Many states avoiding paying for glitchy health care sites

Contractors replaced, stand to lose millions from deals

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Glitches in the Obamacare rollout last year weren’t limited to the federal government. A number of states whose health care exchanges were riddled with errors now are withholding or trying to claw back more than $100 million from the contractors they blame for the foul-ups.

Oregon, whose exchange was so bad that officials parted with two directors and had to process almost all enrollments manually, was withholding $26 million from Oracle Corp. Vermont officials claimed $5 million in damages from CGI Group Inc., which handled the state’s exchange and also was blamed for the flawed federal HealthCare.gov site.


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CGI has waived its rights to the $5 million in a revamped deal with Vermont that also ties upcoming payments to performance deadlines.

“This was a lawyered-up process,” said Lawrence Miller, Vermont’s chief of health care reform, describing the frustrations that led up to the latest deal. “The parties were in their respective corners.”

Health care exchanges are virtual markets where Americans can purchase private health care plans under the Affordable Care Act, often with the help of government subsidies. The federal exchange serves three dozen states, while 14 states and the District of Columbia are running their own.

Contractual wrangling in some of the states is playing out as the White House shakes up its health care team, celebrates 7.5 million enrollments in the first round and settles in for a seven-month lull between Obamacare’s enrollment periods.

“I think these will be handled as is most government contracting: threats of litigation or excluding the contractors, followed by real negotiations and agreements,” said I. Glenn Cohen, a health care policy analyst at Harvard Law School. “The tougher issue, I think, is how much new contractors will be stuck with old models or platforms.”

Rep. Michael C. Burgess, Texas Republican and frequent critic of Obamacare, said states whose contractors botched the rollouts of the health care exchanges should be pursuing action, particularly because these states received federal money to help set up the exchanges.

“The difficulty will be the extent that they can,” he said in an interview.

House Republicans have passed legislation to dial back federal dollars that flow to the exchanges, but the bill awaits action in the Democrat-controlled Senate.

The federal website, HealthCare.gov, was plagued with glitches when it was rolled out in October. The Obama administration dropped top vendor CGI and hired Accenture in its place.

State-run exchanges also are looking for escape hatches from some of their contracts.

Maryland, a Democrat-run state that was enthusiastic about Obamacare from the start, dropped Noridian Healthcare Solutions LLC as a vendor two months ago and said it would adopt Connecticut’s exchange technology from Deloitte.

Maryland officials said they will try to recover most of the $55 million they paid to Noridian and will give back part of that to the federal government.

“We are actively reviewing the issues relating to the health exchange contracts, and all options are on the table,” David Paulson, a spokesman at the Maryland attorney general’s office, said last week.

Noridian said it met additional requirements Maryland set after the contract was awarded, only to be dropped when the state pursued a simpler platform.

“Noridian complied with its contractual obligations under tremendous regulatory and financial pressures,” President and CEO Tom McGraw said. “As also experienced by other state exchanges and the Federal exchange, the [Maryland exchange] project became increasingly more complex as new ACA regulations were released, expanding the project scope without extending the timeline for testing and delivery.”

Oregon withheld money from Oracle as part of a transition agreement that the parties signed in March, after the exchange proved to be the only portal in the nation that did not allow people to enroll online from end to end.

Cover Oregon said it “reserves all legal claims, and has explicitly maintained the right to challenge the present payment, and any prior payments made to Oracle.”

An Oracle spokeswoman declined to comment on the situation.

CGI was the company in the harshest spotlight when software and capacity issues crippled the federal exchange’s launch.

The company has forfeited the federal project but is at a contractual crossroads with multiple states after the first round of Obamacare enrollment.

CGI declined to comment on its varying results in the states, but a spokesman said the company does not feel a threat of legal action from any of the exchanges.

Hawaii, like Vermont, is sticking with CGI. It awarded the company a $53 million, four-year contract to construct and maintain its exchange, but the portal opened two weeks late in October and encountered glitches.

The exchange’s executive director, Tom Matsuda, recently said the exchange is working with its vendors, “including CGI, to ensure Hawaii residents can continue to have access to affordable, quality health plans through the Connector.”

Massachusetts announced that it would be severing ties with the Montreal-based company, and state officials have withheld $54 million from CGI.

“We have been engaged in negotiations with CGI to achieve a thoughtful and careful transition that serves our project’s best interests,” said Kim Haberlin, senior adviser to Sarah Iselin.

Massachusetts Gov. Deval Patrick, a Democrat, brought in Ms. Iselin from the private sector to lead rebuilding efforts.

“Our conversations are ongoing, but we remain hopeful that we can reach a satisfactory resolution, especially given that CGI has a good reputation for ensuring smooth handoffs — they did so on the federal exchange project,” Ms. Haberlin said.

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