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VA Contracts Go to Ex-Chief's Company

Anthony J. Principi has held key positions at the Diamond Bar medical firm before and after heading the agency. Fees could exceed $1 billion.

April 23, 2006|Walter F. Roche Jr. | Times Staff Writer

WASHINGTON — A Diamond Bar company headed by former Veterans Affairs Secretary Anthony J. Principi could get fees exceeding $1 billion from the VA, much of it on contracts approved and amended while he ran the agency, records show.

Principi was president of the medical services company QTC Management Inc. before he joined President Bush's Cabinet in 2001. He ran the VA for four years, then returned to the firm as chairman of the board.

While he was VA secretary, Principi's past and future corporate home collected about $246 million in fees, according to VA records. Congressional Budget Office projections show the contracts could be worth as much as $1.2 billion through 2008.

Principi said he had no role in awarding, amending or administering VA contracts with QTC.

"While at the VA, I had no contact with QTC on any business matter and recused myself entirely from any issues or business that QTC might have had with the VA," he said in e-mail responses to written questions. He said he complied with federal statutes barring contact with the VA after his departure.

Citing his two sons' recent combat service, Principi said: "Caring for these young men and women we send to war is the only thing that motivates me whether I'm in public service or in any aspect of business, where their interests are at stake."

Whether, or to what extent, Principi stands to benefit from QTC's success was not determined. He said he held nonvested stock options in QTC, but did not say how many shares.

Principi's firm administers medical exams to veterans seeking disability assistance. It also examines soldiers before they are discharged. The results of the exams play a substantial role in VA disability benefit decisions.

Though the VA is QTC's biggest customer, the company does similar exams for other agencies and private insurers.

According to its website, QTC owns and operates 31 medical evaluation facilities and has produced "more than 2.5 million" medical exams and reports.

Principi, deputy VA secretary and acting secretary under President George H.W. Bush, also served as Republican chief counsel and staff director of the Senate Armed Services Committee a decade ago.

Principi graduated from the U.S. Naval Academy in Annapolis, Md., and is a Vietnam veteran. He was a partner in the San Diego law firm Luce, Forward, Hamilton & Scripps, according to his White House biography.

In 1996, he was named chairman of a congressional task force on veterans issues. His panel recommended having a standardized, comprehensive physical exam for outgoing military personnel. That recommendation led to exams conducted by QTC.

The firm began its relationship with the VA in 1998, conducting disability exams under a pilot program. Principi joined the company in 1999.

QTC's initial performance drew some criticism. As mandated by Congress, its work was reviewed by a private consulting firm, which said QTC's fees were much higher than expected.

A QTC hearing exam, for instance, averaged $495.55 compared with $89.80 for an in-house VA exam. Even with an adjustment for possible hidden VA costs, the difference exceeded 400%. For a general medical exam, QTC's average fee was $393.52 compared with the VA's $225.58, the consultants found. They recommended further cost-comparison studies, but such an analysis was not done.

VA officials, in a written response to Times questions, said a follow-up study was not done "because the [QTC] fee schedule was studied carefully by the technical evaluation teams and found to be reasonable and fair."

In the program's third year, Principi was nominated to be VA secretary. He told the Senate panel considering his confirmation that he had "terminated all relationships with QTC and waived any and all future rights or benefits that could flow from [his] relationship with that organization."

Still, Principi's 2001 financial disclosure listed a $250,000 bonus he said he received from QTC before his confirmation Jan. 23.

The next year, he was photographed with QTC officials at a business forum in Orange County. Principi was the featured speaker, and QTC's founder and then-principal owner, Steeve Kay, was a sponsor.

Right after becoming head of the VA, Principi appointed a task force on the backlog of veterans' claims. In its report to Principi, the panel lauded QTC's performance and recommended that the medical exam program continue or expand.

Principi said he had nothing to do with that review or the recommendation. The head of that panel later was appointed a top deputy to Principi.

The favorable Principi task force report was cited as justification for language inserted in the 2003 VA budget authorizing continuation and expansion of the program. That extension and expansion had been requested by Principi's agency.

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