All eyes on Texas
Outcome of outsourcing project may guide direction of future deals<@VM>Feds stand in way of more human services outsourcing
"After Texas, you will see other states replicating it or taking pieces of what they have done and bringing it to their states." ? Geoffrey Segal, Reason Public Policy Institute
Systems integrators and several states are watching to see whether Texas will succeed with a groundbreaking project that involves outsourcing human services and Medicaid eligibility determination.
Texas announced in February that it tentatively plans to award a five-year, $1 billion contract to Accenture Ltd. if the company can show that its approach saves money as well as improves service delivery.
"Texas is the first state to go with the big-bang approach," said Amy Santenello, senior research analyst for government strategies with market research firm Meta Group Inc., Stamford, Conn. What makes the Texas project unique is that the state is coupling Medicaid eligibility with broader social services eligibility, she said.
The project would be "a significant step forward toward true 'integrated' eligibility," said Tom Davies, senior vice president with market research and consulting firm Current Analysis Inc., Sterling, Va.
Several states see outsourcing health and human services eligibility as a catalyst for badly needed technology refreshment as well as a way to eliminate redundant enrollment processes.
Proponents of the initiative believe that if states can streamline and consolidate program processes, they can provide greater flexibility, allow for better information sharing and create programs needed for the unemployed to become self-sufficient.
The consolidation of human services systems and the desire to outsource eligibility determination is part of an explosion of growth in the human services sector, according to market research firms.
State and local spending on human services is expected to grow at an annual rate of 13.3 percent from $6.7 billion in 2005 to $12.5 billion in 2010, according to market research firm Input Inc., Reston, Va.
As states recover from their recent fiscal crises, integrators see renewed opportunities related to the modernization of legacy human services systems as well as the consolidation of disparate systems.
Some states that are closely tracking the Texas project and looking to consolidate or integrate their human services programs and systems are Indiana, New York, South Carolina and Tennessee.
The Texas project may be a watershed event for outsourcing by these states, said Geoffrey Segal, director of privatization and government reform policy for the think tank Reason Public Policy Institute in Los Angeles.
"After Texas, you will see other states replicating it or taking pieces of what they have done and bringing it to their states," he said.
A year ago, it was unclear whether the Texas Health and Human Services Commission or the Florida Department of Children and Families would be the first to outsource welfare eligibility. Davies said that both were "way out in front" of other states,
But the Florida project was hamstrung by difficulties the state encountered managing outsourcing projects in other areas, such as IT and human resources. Federal officials also were reluctant to grant waivers allowing statewide implementation of welfare eligibility outsourcing.
Florida postponed indefinitely its invitation to negotiate for outsourced eligibility determination, said Julie Johnson, a spokeswoman for the Florida Department of Children and Families.
The delay isn't surprising given Florida's bumpy road with other projects, Santenello said.
Florida officials "ran into a number of problems with outsourcing, so they are not going to want to be in the press again so soon," she said.
Federal agencies are keeping close tabs on such projects. But Texas officials have additional ? and unique ? challenges. They also must contend with a protest filed one week after the award by IBM Corp.
As award time neared, the Texas deal evolved into a competition between Accenture and IBM, two heavyweights in state and local contracting, after the commission dismissed two other companies.
State officials told Effective Technologies Inc. of Nacogdoches, Texas, and Bearing-Point Inc. of McLean, Va., during the evaluation process that neither contractor's proposal met the state's needs, according to Jennifer Harris, a commission spokeswoman.
The grounds for IBM's protest were not released, because the protest, filed March 4, was marked "confidential and proprietary." IBM declined to comment on the protest.
Texas Reps. Dawnna Dukes (D) and Sylvester Turner (D) wrote in a letter the same day to Texas Health and Human Services Executive Commissioner Albert Hawkins that they had received "disturbing information" about improper conduct on the part of both state and Accenture employees.
"It is our understanding that Accenture bragged to another vendor that they obtained copies of one of the prime vendors' proprietary technical architecture for the Integrated Eligibility proposal," the letter stated.
"We also understand that Accenture obtained inside information about a confidential internal memorandum about the Integrated Eligibility RFP and quoted the information verbatim in its proposal response," the letter continued.
Peter Soh, an Accenture spokesman, said the accusations set forth in the letter are baseless.
"We have no reason to believe that Accenture violated any laws or procurement rules in the preparation of our eligibility proposal," he said.
Harris said the state was not caught off guard by IBM's protest.
"With the complexity and size of a contract like this, and the significant overhaul that is being done with our eligibility system, it's not surprising that there are protests being made through our normal process," Harris said.
The Texas project requires a systems integrator to offer eligibility services through two to four call centers in the state, maintain and support an integrated eligibility determination system and broker programs for those who receive food stamps and cash assistance as well as benefits through Medicaid and children's health insurance programs.
Accenture declined to discuss specific details of its proposal while it is involved in contract negotiations.
The final award of a contract to Accenture hinges in part on the state's decision as to whether Accenture's proposal to operate the call centers would be more cost-effective than to have the state operate them, Harris said.
She said that federal waivers aren't necessary for the approach envisioned by Texas officials, because state employees would continue to make the final decisions on benefits eligibility.
State officials would be wise to err on the side of caution when it comes to federal waivers, Segal said. Any innovative approach to eligibility determination generally needs to be reviewed by the departments of Agriculture and Health and Human Services, he said. Those two agencies oversee the food stamps and Medicaid Programs, respectively.
"Regardless of what they do, they must get federal approval," he said. If Texas assumes it can proceed without federal approval, it could turn out to be "a nightmare" for them because federal officials might say they can't do it, he said.
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State officials believe that by outsourcing social services eligibility to the private sector, they can lower program costs while improving service to qualified beneficiaries.
But the federal government continues to stand in the way of outsourced eligibility determination. Federal law requires that government employees make the decisions about who qualifies for assistance.
Other than a Florida Department of Children and Families pilot project, federal officials have been reluctant to grant states permission to let private contractors determine welfare eligibility.
Some parts of the federal government not only are reluctant to grant the waivers necessary for outsourced eligibility determination, but also to let states combine funds for systems that would integrate enrollment and eligibility determination, said Amy Santenello, senior research analyst for government strategies with market research firm Meta Group Inc., Stamford, Conn.
With most states interested in integrating human services, "the question is how long it will take before the federal government allows them to have these systems, and regularly provides the approval necessary for them," she said.
Systems integrators are voicing their frustration with the federal funding process.
Donna Morea, president of CGI-AMS Inc., Fairfax, Va., said federal policy in human services is holding back states from designing systems that would consolidate and integrate human-services programs and functions more cost-effectively.
"If I had to pick a fight [over this], it would be with the feds," she said. The way in which the federal government funds health and human services systems "presents an almost insurmountable challenge to the states."