Md. reaches $2.8M settlement with IBM over health exchange

International Business Machines Corp. will pay Maryland $2.8 million to settle claims against the technology company related to the failed rollout of the state’s health exchange in 2013, the state attorney general’s office stated Friday.

IBM, following its purchase of Curam Software, was the subcontractor on Maryland’s first attempt at an online health insurance exchange, which was riddled with severe computer problems that led the state to terminate its contract with prime contractor Noridian Administrative Services.

Maryland reached a $45 million out of court settlement with North Dakota-based Noridian in 2015.

The settlement with IBM resolves the state’s allegations that the company misrepresented the capabilities of its operating systems in helping Noridian win the website contract with the state. Half of the $2.8 million settlement is described in the agreement as restitution for the state’s economic loss.

Armonk, N.Y.-based IBM admitted no wrongdoing in agreeing to the settlement, which the company and state said they reached “to avoid the delay, uncertainty, inconvenience and expense of protracted litigation.”

“These companies failed to deliver what they promised,” Maryland Attorney General Brian E. Frosh said in a statement Friday announcing the settlement with IBM. “Their misrepresentations led to the frustrating delays and errors experience by consumers in the initial open enrollment period of the Health Benefit Exchange. Marylanders were stymied in their efforts to sign up for health insurance, and millions of taxpayer dollars were wasted.”

Maryland awarded Noridian the service contract in February 2012 after a competitive four-month bidding process. But the state’s exchange was quickly and widely regarded as among the country’s most technologically flawed when first launched in the fall of 2013.

Maryland ultimately paid $41 million to use software that the state of Connecticut had installed in successfully launching its exchange.

The failure of Maryland’s health exchange also proved costly for Anthony Brown, the lieutenant governor who then-Gov. Martin O’Malley had placed in charge of getting the system online.

In his underdog but ultimately successful 2014 campaign for governor, Republican Larry Hogan pinned the blame for what he characterized as a health care debacle on Brown, his Democratic opponent.

IBM was represented in the settlement by its senior counsel, R. Tulloss Delk, and Anne M. Sidrys, of Kirkland Ellis LLP in Chicago.

In addition, IBM reached a separate $12 million settlement with the federal government to resolve its claim that the company violated the False Claims Act in acquiring the health exchange contract. IBM also admitted no wrongdoing in agreeing to that settlement.

Maryland’s health exchange was funded in part through federal grants provided by the U.S. Department of Health and Human Services.