AUSTIN – The House's second most powerful member inserted a provision in the budget last month that would all but guarantee a state contract for a company run by a former state official.

The lawmaker, House Appropriations Committee Chairman Warren Chisum, acted at the request of a former House colleague who is now a lobbyist for the company.

Former Rep. Arlene Wohlgemuth brought him the proposal, and she acknowledged that it would probably steer a technology contract to GHT Development, owned by former Deputy Health and Human Services Commissioner Gregg Phillips.

"I was trying to advantage my client," said Ms. Wohlgemuth, a Burleson Republican who wielded vast influence on social services policy in the 2003 Legislature and is now a health-care lobbyist.

According to a recent lobbyist-disclosure filing at the Texas Ethics Commission, GHT Development is paying Ms. Wohlgemuth between $10,000 and $25,000 this session. That's a relatively small fee for a GOP insider such as Ms. Wohlgemuth, who gave up her seat to make an unsuccessful run for Congress three years ago.

The contact between Mr. Chisum, R-Pampa, and Ms. Wohlgemuth broke no lobbying rules or state laws. But it shows the tremendous influence lobbyists can wield, particularly those who are former lawmakers. And it illustrates the extent to which policymakers rely on the lobby for ideas.

A member of Mr. Chisum's budget-writing committee, Georgetown Republican Dan Gattis, said it's inappropriate for lawmakers to preordain the outcome of competitive bidding by state agencies.

"That's not our role," he said.

Mr. Chisum said he would revise the provision so it wouldn't favor a specific contractor. He said he knew that Ms. Wohlgemuth was helping a client when she handed him the proposed amendment.

"That's how we get all our" legislative language and proposals, he said, referring to lobbyists.

Mr. Chisum and Ms. Wohlgemuth said they agreed to strip the vendor preferences out of the amendment but the original language slipped through because of a mix-up when the House passed a two-year budget in the early morning hours of March 30.

But Mr. Chisum wants to keep the rest of his amendment, which would tackle two issues – whether Texas can tap databases to make continuous checks of people's eligibility for Medicaid and the Children's Health Insurance Program; and whether it can comply with a federal anti-waste initiative known as "Payment Error Rate Measurement."

The amendment would require the Health and Human Services Commission to do both by Jan. 1.

It also says the commission, if it hires outside expertise, must prefer an in-state company that has successfully demonstrated the technology in at least one other state.

Ms. Wohlgemuth said GHT Development, based in Austin, is helping Georgia try to meet the payment-error target that federal officials have set for Medicaid and CHIP. The firm is doing similar work in Pennsylvania, she said.

Ms. Wohlgemuth said that even with the preferences stripped, Mr. Phillips' company "can compete just fine." It's unclear how much the contract would be worth.

Before he left state government in July 2004, Mr. Phillips was Ms. Wohlgemuth's partner in promoting an overhaul of social services agencies that handed off many duties to private companies. Among the changes was a five-year, $899 million contract for call centers through which Texans could apply for state benefits.

That deal has been scaled back and the main contractor has been dropped, after protests that it has hurt the poor and been woefully inefficient.

Mr. Gattis, the House budget writer charged with defending the chamber's plan for social services in negotiations with the Senate, said that if a state department needs private-sector help, its leaders – not lawmakers – should determine the best company to hire.

Agencies should "bring everybody in, do a [request for proposals] and then figure out who's the best and make a decision," Mr. Gattis said.

State social services czar Albert Hawkins, Mr. Phillips' former boss, stressed that he had "nothing to do with" the contract provision.

"I didn't know about their company until a few weeks ago," Mr. Hawkins said. "If the rider is passed, I would take extraordinary steps to make sure there is no conflict."

After she lost her congressional bid to U.S. Rep. Chet Edwards, D-Waco, in 2004, Ms. Wohlgemuth gave away some of her surplus congressional campaign money to 17 of her former GOP colleagues in the Legislature. In October 2005, she gave Mr. Chisum $9,000. That was by far the biggest gift. All the others were $1,000 or less.

The mix-up on deleting vendor preferences from Mr. Chisum's amendment occurred late at night as dozens of seemingly innocuous amendments were approved hastily by voice votes, he and Mr. Gattis said. They had agreed on a revised version, but the original amendment was inadvertently adopted.

"A lot of paper was flying out there," said Mr. Chisum, who vowed a fix during budget talks with the Senate.

Said Mr. Gattis: "I'm not letting this budget pass without pulling that language out."

Ms. Wohlgemuth and Mr. Phillips said that after any revisions, the amendment still should restrict the bidding to U.S. corporations, so Texans' personal information doesn't get sent to foreign countries.

While Lt. Gov. David Dewhurst and some other lawmakers are interested in technology that would help the state continuously monitor people's eligibility for CHIP and Medicaid, Mr. Gattis said that seems like a laudable goal but is still a pipe dream.

"The last thing I want to do is go turn on a brand new technology concept and everything else that hasn't been proven and we don't know what the unintended consequences of it are," he said.

It's not clear how continuous eligibility checking would work.

Mr. Dewhurstsaid last week that he soon would divulge his staff's recent research of the idea. The continuous checking concept could allow him to drop his opposition to a House-passed bill to let CHIP families renew coverage annually, instead of every six months.

Such a change has become a flashpoint , as it would make thousands more children eligible for the program. Many lawmakers say it makes sense to determine need annually, but some conservatives say families should reapply more often to make sure the program is limited to those truly in need.

Mr. Chisum's amendment demands a system to "permit continuous enrollment for qualified recipients" – ending any specified length to coverage.

This fall, the commission would have to put the 3 million Texans on Medicaid and CHIP into a system to decide which people should be called in for an interview about their finances and household status.

Presumably, the new system would rely on searches of databases on employment, vehicle registrations, births, deaths and changes of address, among others.

Ms. Wohlgemuth said Texas urgently needs to meet a federal target on possible overpayments in Medicaid and CHIP. Federal officials asked states to check samples of medical claims in the two programs. Using private contractors to help them, the federal Medicaid officials estimated a national error rate of 4 percent.

Ms. Wohlgemuth said federal officials are likely to impose penalties if checks suggest a higher error rate. She warned that the penalties "could very easily be in the hundreds of millions of dollars."

That resonated with Mr. Chisum, who said that, based on Ms. Wohlgemuth's description, he worries "that if we're more than a 4 percent error, they're going to start charging it back to us."

However, federal Medicaid officials' latest rule on payment error rates, published on Aug. 28, doesn't spell out sanctions against states.

Mr. Phillips, though, wrote in an e-mail that it's "not likely" federal officials will review states' Medicaid and CHIP programs without imposing penalties. He said reviews of Texas' spending have already shown the state could save a lot of money with better controls.