Hogan administration spent $9M in no-contract deal

Auditors find a lack of documentation in purchase of South Korean tests

Maryland’s $9 million purchase of half a million coronavirus tests from a South Korean company was based on a flawed agreement and most of them were likely never used, according to the findings of a state audit released Friday.

The state government had no contract with the company, LabGenomics, and instead relied on a letter of intent dated April 2, 2020, to buy and import the tests before they received emergency approval from the U.S. Food and Drug Administration, according to the report from the nonpartisan Office of Legislative Audits.

The letter did not meet the requirements of the state’s procurement law and there was “a pervasive lack of written documentation” of the purchases, auditors wrote.

Republican Gov. Larry Hogan’s administration pushed back against the report, calling it “a politically driven review” of a much-needed resource at a crucial period in the pandemic.

State lawmakers who demanded the audit, meanwhile, said the lack of a contract left the state vulnerable with little recourse when problems were found with the tests.

Ultimately, the state had to spend an extra $2.5 million — on top of the $9 million original price — to exchange the tests. The price of the second batch of tests was not explained or justified in documents, either, according to the audit.

The governor touted the purchase last April as a creative solution to a shortage of tests that Maryland and other states were experiencing during the first wave of COVID-19 in the United States. He heralded their arrival, greeting the Korean Air flight carrying the tests at Baltimore-Washington International Thurgood Marshall Airport.

But the tests didn’t appear to be put into immediate use, and state health officials and the governor weren’t initially clear about when or where they’d be used. Over the course of the past year, state officials gave incomplete or conflicting answers to questions about the tests. That frustrated some state lawmakers so much that they requested the audit in June.

Sen. Clarence Lam, a physician who has repeatedly questioned the Hogan administration about the tests, said the audit confirms “the worst of what we thought” about the deal.

“The state’s procurement laws and regulations exist for a reason — to ensure that taxpayers’ money is well spent,” Lam, a Democrat representing Howard and Baltimore counties, said in a statement. “This is a textbook case of finger pointing and the lack of responsibility that occurs when the highest levels of state government fail to follow the established rules, even during an emergency.”

Lam said the rushed process and no contract meant that taxpayers “were left on the hook for another $2.5 million” for the replacement tests, and valuable time was lost in the effort to ramp up testing.

Sen. Paul Pinsky said the 133-page audit initially left him speechless.

“Coming to an agreement without a contract was like, ‘Trust me,” Pinsky said. “We’re spending $11 million and we have nothing in place, no accountability.”

Pinsky, a Prince George’s County Democrat who chairs one of the legislature’s health committees, is one of the lawmakers who asked for the audit.

“The tests were, in many cases, unusable and we couldn’t even hold them accountable,” he said.

In a written response to auditors, Hogan’s chief of staff defended the effort to buy the tests, noting the purchase came at a time of “dire need.”

“The decisions made to procure 500,000 tests — a resource unimaginable in many states at that time — from LabGenomics reflected the best information available at the time and the most creative thinking to solve a very real problem,” wrote Amelia Chassé Alcivar, the chief of staff.

The chiefs of staff for the state departments of health and general services went further, accusing the auditors of cherry-picking statements from interviews to include in the report without sufficient context.

“Ultimately, the review and the manner in which it was conducted, gives the appearance that OLA produced a rushed and politically driven report,” wrote Eric T. Lomboy of general services and Thomas C. Andrews of the health department.

And Hogan’s spokesman, Mike Ricci, hit back against the audit in a statement Friday: “We have no regrets, except for the time and tax dollars that have been wasted trying to undermine this international accomplishment.”

Pinsky said the governor is unwilling to admit mistakes.

“He’s creating a narrative — a false narrative — that doesn’t gel with the truth and the facts,” he said.

In light of the questions surrounding the tests and other contracts, state lawmakers are considering changing the laws that govern contracts during a state of emergency.

Proposed legislation includes a new requirement for a governor or department secretary to give notice of emergency contracts to the legislature within 72 hours, including why the contract is necessary.

According to a timeline in the audit, LabGenomics applied for emergency FDA approval on March 26, 2020. Four days later, the FDA requested that the company change the “internal control reagent material” in the tests.

On April 2, the state sent its letter of intent to LabGenomics to buy the tests and a day later, the company revised its application to the FDA reflecting the new reagent material. The testing materials were shipped on April 18 and April 22, while the FDA approval — with the new reagent — didn’t come until April 29.

According to the audit, a private lab that received some of the first batch of tests found several problems with them, including that they were less sensitive than other tests, took several hours longer to process and had a greater chance of turning up false-negative and inconclusive results, the auditors reported.

And the state’s public health lab found that the reagents in the tests were “not in conformity” with the emergency approval granted by the FDA, auditors wrote.

Although the Maryland Department of Health verified with LabGenomics that it had applied for the FDA emergency approval, “there was no written requirement that LabGenomics had to provide tests that conformed” to the approval, auditors wrote.

For the first couple months after the tests were purchased, Hogan administration officials said publicly that the tests were being held back to create a stockpile for an expected late-year surge in infections.

In June, Hogan acknowledged that the LabGenomics tests had been “swapped” for new ones, but gave little explanation. A spokesman said at the time that the state “had the opportunity to upgrade to better, faster tests.”

It wasn’t until December that acting Health SecretaryDennisSchraderacknowledgedthe tests had problems.

When questioned by auditors about the substitution of tests, state health officials stood by the governor’s explanation that better tests became available. They also said that the original tests could have been used with a custom lab process, but that would have taken longer than buying replacement tests, according to the audit.

It remains unclear exactly how many tests were used on patients from the first batch of 500,000. The second batch of 500,00 tests were used by December, the governor has said, though auditors could not confirm that.

“No centralized records of tests distributed and/or used was maintained by MDH, and we are unaware of the existence of any such records,” auditors wrote.

The splashy arrival of the LabGenomics tests also came at significant cost to taxpayers, the audit noted. The state paid $464,369 for two Korean Air flights when the tests were delivered April 18, 2020, and April 22, 2020, according to the audit. When the replacements were shipped without fanfare, it cost $14,265.

LabGenomics officials could not immediately be reached for comment.

The audit also reviewed the terminations of two state employees who raised concerns about the tests.

The audit said a Towson University employee in student health questioned their accuracy after a spike in positive results just before the beginning of the fall semester. Retesting showed many of the people tested were actually negative.

The second state employee was a procurement director at the health department who refused to wire millions of dollars to the South Korean company because he said it violated proper processes. He told auditors he believed state officials didn’t want him to testify about the purchasing process.

State officials disputed the accounts, saying the Towson employee had performance lapses and the health official worked parttime and the department needed a full-time worker. Auditors wrote, however, that those statements were “not supported by available written documentation.”

The auditors also couldn’t determine how LabGenomics was picked and who within the state government authorized the deal. They noted the governor’s office and the staff of his wife, Yumi Hogan, who was born in Korea and is bilingual, “worked with” the Department of General Services “on acquiring the initial tests.”

“We found no records documenting the formal evaluation of the vendors, the basis for the selection of LabGenomics, or whether LabGenomics was the best qualified vendor,” the auditors wrote.

After combing through documents and interviewing multiple officials, “we have been unable to locate any documentation or reach a conclusion as to the identity of the party or parties who authorized the purchase of the tests,” auditors wrote. “Ultimately, it is possible that a paper trail identifying the employee responsible for approving the LabGenomics purchase does not exist.”