Why are Medicaid MIS contracts failing?

By Heather B. Hayes
12:38 PM

This summer, the Nebraska Department of Health and Human Services (HHS) came face-to-face with a lesson that a number of state Medicaid agencies have now learned the hard way: standing up a Medicaid Management Information System (MMIS) is often trying, time-consuming and fraught with intricacies that can quickly derail a project.

In Nebraska's case, the state in May 2008 awarded a $51 million contract to Arizona-based ForeThought Group Inc., for a new MMIS. Although the firm had never built a system, its proposal and price initially convinced contracting officials it presented the best-value offer. Far from it, as officials monitoring the project's progress quickly discovered when they saw the initial blueprint for the new system.

"From the department's point of view, it became clear that the vendor did not have the capacity to deliver the system they proposed," said Kerry Winterer, chief executive officer of the Nebraska HHS.

In June, more than a year after the award was made, Nebraska HHS terminated the contract and is now exploring its options on when and how to contract again for a new MMIS.

But Nebraska's experience is not uncommon. The North Carolina HHS, after awarding a contract in 2004 to Affiliated Computer Services Inc. (ACS) to build a new MMIS, fired the vendor in 2006 for failing to meet the deliverables. Even so, the state was forced to pay $6.2 million to ACS for the $171 million contract and then go through a second procurement. It finally awarded a contract to Computer Sciences Corp. to build a new MMIS this past January.Projects in North Dakota and New Hampshire, also held by ACS, are currently experiencing significant delays and cost overruns.

Georgia and West Virginia went live with systems that weren't properly tested and required months of extra work and money to become fully operational. ACS in the meantime has been acquired by Xerox Inc., as part of a strategy to reinforce the firm's service offerings.

A lengthy struggle
Why so many problems? It might boil down to a lack of forethought. State governments tend to underestimate how difficult and time-consuming an MMIS is to procure, build and rollout, said Ann Kohler, director of the National Association of State Medicaid Directors and a former Medicaid director in both New Jersey and New York. And in a market with only a few dominant players, newer vendors sometimes underscope, overpromise and underbid.

"You have those two forces coming together and trying to get something that's very, very complex done in 18 months or so, and then you're moving from an old legacy-type system to a much more modern Internet-based system," she said. "And so with all those things in play, you can see that any one point, you could have a major issue."

ACS spokesman Ken Ericson said timelines in some recent projects have had to be changed to allow for newer versions of Medicaid technology. "These shifts in schedule are not unique to ACS," he said. "They are common across the industry and all stakeholders are working to fix the issue."

Ray Hanley, client industry executive for HP Enterprise Services and former Medicaid director of Arkansas, said many procurements are "siloed," which often contributes to MMIS contract performance problems. In those cases, a purchasing department, not the Medicaid agency, is assigned responsibility for choosing a vendor. Not always grasping the complexities of Medicaid, these shops often press for the lowest bid or the quickest installation.

"There are good reasons why these implementations take 24 months or longer," said Hanley. "It's hard, complicated work, and you get companies who look in from the outside and think, we've got healthcare experience, we can do this, and states believe them. But then they can't deliver and the state not only loses money but they have to start all over again."

Kohler suggests Medicaid managers hope for the best but prepare for a lengthy struggle. She describes her own experience launching an MMIS in New Jersey as "traumatic." One issue: When the new system was finally turned on, it initially was unable to process claims. "It's the kind of thing you don't forget because it becomes very political the first time you don't pay a claim," she said. "It's very, very complex, so don't underestimate what you're up against."