Consumer Financial Protection Bureau over allegations of abusive loan practices connected to the 5.6 million student borrower accounts it has held.

It announced in September that it would exit the federal student loan servicing sector for good.

By October, as Navient was reporting millions in losses from its student loan division, it announced a "focus on growth opportunities," including pandemic-related contracts with state governments. Revenues, Navient's 2021 third-quarter presentation to investors said, increased from $32 million or 36% compared to a year ago, "primarily as a result of revenue earned from new contracts to support states in pandemic relief services."

Sen. Heidi Campbell, a Nashville Democrat, said that the "pattern of granting no-bid contracts to disreputable companies is really alarming, especially in this unique moment when we have more federal money coming into our state than we've ever had. Fiscal responsibility is not a partisan issue. We all want to know that our hard-earned tax dollars are employed responsibly for the benefit of our citizens."

State health departments are starting to wind down contact tracing efforts, as the pandemic wanes and vaccinations have become available, according to Loren Lipworth, associate director for the division of epidemiology at Vanderbilt University Medical Center.

"Whether there's still a cost-benefit to this, a lot really depends on the landscape of vaccination in a community," Lipworth said. "But we as a state are not at a point where infection without contact tracing won't lead to outbreak. There are still counties in Tennessee with very low vaccination rates. The role of contact tracing in those areas has not changed very much."

Read more at TennesseeLookout.com.