State's Medicaid claims system upgrade is late, costly

State officials blame changes in federal and state law for delays on new claims system.

Staff WriterJune 18, 2011 

North Carolina's effort to replace its Medicaid claims system is now two years behind schedule and more than $200 million over the original budget.

The new Medicaid system, the biggest single state contract, was originally scheduled to start in August for a cost of $287 million. Officials at the Department of Health and Human Services say that the contractor, Computer Services Corp., or CSC, will bring the system online by July 2013 for $495 million.

During that two-year delay, the state will also pay about $110 million for Medicaid claims processing to EDS, the company that has been processing Medicaid claims for 35 years.

State officials place the blame for the delay on changes in the law made by Congress and the state legislature that force the state and contractor to revise the computer system.

"Medicaid changes constantly on a daily or weekly basis," said Dan Stewart, a deputy director of health and human services. "There is a never-ending series of changes."

There's other bad news for the state's Medicaid division. A recent federal audit found that North Carolina owes the federal government $42 million for paying unallowable Medicaid claims. The refund means that Medicaid spending in North Carolina will be reduced by $42 million.

The Medicaid system, which handles about $10 billion a year in claims, has a tortured history in North Carolina. For decades, EDS processed the millions of claims from doctors, hospitals and others to be paid by the state and federal health insurance program for the poor and disabled.

In 2004, the state awarded a $171 million, five-year deal to Affiliated Computer Services that went south. The state ultimately canceled the contract; ACS sued, and the state eventually paid $10.5 million to settle.

The state rebid the contract and awarded it to CSC in 2008. At the time, CSC had been in the news for its problems building New York's Medicaid system. According to an audit from the New York State Controller, CSC was 33 months late and $166 million - or 47 percent - over budget, with a system that couldn't detect fraud and was hard to modify.

At the time North Carolina awarded the contract, Lanier Cansler, who is now secretary of health and human services, was the lobbyist for CSC. Cansler had also worked under contract for ACS while it worked for the state.

The state is negotiating with CSC to change the original five-year, $287 million contract to a seven-year, $495 million contract. Stewart, the deputy director, said he expects the federal government to pick up 90 percent of the increased cost.

Part of the delay has its roots in CSC's work in New York. The company overestimated how much of the computer code from the New York program could be adapted in North Carolina, according to a summary made available to legislative staff.

joseph.neff@newsobserver.com or 919-829-4516

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