State: Xerox in Breach of Medicaid Contract

State medicaid director said the company is in breach of the $70 million state contract awarded in 2012

By Lisa Baumann, Associated Press

HELENA — Missed deadlines and unfulfilled contract obligations by Xerox Corp. in developing a new computer program for Montana’s Medicaid payments have cost $12.8 million, and the state is considering ending the contract if the problems aren’t fixed soon, state health officials said.

State Medicaid Director Mary Dalton sent Xerox a letter on June 18 saying the company is in breach of the $70 million state contract awarded in 2012, and that the state health department has serious concerns about its ability to perform its obligations.

“To date, Xerox has delivered on none of the Contract’s substantive requirements,” Dalton said in the letter.

The company has failed to meet its deadlines and has not come up with an adequate work plan despite at least two attempts to revise the original plan, Dalton said.

If Xerox doesn’t fix the problems with the work plan by mid-July, the state may seek to terminate the contract. The Montana Department of Public Health and Human Services could also seek to recover its costs by enforcing the monetary damage provisions in the contract, according to the letter.

However, terminating the contract and going after damages is not the state’s goal, according to Ron Baldwin, the state’s chief information officer.

“It’s not our first choice,” Baldwin said of contract termination. “And we’re not going to release them from those damages, but want to ensure there’s continuing incentive to deliver a workable plan.”

Xerox officials did not have an immediate comment to an Associated Press query Monday.

The Medicaid Management and Information System to handle payments to thousands of Medicaid providers is supposed to replace a system that is more than 30 years old. The old system is unable to keep up with increasingly complex payment rules and parameters.

Xerox first requested it be allowed to create a new work plan in June 2013. The changes submitted on Jan. 31 left many of the state’s issues unresolved, Dalton said.

Xerox submitted more revisions on June 5, but the state rejected it “because the data and information that Xerox has presented to the department in support of the proposed revised work plan do not demonstrate that the revised work plan meets contract requirements.”

In its June 18 letter to Xerox, the state seeks a revised work plan within 30 days of the letter’s receipt.

The Legislature appropriated spending authority for the project in 2009. The federal government is picking up the tab on 90 percent of the project.

The state doesn’t have to pay Xerox until the program is finished and working, according to the contract. But, if the project is abandoned, the federal government may seek a return of the money it has spent so far, which could be several million dollars.

Xerox has experience in other states working on the project and last year successfully completed Medicaid software projects in Alaska and New Hampshire — although the one in New Hampshire was six years late.