Medicaid's ailments blamed on contractors Computer problems cost millions, report says

September 26, 1998|By Greg Garland | Greg Garland,SUN STAFF

A contractor's problems getting a new computer system ready to manage Maryland's Medicaid program cost the state more than $13 million in actual and potential losses, a legislative audit report says.

The audit report sharply criticized the state Department of Health and Mental Hygiene's handling of its contract with Andersen Consulting of Washington, D.C., and suggested agency officials explore legal action to try to recover the costs.

Officials with DHMH and Andersen Consulting said setting up the new system was a imposing task, and some start-up problems were to be expected. They said losses are not likely to total $13 million, as cited in the recently released audit report.

The federal and state governments each pay $1.1 billion annually to fund health care services for about 450,000 Maryland residents through Medicaid. The services are available to those who can't afford the costs of medical care.

Joseph E. Davis, director of DHMH's medical care operations administration, said the system is used to enroll clients in Medicaid, pay claims and do all the management reporting for the program.

"You can't push a button and everything be perfect," Davis said. "When you input 2.3 million lines of computer code, you're never going to be perfect."

The state began using the system to manage Medicaid in December 1995, but it did not meet certain minimum standards required by the federal government until more than a year later, in February 1997, auditors said.

The audit report said the delay in obtaining federal certification cost the state $5.5 million in lost federal funds -- money the state would have received if the system had met standards when it went into service.

Davis said the most important components of the system were working when the state started using it December 1995. The state has asked federal officials to retroactively certify that the system met standards by that date, he said, so it could collect the $5.5 million.

If it is not retroactively certified, Davis said, Andersen Consulting is responsible under its contract for making up the losses.

Martin I. Cole, an Andersen Consulting executive, said the PTC company will work with state officials to "resolve any exposure they may have due to lost federal funds" that can be traced to delays in obtaining federal certification.

Cole said Medicaid management information systems are among the most complex of the state computer systems. He said his company succeeded in putting in place a "leading edge" system in Maryland within a tight, two-year deadline.

"There were some components [initially] that some might view as not perfect, but they were certainly functional," Cole said. He said Maryland's Medicaid information management system is now regarded as a model for other states.

The audit report said the initial problems cost the state on other fronts, besides the potential loss of federal funds.

The state was not able to recover $7.3 million from private insurers responsible for paying some patient medical bills. The money was not collected because system problems prevented the state from billing the insurers within two years of patients' treatment, as required.

Auditors recommended DHMH get advice from the state attorney general's office on possibly taking legal action against Andersen Consulting to recover those losses.

Davis said the attorney general's office has indicated the company has "no obligation per se for that kind of liability" under the state contract. He said his agency is reviewing the issue further.

Cole said, "We do not believe there is any legal basis that we're liable for that amount."

The audit report also said system failures led to $13.7 million in duplicate payments and other overpayments to health care providers from December 1995 through August 1996. DHMH did not initiate recovery efforts for $6.3 million of the overpayments until more than a year after they were made, auditors said. Davis said the state has since recouped all of the overpayments.

In addition, the report said, DHMH could have assessed liquidated damages of $2.5 million against the contractor because of the system problems but the agency in essence "waived its contractual rights" to impose the penalty.

DHMH signed a $10.9 million, three-year contract with Andersen Consulting in November 1993 to develop and put in place the new Medicaid management system. Later modifications extended the contract and increased the amount to $21.4 million.

Pub Date: 9/26/98

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