Panel told only $14 million wasted on Medicaid enrollment system

LITTLE ROCK — Just over $14 million — not $30 million — has been wasted during the installation of Arkansas’ new Medicaid eligiblity verification and enrollment system, a state official told legislators on Friday.

The revised estimate is based on the $14.2 million the state paid EngagePoint of Calverton, Md., from April 2014 to January, when only one component of the project was released, Department of Human Services chief information officer Dick Wyatt told the Legislature’s Joint Performance Review Committee.

The component had been due in January 2014 and “contained over 50 defects” when it was finally delivered, Wyatt said.

The state fired EngagePoint as the lead vendor on the project in late 2014 and replaced it with Princeton, N.J.,-based eSystems.

In response to a legislator’s question on Sept. 10, Wyatt estimated $30 million had been wasted on the project.

The legislative committee has been investigating since spring the reasons the enrollment system’s implementation has taken months longer than expected while its projected cost has more than doubled, to about $200 million.

The federal government is expected to pay most of the cost, with Arkansas paying about $25 million.

On Friday Wyatt said the $30 million estimate was “a quick calculation made on the spot,” based on the state having spent about $3 million a month on the project.

But some of the money spent from April 2014 to January went to companies that were productive, he said.

Pradeep Goel, chief executive of EngagePoint, told lawmakers Friday it was “patently false” the company didn’t produce anything in 2014.

In January 2014, he said, the Human Services Department assigned EngagePoint to focus on operating the system and put eSystems in charge of building new components.

Then in May, he said, the Human Services Department put EngagePoint back in charge of development.

From May to October, EngagePoint completed work on “a number” of portions of the system before being assigned to hand off its responsibilities to other companies.

In a report by EngagePoint, dated Sept. 11 and released by the committee Friday, the company blamed Human Services Department officials and other companies for missteps contributing to delays in completing the project.

Human Services Department spokeswoman Amy Webb said Human Services Department officials hadn’t seen the report before Friday and were still reviewing it.

After meeting last month with Human Services Department Director John Selig, Wyatt agreed to resign effective Oct. 30.

Selig said after the meeting legislators made it clear “they wanted to see new leadership.”

The enrollment system is needed, Human Services Department officials have said, because the old one can’t be used to determine Medicaid eligibility under rules that went into effect Jan. 1, 2014, under the 2010 Patient and Affordable Care Act.

HOW TROUBLES STARTED

The project’s problems began in early 2013 when contract negotiations fell through with top-ranked bidder Noridian Healthcare Solutions of North Dakota. Noridian bid $65.4 million.

Instead of turning to the second-ranked bidder, state officials decided to hire workers using a contract for technology services available to all state agencies.

Under that contract, the Human Services Department pays companies for workers’ time and material, rather than for meeting specific goals.

Wyatt has said state procurement officials told him he couldn’t negotiate with Northrop Grumman because the state sent the wrong document notifying Noridian it had been selected as winning bidder.

Jane Benton, the state’s former procurement director, told the legislative committee last month the error wouldn’t have prevented the Human Services Department from negotiating with Northrop Grumman.

INVESTIGATING EMAILS

On Friday, Wyatt gave committee members copies of a Feb. 27, 2013, email sent by Jim Arndell, a manager at Northrop Grumman, to fellow employees about a conversation he had with Rebecca Kee, a purchaser for the state Department of Finance and Administration’s Office of State Procurement.

According to the email, Ardnell asked Kee why the Human Services Department couldn’t negotiate with Noridian for the contract. Kee responded a contract issued to Noridian “signaled the end of the solicitation.”

“At that point, Noridian changed from selected vendor to a contractor,” Ardnell wrote.

He added, however, Wyatt said “there is not a signed contract between the state and Noridian.”

Kee, now procurement director for the University of Arkansas at Little Rock, said after Friday’s meeting she didn’t remember the conversation with Ardnell or what she or other state procurement officials told Human Services Department officials in 2013.

She said state procurement laws allow an agency to negotiate with a second-ranked vendor in some instances, but didn’t know enough about the circumstances to say if that would have been allowed for the enrollment system contract.

SEEKING MORE TESTIMONY

A committee chairman, Rep. Kim Hammer, R-Benton, said he expects executives with Northrop Grumman and Noridian to testify about the procurement at a committee meeting later this month.

The committee last month issued a subpoena directing Jessica Kahn, an official with the U.S. Department of Health and Human Services’ Centers for Medicare and Medicaid Services, to testify on Friday about the agency’s supervision of the project.

William Schultz, general counsel for the Health and Human Services Department, responded in a letter to the committee chairmen dated Thursday the department’s regulations require requests for such testimony to say why the information cannot be obtained by other means and why the testimony would be in the interest of the federal government.

The committee will submit a request that meets the federal regulations, Hammer said.

PROJECT STOPPED

Also on Friday, Craig Cloud, director of the Human Services Department’s Aging and Adult Services Division, told the committee he stopped a company’s work on a project to develop an electronic tool to assess disabled people’s needs after learning it had been paid $411,000 despite his directive to withhold such payments.

Cloud said the state canceled the payment after he learned about it.

He said he directed no such payments be made to Sarasota, Fla.,-based CoCentrix until he’s satisfied the first phase of the three-phase project has been complete.

Cloud, who took over as division director in February, said he also learned $300,000 had been paid in June 2014 for a part of the project he hadn’t known about.

Cloud said he wants to study the payments that have been made so far and the company’s results before allowing the work to resume.

The Human Services Department hired Cincinnati-based CH Mack, now known as AssureCare, in 2011 to build the tool for $2.1 million. The department fired the company after paying it $4.8 million.

CoCentrix has been paid about $9.6 million. If the project proceeds, it would be paid a total of $16.4 million over five years.