Case Study Maine's Medicaid

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Chapter 14 Project Management: Establishing the Business Value of Systems and Managing Change

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What Went Wrong with Maine’s New Medicaid System?
CASE STUDY
he state of Maine provides medical coverage for over 260,000 of its residents through its Medicaid program. Healthcare providers, including doctors, hospitals, clinics, and nursing homes, submit claims to Medicaid in order to be paid for the services they provide to Medicaid patients. As the 1990s drew to a close, Maine, like many other states, began planning for a complete overhaul of its Medicaid claims processing systems to comply with the Health Insurance Portability and Accountability Act of 1996 (HIPAA). HIPAA was enacted to standardize the management of patient health and records, and, most notably, the protection of patient privacy. HIPAA provided a deadline of October 1, 2002, to meet its patient privacy and security standards. Maine had to consider a number of factors in addition to HIPAA in preparing for its systems overhaul. The Medicaid program, as outlined by the federal government, was becoming increasingly complex with new services added, each with codes and subcodes assigned to them. As a result, payments to providers were broken down into smaller and more numerous pieces. The state also wanted to offer providers access to patient eligibility and claim status data online in the hopes of reducing the volume of calls to the state Bureau of Medical Services, which ran Medicaid under the Department of Human Services (DHS). At the time, Maine was processing over 100,000 Medicaid claims per week on a Honeywell mainframe that dated back to the 1970s. The system was not capable of supporting HIPAA requirements or the online access that the state wished to implement. The state’s IT department decided that a completely new system would be more cost-effective and easier to maintain than an upgrade of the old system. This approach contrasted with what some other states had done. Nearby Massachusetts, for instance, chose to deploy a Web portal as an integrated front end to its existing legacy systems. However, the IT staff at the DHS believed a new custom-built system it would be more flexible because they could make it rule-based in order to accommodate frequent changes in Medicaid rules. The IT staff also rejected an option to outsource claims processing systems to a service provider such as Electronic Data Systems (EDS).

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For such a large and significant project, the DHS enlisted a private contractor to work with its IT staff. The state put out a request for proposals in April 2001. In October 2001, CNSI, one of only two firms to bid, received the contract for its $15 million proposal. The deal called for CNSI to complete and deploy the new processing system by the HIPAA compliance deadline, which was 12 months away. In actuality, the system debuted on January 21, 2005, almost 27 months later. However, the badly missed deadline was hardly Maine’s biggest problem. The new system failed on many levels. Shortly after its rollout, the new system was rejecting claims much more frequently than the old system had. Most of the rejected claims were being held up as suspended, a designation usually applied to claim forms that contained errors. The suspended file grew quickly, causing millions of dollars in claims to be held back. Within two months, 300,000 claims were frozen. The Bureau of Medical Services could keep up neither with the number of phone calls nor the processing of the suspended claims. The 65 members of the DHS/CNSI team worked feverishly to fix software glitches, but their efforts were accompanied by a lack of regard for critical management guidelines. Meanwhile, some providers who weren’t getting paid were forced to turn away Medicaid patients or even shut down their operations. Others sought bank loans to keep their practices fluid. Even the state’s finances were threatened due to the significant portion of the state budget that Medicaid...
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