Exec tells legislators of firm's push for Medicaid project

Just days after the state broke off contract negotiations with the winning bidder to build the state's new Medicaid enrollment system, the second-place bidder, Northrop Grumman, offered to step in, a company executive told state lawmakers on Thursday.

Amy Caro, sector vice president and general manager of Northrop Grumman Information Systems' health division, told the Joint Performance Review Committee that her company believed it could complete work on the project in time to meet an Oct. 1, 2013, deadline.

That was the date the system was expected to begin accepting applications for coverage under the state's expanded Medicaid program.

"We did not believe it was too late," Caro said. "In fact, we did send correspondence to the state offering to begin negotiations."

But instead of negotiating with Falls Church, Va.-based Northrop Grumman, Department of Human Services officials hired workers using an existing contract, available to all state agencies, through which the department pays companies for workers' time and materials, rather than for meeting specific goals.

The department met the 2013 deadline to begin enrollment, but problems with the system have been blamed for the department's failure to process a backlog of Medicaid applications and for a delay in completing federally mandated reviews of Medicaid recipients' eligibility.

Meanwhile, the project's estimated cost has more than doubled, to about $200 million.

The federal government is expected to pay most of the cost, with Arkansas paying about $25 million.

But legislators have been pushing for clearer explanations about the delays and cost increases since the spring.

At the request of Rep. Kim Hammer, R-Benton, the committee unanimously voted Thursday to ask Arkansas Legislative Audit for a report on the enrollment system, including why the Human Services Department didn't turn to Northrop Grumman after it was unable to agree on contract terms with the winning bidder, Noridian Healthcare Solutions.

Arkansas procurement regulations allow negotiations with the second-ranked bidder for a contract when negotiations with the winning bidder fail.

"We could have had a fixed-cost contract and saved the state millions of dollars," said Hammer, who is the House chairman of the committee.

"We're still dealing with a product that we don't know if it's going to work or not," he added.

The request for a report will go to the Legislative Joint Auditing Committee's executive committee, which will make a recommendation to the full auditing committee.

A special Legislative Audit report released in July faulted the Human Services Department for awarding technology contracts without competitive bids, failing to hold vendors accountable and not adequately disclosing projects to the Arkansas Legislature.

Department officials acknowledged shortcomings in managing a technology project, but denied violating procurement laws and rules.

Dick Wyatt, director of the Human Services Department's office of systems and technology, has said state procurement officials told him he could not negotiate with Northrop Grumman because the state sent the wrong document notifying Noridian that it had been selected as winning bidder.

Jane Benton, the state's former procurement director, told the Joint Performance Review Committee in September that the error wouldn't have prevented the Human Services Department from negotiating with Northrop Grumman.

But she said the Oct. 1, 2013, deadline didn't leave time for more negotiations.

Testifying Thursday, Benton said "transparency" and "proper procurement processing" were also considerations.

"All of the information that I had at that time was that we did not have time to negotiate with another supplier and remain transparent in that process," Benton said.

Human Services Department officials have said the new enrollment system was needed to determine Medicaid eligibility under rules that went into effect Jan. 1, 2014, under the 2010 Patient Protection and Affordable Care Act.

After soliciting bids, the department tentatively awarded a $65.4 million contract to Fargo, N.D.-based Noridian in October 2012.

On Feb. 13, 2013, the department notified Noridian it was terminating the negotiations.

Five days later, Brian Keltch, a Northrop Grumman manager, emailed Wyatt, saying he believed it was in the state's "best interest" to seek a contract with his company.

He noted that Northrop Grumman, which bid $52.8 million, scored only slightly lower than Noridian in the bid evaluations.

"The project scope remains the same even though this delay will require a new project plan and revised pricing," Keltch wrote.

"While I understand that much critical time has been wasted with Noridian negotiations, I assure you that NG would respect your schedule and as a matter of practice has started project activities pre-contractually on a letter contract basis."

Wyatt responded that the department "is at the mercy of the Office of State Procurement as to whether or not we can negotiate with the next highest scoring vendor."

"Depending on how they rule, we will start evaluating our options at that point," he wrote.

According to emails obtained via the state Freedom of Information Act by the Arkansas Democrat-Gazette, Wyatt met with Benton two days later, on Feb. 20, 2013.

The day after that meeting, he said in an email to Joni Jones, at the time director of the department's division of county operations, that Benton had told him "dropping down to NG is not an option."

At Thursday's committee meeting, Wyatt noted that a letter to Noridian, drafted by the procurement office, said the state would "not be negotiating any contracts or agreements with the next ranked proposal on this RFP," with the word "not" underlined.

Benton said that letter "certainly entered into that decision" to not seek a contract with Northrop Grumman.

Wyatt and Albert Barclay, director of program integrity at Noridian, gave differing accounts on Thursday of why the negotiations failed.

Barclay said the contract terms proposed by state officials differed significantly from the terms listed in the bid solicitation.

Wyatt said it was standard practice at the time to omit performance measures and penalty provisions from such solicitations. Such provisions were typically negotiated after the winning bidder was selected, he said.

The department finally terminated negotiations after Noridian "seemed not to accept that they had the responsibility" to include the food stamp program as part of the enrollment system, Wyatt said.

Barclay said his company didn't omit the food stamp program but disagreed with the department over when that part of the system should be completed.

Wyatt agreed last month to resign, effective today , after a meeting with Human Services Department Director John Selig, who said it was clear legislators "wanted to see new leadership."

Selig plans to step down at the end of the year.

Hammer told Selig and Mark White, a deputy director at the department, that they should notify the committee if they "feel they cannot" issue a letter of recommendation to any company that has been involved in the enrollment system project.

"I don't think we ought to adversely hinder any vendor that's associated with this project," Hammer said.

He said after the meeting that a representative of Calverton, Md., EngagePoint, which was fired from the project late last year, had asked for the committee to seek a letter of recommendation for the company.

Selig told Hammer the department would consider any request individually.

Such a recommendation "may be stronger for some than for others," he said.

Metro on 10/30/2015

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