Combine years of delay, ever-changing rules and requirements, state and federal red tape, and a once mighty company now in deep financial trouble, and what do you get?

In California’s case, the junking of a $179 million computer modernization project to process claims for Medi-Cal, the state’s health-payment program for low-income residents.

The project, put out to bid in 2007 and still far from completion, was finally put to rest on Monday when the state Department of Health Care Services announced a legal settlement with Xerox Corp., the project contractor, under which Xerox will pay the state approximately $120 million.

That means Medi-Cal’s existing computer system – creaky, patched-together, and decades old – will continue to operate for however long it takes the state to contract out and build a replacement.

According to the settlement, Xerox will continue to run the existing system until 2019.

The DHCS is putting a bright face on the project’s demise, calling it, in a press release issued Monday, an “opportunity” to reevaluate current needs. A fresh start, it went on, will ensure “modern, robust and sustainable system.”

DHCS noted it’s not the only state with such problems: “Many other states … have adjusted their strategies” toward their Medicaid computer systems, the release said. (Medi-Cal is California’s version of Medicaid.)

Indeed, several parties in Texas and Alaska, both public and private, have sued the Xerox subsidiary Xerox State Healthcare over contract problems.

The department declined to comment beyond the press release. The settlement requires that DHCS and Xerox both approve in advance any public statement for the next 30 days.

In a statement, Xerox said the settlement agreement finalizes the announcement it made last fall “that it did not expect to complete implementation of the Health Enterprise Platform in California.” Xerox added that it is “pleased to work with DHCS to continue processing Medi-Cal claims through September 2019.”

California’s drawn-out competition for the project began in 2007. Xerox won the contract in 2010. By 2012, the project was already in trouble. Delays caused the state to impose on Xerox a “corrective action plan.”

Originally scheduled for completion by the end of this year, the project isn’t close to done, the settlement indicates.

Whenever government computer systems fall behind schedule, which is common, critics blame red tape. In this case, the massive Medi-Cal replacement contract with Xerox was inked just five days before President Obama signed the Affordable Care Act into law. As new regulations under the law worked their way through the health care system, requirements for the Medi-Cal project continued to change.

Compounding matters, Xerox fell into deep trouble. Its stock has lagged far behind the market in general. The company is under pressure from investor activist Carl Icahn. Late last year, Xerox said it would wind down its Medicaid computer systems business in California and Montana, take a $385 million charge against earnings, and “focus on profitable market segments.” That meant the end of the California project.

Several companies compete in the Medicaid system market. As of February, Xerox was the number-two provider, covering 11 states. The leader, HP Enterprise Systems, covers 18.

Xerox will pay about $103 million in cash, provide computer hardware and software worth $15 million, and abandon payment claims worth roughly $5 million more.

DHCS has reported it had paid Xerox $9 million for the replacement system, $8.1 million of that with federal funds.

This story was produced by Kaiser Health News, which publishes California Healthline, a service of the California Health Care Foundation.

State Junks $179 Million Medi-Cal IT System, Will Start from Scratch 14 April,2016State of Health

  • DrG

    But, of course, private assumption of public enterprise is always the answer to government woes. Right, all your conservative Republicans?

  • lindajoyadams

    Remember there is no civil or criminal over sight of government contractors since 2002 at the Federal level due to defunding by Congress to this day. And why 2 years ago the Director of CMS said STATES WERE ON THEIR OWN WITH REGARD TO OVERSIGHT OF FEDERALLY FUNDED STATE PROGRAMS. There is no government run health care plans in the USA for almost 2 decades now and we have seem what occurs when the people have no government watching out for their rights or where their money is. MAJOR THEFTS ARE ONGOING AND HHS knows nothing as their still in no internal audit know and a shell company of Goldman-Sachs has been running the intake and screening of criminal complaints for over two years now and have admitted to me, they cannot take a complaint against a contractor which Xerox is and whose partners and shell companies of over 150, if any one has a total yet; have nearly total control of the USA not our elected officials or government officials who do have oversight and be arrested if crimes are committed. THE SEC WAS ALSO DEFUNDED TO ACT AGAINST THE GOVT CONTRACTORS ALSO. Exception being DOD GOT SOME.BUDGET AND RECENTLY SOME IN THE VA BILL Thanks to California. for leading the way when the FEDS AND EVEN THEIR REQUEST TO THE SEC FOR HELP COULD NOT BE DONE DUE TO CONGRESS BACK IN 2002 AND SINCE. The rest of the nation is still at risk through out UNTIL congress THINKS THE PEOPLE HAVE A RIGHT FOR THEIR RIGHTS AND MONIES TO BE OVER SEEN AND WRONG AND BAD THNGS NOT DONE BY ANYONE, I am a victim of this international cabal with much documentation since 2002 and no one could do anything in the real government to stop real crimes in government programs. and why I began serious blogging and subscribe to this newsletter which I have linked to share so all can know and vote for those who will act for us. Linda Joy Adams

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