The state health agency disagreed vehemently with a critical review of its handling of an expensive contract, saying state auditors didn't know what they were doing and overestimated cost overruns.
The Department of Health and Human Services' response is included in the final version of an audit released Tuesday. The audit findings became public last month during a legislative committee discussion about project delays and additional expenses that will nearly double the cost of the state's $265 million contract with Computer Sciences Corp.
The contract to build a computer system to handle Medicaid claims touches millions of state residents and hundreds of hospitals, doctors' offices, pharmacies and private companies.
More than 1.5 million residents are enrolled in the government health insurance program for people who are poor or have disabilities. Health care providers file tens of millions of claims for payment each year.
The proper handling of those claims is crucial to controlling costs and detecting fraud.
The audit found that the contract cost will increase from $265.2 million to $494.9 million, that work was 22 months behind schedule, state oversight was lax, and calculations leading to a $10 million damage payment by CSC were not properly documented.
Legislators reacted fiercely last month to a report prepared by their own staff raising similar points and criticized the manager overseeing the contract. U.S. Rep. Virginia Foxx, a Watauga County Republican, denounced the increased costs from the floor of the U.S. House, using them as an example of government waste.
Lanier Cansler, the secretary of health and human services, defended the project's progress at the legislative committee meeting, saying that other states have similar problems because the claims systems are so complex.
His written response was more fiery.
The audit team did not have enough experience with contracts and computer technology, Cansler said. "We disagree with much of the report," he wrote. "This audit has been an unproductive 11-month exercise."
Additionally, he faulted the audit team for including a former contract manager for the department, saying it represented a conflict of interest.
The audit overstated cost overruns, he said, because only $67 million was added to the project cost. The audit ignored future savings of about $2.5 million a month when the new system is implemented, he wrote.
Cansler called the audit's criticism of the project's management "baseless accusations."
State Auditor Beth Wood disagreed with all of Cansler's criticisms, saying that her team had plenty of experience with computer information systems, that it met standards for independence, and that the audit was not meant to focus on future savings.
Questions about Cansler's own potential conflicts have swirled around the contract and Cansler's former business dealings with CSC, a Virginia-based IT firm.
Cansler was a registered lobbyist for the company, resigning in January 2009 after Gov. Bev Perdue appointed him to run the department. The appointment came shortly after CSC was awarded the $265 million contract.
Cansler has described himself as a consultant for CSC and said that as chief of health and human services, he has had no direct involvement with the computer project.
Troubles at contractor
As CSC's work for North Carolina has raised concerns, the company is facing troubles worldwide. It may have to write off $1.5 billion it invested in a failed electronic health records system it was developing in England. Bloomberg reported this week that Standard & Poor's cut the company's bond rating and that the other two rating agencies may downgrade it.
To allay fears, Rick Kelly, a CSC vice president, sent the state Medicaid information systems manager a letter this month saying that the company is "fiscally sound and financially stable" and that the credit downgrade won't hurt its work in North Carolina.
"We will continue to focus on providing you world-class service and delivering the results you expect," Kelly wrote.
