An anonymous whistleblower warned federal officials about problems “dangerously close” to fraud in connection with the state award of a lucrative, now-scrapped state Medicaid claims processing contract, according to recently released documents that the Jindal administration used in making its decision to cancel the largest contract the state lets.

The email shows that federal regulators had alerted state officials of the potential issues with the nearly $200 million contract prior to its award to a company that formerly employed the state’s health agency chief. As secretary of the state Department of Health and Hospitals, Bruce Greenstein was in charge of the agency that oversaw the contract.

Greenstein repeatedly has said he was not involved in the decision to award the contract to his former employer, Client Network Services Inc., the Maryland-based technology firm known as CNSI. But phone records and other data included in the released documents show at least 2,882 contacts between Greenstein and CNSI executives and the company’s lobbyist.

The federal Centers for Medicare and Medicaid Services, called CMS, took the whistleblower’s allegations seriously enough to pass them on to the state attorney general’s Medicaid fraud unit.

“CMS is extremely concerned regarding the contents of this email,” federal health agency official Jeoffrey Branch wrote, with the whistleblower’s email attached. He also cautioned there could be financial sanctions if the contract failed and the claims turned out to be true.

The whistleblower claimed that CNSI’s bid was too low and that the company could not meet a $6 million performance bond requirement. He said that speculation the firm got “preferential treatment” because of its relationship with Greenstein “unfortunately appears to be true.”

“There has been a continuous communication between the CNSI founders and Sec. Greenstein since the procurement process began, including during the time the proposals were being evaluated by DHH reviewers,” the whistleblower wrote.

Branch alerted the state Attorney General’s Office in December 2011 — avoiding the state health agency and the Jindal administration — saying officials not involved in the contract award process should take a look at the situation.

“We acted on it,” said Assistant Attorney General David Caldwell, adding that the contract “was awarded before we had time to finish” the investigation.

CMS approved the CNSI contract in February 2012. The state could not move forward without CMS authorization. The Jindal administration gave final approval in March 2012.

A year later, as news of a federal grand jury probe broke, the Jindal administration abruptly canceled the contract even though it had spent the time defending its award through a series of challenges from firms that had lost the bid to CNSI.

Greenstein resigned a short time later.

The federal grand jury probe, which preceded Greenstein’s resignation and the contract cancellation, never led to charges. But the “red flag” of the CMS email fueled the state’s investigation and led to a special state grand jury, which launched in May 2013 and continues to this day.

“We are still proceeding full steam ahead, just no official action taken yet,” said Caldwell, who heads the public corruption and special prosecutions unit in the AG’s Office. The panel is approaching the end of its maximum 18-month term.

CNSI has filed a civil lawsuit alleging wrongful termination of the contract. Sworn testimony is being taken, but a trial date is not likely until 2015, according to CNSI attorney Michael McKay, of Baton Rouge.

“You have CMS. They had information. They signed off on the contract. Bid protests were rejected by the DOA,” McKay said, referring to the governor’s Division of Administration.

“We go on for a while, then all of a sudden, the contract’s canceled” even though the company was meeting its contractual obligations, McKay said.

McKay identified the whistleblower as “disgruntled,” now former, CNSI employee Steve Smith, who had been named program manager for Louisiana. Smith did not respond to four calls by The Advocate seeking comment.

McKay said Smith’s claims are unsubstantiated by the facts, adding that similar allegations were rejected by the Jindal administration as it awarded the contract.

The emails by CMS and the whistleblower were among those recently released by the Jindal administration in response to a public-records request. The administration provided thousands of pages of mainly text-message logs revealing frequent communication between Greenstein and CNSI executive Carroll Creighton before, during and after the selection process and subsequent bid award. Creighton is CNSI’s vice president of government affairs and business development. The records cover a June 2010 to June 2012 time frame and indicate a higher volume of activity around key events in the selection process.

Neither Greenstein, who returned to Seattle, nor Creighton agreed to interviews. Attorneys for Greenstein and CNSI said the men are longtime friends who stay in close contact.

“The vast majority of the text messages and phone calls are of a personal nature and have nothing to do with the contract,” said John McLindon, Greenstein’s Baton Rouge attorney. “Bruce is a prolific texter, and I’m told that Carroll Creighton texts a lot, too.”

Creighton, who lives in Seattle, started work at CNSI a few months after Greenstein in 2005.

The records also show contacts between Greenstein and Alton Ashy, a Baton Rouge lobbyist working for CNSI. Ashy said he had a half-dozen clients who brought him into contact with the state Department of Health and Hospitals and Greenstein during the time period.

“I very seldom interacted with Bruce on CNSI,” Ashy said.

“They don’t have any determination of what was discussed,” Ashy said of the records, which do not contain information about the content of the text exchanges. “That’s the farce in all of this. ... Half the time I was texting, ‘How did the girls’ soccer game go?’ or ‘My wife and I are going to Seattle. Can you suggest some restaurants?”

Greenstein previously said he had general conversations with CNSI officials about “what we were looking for, what we were interested in. I had conversations with each and any of the vendors.” But he said he established a “firewall” as proposals were solicited and evaluated. He said he did not know who was doing the evaluating for DHH on the various teams — 61 people in all.

“For the appearance and the relationships I had, I just felt it proper for me to stay as far away as possible,” Greenstein said.

Other newly released documents include email strings involving Greenstein’s suggested change in the solicitation for proposals that allegedly allowed CNSI to compete for the lucrative state contract.

Attorneys for Greenstein and CNSI note that other firms competing for the business did not object to the change.

The “solicitation for proposals” had stated that the contractor had to have experience as a fiscal agent (FA) or fiscal intermediary (FI) for Medicaid or a similar large health care claims processing entity. CNSI did not have that experience.

The change advanced by Greenstein would allow CNSI to hire a subcontractor to perform that function.

One dated Jan. 7, 2011, from DHH staffer Laurie Tichenor, who was heading the project team, said then-Medicaid Director Don Gregory came to her and said he had had a conversation with Greenstein, who “would like us to broaden this requirement” to allow subcontracting. And Gregory a few minutes later wrote, “what Secretary Greenstein said to me was, as long as the proposed project team member had FA/FI experience, that should suffice.”

McLindon shared another email from the same day in which Gregory writes that Greenstein “only said he wants this to be transparent, open and for us (to) get the very best system in the end.” McLindon said Greenstein’s involvement in changing a contractor requirement came after he got a call from “someone at CNSI, he thinks probably Carroll Creighton.”

Creighton had wondered whether a subcontractor could be hired to do that part of the work, McLindon said. The language was changed to allow that to happen.

“Bruce did not make a unilateral decision,” McLindon said. “Everybody thought it was a good idea.”

Follow Marsha Shuler on Twitter @MarshaShulerCNB. For more coverage of the State Capitol, follow Louisiana Politics at