Ga. health services deal no peach

ACS struggles <@SM>with defects; state's <@SM>decision to bundle contracts questioned

Project Milestones for Georgia Health Partnership

July 16, 2001:The Georgia Department of Community Health selects Affiliated Computer Services Inc. to provide health claims administration for the Georgia Health Partnership

October 1, 2002:Phase one ? Planned launch date for Medicaid claims processing

April 1, 2003: Phase one ? Actual launch date for Medicaid claims processing

July 1, 2003: Phase two ?  Planned launch date for state health benefit claims processing

Affiliated Computer Services Inc.

www.acs-inc.com

Based: Dallas

CEO: Jeff Rich

President and COO: Mark King

Employees: 40,000

2003 revenue: $3.7 billion

2003 net earnings: $306.8 million

2002 revenue: $3.1 billion

2002 net earnings: $229 million

"Anytime you have a Medicaid system implementation, you have a challenge and a rough road ahead." ? Mark King, ACS president and chief operating officer

ACS has been working around the clock "to correct both operational and policy deficiencies." ?  Jeff Rich, ACS chief executive officer

"This was about building something that didn't exist anywhere else. Anytime you have that [kind of a situation], you have an uphill battle. I don't think any of the problems we are experiencing are for a lack of anyone trying." ?  Tim Burgess, commissioner of the Georgia Department of Community Health

Affiliated Computer Services Inc. stands to lose millions of dollars in revenue on its Georgia Health Partnership project if it fails to correct dozens of defects associated with the Medicaid portion of the contract by year's end.

The news that ACS must take corrective measures to end problems associated with the administration of Medicaid claims follows a decision by state officials in September to terminate a $7.5 million portion of the contract that would have enrolled state employees to receive health benefits through the new system.

Georgia awarded Dallas-based ACS the $351 million Georgia Health Partnership contract two years ago to provide administrative services and support for three traditionally separate government-run health programs. But the contract has been plagued from the start by administrative glitches and blown deadlines that have eroded the faith of the health care providers it is meant to serve.

The state has penalized ACS by reducing its payments for lack of performance each month since the Medicaid portion of the contract went live in April, Tim Burgess, commissioner of the Georgia Department of Community Health told Washington Technology. Burgess declined to say how much ASC has been penalized.

ACS has received about $40 million in payments on the contract so far; the state owes the company an additional $43 million, company officials said.

What's more, the two parties are negotiating $84 million in unbilled accounts receivable for project work directed at specific contract deliverables, they said.

[IMGCAP(2)]"This obviously had a significant negative impact on our operating cash flow this quarter," Jeff Rich, ACS chief executive officer, said regarding the past due invoices in an Oct. 27 analyst call discussing the company's quarterly financial report.

Rich said both ACS and the state were to blame for problems with the system, and that ACS has been working around the clock "to correct both operational and policy deficiencies."

ACS has faced a substantial challenge just trying to keep the ambitious project on schedule, state and company officials said.

"This was about building something that didn't exist anywhere else," Burgess said. "Anytime you have that [kind of a situation], you have an uphill battle. ... I don't think any of the problems we are experiencing are for a lack of anyone trying."

Mark King, ACS' president and chief operating officer, agreed. "Anytime you have a Medicaid system implementation, you have a challenge and a rough road ahead."

The challenge in this contract is even greater, because the state bundled Medicaid, state employee health benefits and uninsured children's health services into one project.

"The way the federal government requires these procurements be conducted and the complexity of these projects makes them almost a sure bet to be late and over budget," said John Kost, managing vice president of public sector research for the Stamford, Conn.-based market research and consulting firm Gartner Inc.

The first phase of the contract for Medicaid administration was supposed to launch in October 2002, but when it became apparent ACS could not meet this deadline, it was pushed back to April 2003, Burgess said.

[IMGCAP(3)]Burgess, who took over as the department's commissioner in July, said that problems with the system became apparent the first week of operation. By the time he took over, the system was still experiencing "pretty serious problems," he said.

In the days following the launch of the Medicaid system, ACS was grappling with a lack of sufficient call center and Web support, the need for health care providers to learn new forms and screens, and compliance with the Health Insurance and Portability and Accountability Act that governs security, privacy and electronic data interchange of health care information, King said.

For example, the number of Medicaid-related calls from citizens and providers rocketed from 3,000 to 4,000 calls per day to 12,000 calls per day following the launch. "We had some challenges in basic blocking and tackling," King said.

As a result of the problems, health care providers complained that in the processing of Medicaid claims, they were not kept informed of the status, were not receiving prompt payment, and the system was denying claims that clearly were valid.

In response, ACS has increased it call center staff from 550 to 700 employees and made substantial improvements to the Web-based system, King said.

While he wouldn't say that the financial accuracy of payments is completely fixed, King insisted that the issues that matter most to health care providers, such as knowing claim status, are improving daily.

Last month, the company agreed to correct about 200 remaining defects that are preventing claims from being paid in a timely fashion before the end of the year, King said. At press time, the company had fixed 40 of those defects, he said.

While some of the defects are "cosmetic," others are of a more serious nature, Burgess said. For example, one of the chief problems is that the system denies claims because it is unable to confirm whether previous authorization has been received, he said.

While the defects are no small matter, the state's decision to cut out the portion of the project for state employee health benefits is significant on its own, analysts said.

The unbundling of contracts frequently occurs when minor programs distract from major programs, Kost said.

"In this case, the Medicaid contract is the 800-pound gorilla. The bigger message here is the policy decision to do bundling. It appears that Georgia [officials] have decided that bundling no longer makes as much business sense as they originally thought," he said.

The decision to cancel the Medical Enrollment Georgia program, or MEGA, was done so that ACS could focus exclusively on the Medicaid portion of the project in the near term, Burgess said.

The MEGA project involved creating a new system to enroll state employees to receive benefits. The state will continue to use a legacy system still in existence to meet that objective, he said.

ACS has no plans at present to recover the MEGA program, which amounts to only 2 percent of the total contract value, King said.

"It's not something we're even talking to the state about," he said.

Staff Writer William Welsh can be reached at wwelsh@postnewsweektech.com.

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