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Md. health exchange audit could complicate future lawsuits

A legislative audit of the failed Maryland Health Benefits Exchange that was expected to be complete by the end of the year could influence the state’s ability to sue other vendors.

That draft of initial findings by the Office of Legislative Audits, which was seen by the Office of the Attorney General, apparently pointed in a direction that raised concerns for Attorney General Brian E. Frosh and resulted in a letter to legislative leaders that essentially pleads for a delay. Frosh said he was concerned that the scope of the audit was limited and did not include an examination of the performance of vendors and contractors.

State Sen. Guy J. Guzzone, D-Howard County and co-chair of the Joint Audit Committee, said that while he and other members of the committee have not seen the report, it is reasonable to believe that it mostly looks inside the state’s health exchange and its operations.

“Typically, audits are about lessons learned and how can the agency do a better job next time,” Guzzone said. “This is a pretty different situation because of the millions of dollars that are involved.”

Guzzone said he will poll members of the Joint Audit Committee to determine interest in a delay in the audit to allow for a more thorough review of the role that vendors played in the failure of the exchange.

“There are millions of dollars of taxpayer money at stake,” Guzzone said. We want to work cooperatively with what the attorney general is doing to make sure taxpayer dollars are protected to the greatest level possible.”

Even so, Guzzone acknowledged that a request to delay an ongoing audit is atypical.

“I haven’t seen anything like this in previous years, but this is a unique situation where we are trying to recover millions of dollars from vendors who acted inappropriately, according to the attorney general’s review,” Guzzone said.

Officials at the Office of Legislative Audits were not immediately available for an interview.

As part of the audit process, agencies are typically shown some preliminary findings and given a chance to respond. Auditors then take those comments and use them to re-examine their initial report.

Frosh would have access to those initial findings because attorneys for the exchange are assigned out of his agency.

In July, the state reached a $45 million settlement agreement with Noridian Healthcare Solutions. The North Dakota-based company will pay $20 million up front and the balance over five years.

That deal still requires the approval of the North Dakota Insurance Department, and much of the settlement is expected to go to the federal government, which financed Maryland’s exchange.

Frosh, in an Oct. 27 letter to legislators, hinted that other lawsuits could be filed against other vendors. One of those is believed to be IBM, which was responsible for for programming that would handle eligibility and enrollment for the exchange.

Then-Gov. Martin O’Malley, in a meeting with reporters in April 2014, laid blame on IBM.

“We take responsibility for fixing this, and we’ll see IBM in court.” O’Malley said at the time.

The Oct. 27 letter from Frosh suggests that the initial findings, which have not been made public, pointed in a different direction — perhaps mostly to internal agency decisions — that had the potential to make it difficult to sue other vendors.

“We are concerned about the OLA reaching conclusions about the purported “cause” of the system’s failure based on an incomplete analysis that does not consider or examine the role of contractors who were retained to build the system,” Frosh wrote in his letter to House and Senate leaders. “Among other concerns, conclusions based on such an incomplete analysis could adversely affect the state’s efforts to recover funds from vendors who were responsible for the launch.”

David Nitkin, a spokesman for Frosh, referred back to the letter when acknowledging that an audit that did not include an investigation of the vendors could pose problems for future but as yet unfiled litigation.

“We felt it was appropriate to make our feelings known,” Nitkin said.

In the letter, Frosh told legislators that his office has compiled information from witnesses and experts that show vendors lied about how the capabilities of its software and called it “the actual and proximate cause of the system’s failed launch.” The attorney general’s letter also asserts that more lawsuits are likely to be filed against companies.

Nitkin said the results of the investigation so far would not be released.

The letter goes on to say that the attorney general’s office is actively engaged in a joint investigation with the federal government.

“While this process will take some time, we believe it is vital in order to reach accurate and comprehensive conclusions,” Frosh wrote.

It is unclear now how long it will take before the state auditor completes a final version of its report or a timeline for a committee hearing.

Guzzone, the committee’s co-chairman, said that an expected end of the year deadline is now unlikely but could provide no specific timeline.

“I don’t want there to be the impression that (the audit) is not going to come out,” Guzzone said. “It will come out. There will be a hearing on it.”

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