Massachusetts' scariest IT project

It is perhaps the state's most daunting and overdue technology project: the overhaul of the claim-paying system for the $6 billion healthcare system for the poor.

The details could make an MIT engineer sweat. The state Medicaid agency is today using a computer program that is 20 years old; it was last upgraded in 1991 and requires heroic efforts to make the simplest tweak in how the state handles 75 million claims per year. There's mounting pressure from the Romney administration to trim back this costliest slice of the state budget -- providing medical care and drugs for 950,000 low-income residents -- and yet almost nothing can happen until officials tackle the agency's archaic back office.

The request for proposals is slated to go out this month. Why now, when the state is short on funds, and Medicaid, like its peers in traditional health insurance, has already let a decade of high-tech change pass it by? Because the pain is finally too pronounced to ignore.

"These are tough times, and we don't want to be doing things that are optional right now," said Louis Gutierrez, chief information officer for the state's Executive Office of Health and Human Services, and the guy who helped Harvard Pilgrim Health Care recover from its technology woes a few years ago. "But it's also the case that when you expend so much effort in the daily operations, and on relatively small endeavors, it has an opportunity cost."

According to its public planning document, the state, with help from the federal government, is prepared to spend $77 million to fix what it called a "Rube Goldberg-like environment," referring to the cartoonist who depicted zany and unwieldy machines performing simple tasks.

By July 30, 2006, Gutierrez and his colleagues want to have in place a system that eliminates most paper, quickly process claims online, and efficiently captures data.

Today, doing anything proactive is next to impossible, said Gutierrez. When the Legislature wants a forecast on Medicaid expenses, it takes a week of scrambling and $50,000 to produce. When the governor wants to introduce a copay for Medicaid members when they receive care, the system can barely process the change. Doctors have been over- or underpaid repeatedly for a year, and thousands of envelopes have been shipped out empty. And when health advocates try to figure out how many poor children have asthma in Boston, the claim system is like a black hole where data goes in but never comes out.

"Like roads and bridges, these things need to be replaced now and then," said Chris Pilkington, cofounder and executive vice president at DeNovis Inc., a venture-backed company in Lexington that's partnered with IBM to roll out a new, plain-English, real-time claims system for Medicare, the federal health program for retirees. "Government is about 10 years behind in replacing this software."

DeNovis is one of nine companies that expressed interest in bidding on the Medicaid contract in responses to the state's Request for Information in January. Other companies lining up to replace one of the oldest systems in the country are high-tech outsourcing giants like Electronic Data Systems Corp. of Plano, Texas; Affiliated Computer Services Inc., headquarted in Dallas; and Unisys Corp. of Blue Bell, Pa. Those three companies alone administer 34 of the state Medicaid systems across the country; EDS and ACS are the dominant players. Other likely bidders include Accenture, BrightStar Information Technology Group Inc., Client Network Services Inc., Computer Sciences Corp., and Thomson Corp.'s Medstat unit.

It's a contract that could land one of these companies $110 million over four years, depending on whether the state decides to simply buy a new program or to outsource the entire claims-paying operation. Massachusetts is one of a dozen do-it-yourself states that has state employees processing Medicaid claims. Unisys used to do this job for the Commonwealth, but in 1998, much of the work was brought in-house. Today, Unisys and various subcontractors still handle the grunt work. They open the mail, scan the documents to create electronic files, and ship them off to India, where data entry clerks clean up the files and send them to the state for payment.

Getting away from paper claims will be "good for everyone -- except us," said Robert Matthews, director of business development for a Billerica company, Saztec International, which processes thousands of claims for the state. "We are the outsourcing solution to that labor-intensive part of the process. It's the big white whale that nobody has conquered yet," Matthews said.

Medicaid is already big business. It's just finally going high-tech, which should help its members, the thousands of doctors and hospitals who interact with the system, and the taxpayers who finance it. Nationally, 44 million Americans are enrolled in their state programs, at a cost of $230 billion. That's more than the country spends on Medicare, the insurance plan that covers healthcare for 40 million retirees. The federal government covers about half the cost of the plans for the poor; states pay the other half. Here in Massachusetts, about one in seven people gets health care through the MassHealth program. Nationally, one in five children is enrolled in Medicaid.

The challenge for the technology companies responding to Medicaid proposals is to make a profit. Jim Loquai, a senior vice president in business development with ACS, said the company definitely plans to bid on the Bay State contract. It already handles MassHealth's pharmacy program. There's heavy competition for the contracts, he said, and aggressive performance requirements to meet.

"Often these are not a high-margin opportunity, and there are a number of risks," Loquai said.

State and federal budget cuts are putting a squeeze on these families, whose average income is $18,614, according to the Henry J. Kaiser Family Foundation. In fiscal 2005, it's estimated that Medicaid will cost $6.7 billion, or 30 percent of the state's total annual budget. Even with the federal government's contribution, the program will account for 15 percent of the budget.

Rosemarie Day, chief operating officer for Medicaid, said she wants a system robust enough to make small changes to benefits, rather than having to make deep cuts to respond to budget demands.

"This certainly is, admittedly, a very big and tough project," Day said. But even the 100 or so state employees who work on the claims system are eager to see a change, she said. "They spend a lot of time on a daily basis trying to undo the problems that our current system causes."

Not everyone will be immediately delighted by the new system, whose builder is slated to be announced by fall. For one thing, members may find they have to pay copays or share other expenses that the system doesn't currently permit. Second, some state workers could lose their jobs, either because the system is outsourced or because the number of problems employees currently have to deal with decline.

But the new system is meant not only to save money for taxpayers, but to make the state easier to deal with for doctors and patients. In the past, doctors have had to wait 30 days to have a claim rejected because they made a mistake when they filed it. And that same claim could be rejected a month later for yet another reason.

It could literally take months for a surgeon or other provider to be compensated for a service. A new system would let doctors know immediately if there was a problem with a claim.

"If you can figure out how to catch waste and abuse, and you can put that money back into the system," DeNovis's Pilkington said, "whether you're a Republican or a Democrat, that's gold."

Beth Healy can be reached at bhealy@globe.com.