Md. nixes stalled Medicaid contract; Frosh wants special counsel

Maryland has terminated a stalled $171 million project to upgrade its Medicaid computer system after several disputes with the contractor.

Now, state Attorney General Brian E. Frosh is looking for a special counsel to assess potential claims and, if necessary, spearhead litigation against the Virginia-based company.

Finalists are being interviewed and a decision is expected in the coming weeks, said David Nitkin, Frosh’s spokesman.

Earlier this year, state auditors said that risks about the contractor’s ability to follow through weren’t made clear before the contract was approved.

Computer Sciences Corp. (CSC) was awarded the contract in February 2012 to design, develop and implement a replacement for the state’s Medicaid Management Information System, which tracks the payment of Medicaid claims.

The bulk of the five-year contract was to be paid using federal funds, and, if three additional, two-year options were granted, the contract’s total value would have been just under $300 million.

But problems developed shortly after the contract was executed, including disputes over the quality of deliverables and failure to stick to the project’s schedule, according to the request for proposals for a special counsel posted on the website of Frosh’s office in October.

The Maryland Department of Health and Mental Hygiene (DHMH) issued two “cure notices” to CSC in 2014, threatening to declare the company in default if concerns weren’t addressed; CSC, meanwhile, has submitted claims against DHMH seeking $80 million.

A spokesman for CSRA, a spin-off company now handling the contract, declined to comment because the contract is under litigation. But in recent filings with the U.S. Securities and Exchange Commission the company claims that Maryland directed it to incorporate new federal mandates into the project yet then refused to compensate CSC for the additional work.

The company’s claims against DHMH are pending before the state’s Board of Contract Appeals. CSRA seeks to have the state’s termination for default converted to convenience termination.

The new, completed Medicaid computer system was supposed to have been delivered by Oct. 1, 2014. The department’s old Medicaid management system, which is still in use, was developed in the mid-1990s.

A special counsel is needed to handle the matter because it’s likely to require more data collection and analysis than staff at Frosh’s office can accommodate, Nitkin said.

Work on the contract halted in August 2014 and DHMH terminated the contract for default on October 14, 2015. The department paid nearly $30 million to CSC through February 2014, of which 90 percent was reimbursed by the federal government, according to a fact sheet from Frosh’s office.

But there were questions about CSC’s reliability before the contract was approved – and state auditors say those risks weren’t made clear to the Maryland Board of Public Works before it voted to approve the contract.

A key CSC subcontractor developed Medicaid computer systems in two other states that took up to three years longer than expected and went as much as 300 percent over budget. Additionally, CSC had contracts canceled in two other states after disputes over cost increases and work defects, according to a February 2015 report from the state Office of Legislative Audits.

DHMH didn’t formally share those risks with the Board of Public Works prior to contract approval, according to the audit. DHMH disagreed with the audit’s assessment, arguing that it complied with state laws and regulations during the procurement process.

Earlier this year, the SEC announced that CSC agreed to pay $190 million to settle allegations of accounting fraud stemming from work the company did for the United Kingdom’s National Health Service.

At the Feb. 22, 2014 Board of Public Works meeting where the contract was approved, then-DHMH Secretary Dr. Joshua Sharfstein outlined the need for a new system.

“The old system is written in a language that basically isn’t used anymore,” Sharfstein said. As more employees retired, fewer people familiar with the system were left at the department, he said.

The termination of the contract with CSC comes as the state considers additional litigation against vendors connected with the bungled launch of the state’s health insurance exchange in 2013.

In July, Maryland reached a $45 million settlement with Noridian Healthcare Solutions, the prime contractor on the exchange.

Former Gov. Martin O’Malley told reporters in April 2014 that he blamed IBM, which handled some of the programming for the exchange. “We’ll see IBM in court,” he said.

Daily Record reporter Bryan P. Sears contributed to this report.