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Audit Of Vermont Health Connect Shows System Has 'Critical Shortcomings'

Peter Hirschfeld
State auditor Doug Hoffer writes in a 62-page performance audit of Vermont Health Connect that the "system has critical shortcomings."

Over the past 14 months, the state of Vermont has paid an out-of-state contractor more than a half million dollars to perform a job that doesn’t appear to exist.

That’s among the findings detailed in a performance audit of the state’s online insurance exchange, released publicly Thursday morning by State Auditor Doug Hoffer

Audio from this story will be posted at approximately 11 a.m. on Friday, April 17.

The $580,000 expenditure, paid to a firm called Benaissance for processing payments that were never actually made, represents only a fraction of the more than $120 million the state has invested in Vermont Health Connect so far. But Hoffer says it offers a stark example of how organizational mismanagement at the outset of the project continues to exact a financial and operational toll on the program today.

“For some time ... they’ve been paid about $40,000 a month to not do anything about [a] particular element of the contract,” Hoffer said in an interview Wednesday. “And I was puzzled by that. I think other people will be puzzled by that.”

Hoffer says the shortcomings at Vermont Health Connect are myriad, and the hurdles to its success tall. Hoffer writes in the 62-page performance audit that the “Vermont Health Connect system has critical shortcomings and the extent to which the corrective actions, taken or planned, will resolve its deficiencies are uncertain.”

Wake-up call

Hoffer nonetheless says he’s “cautiously optimistic” the Shumlin administration will eventually deliver a functional exchange. And he says management, governance and oversight of the exchange have improved drastically since its launch in October of 2013.

“The problems, as painful as they’ve been for everyone involved, has been a major wake up call for the state,” Hoffer said in an interview. “And the transition from [where we were] to where we are today … if it works out, can perhaps … help the people of this state believe again that the state can handle and manage successfully a project of this complexity and expense.”

Lawrence Miller, chief of health care reform for the Shumlin administration, says Hoffer’s report spotlights deficiencies in the new program that are worthy of public scrutiny.

Miller says he learned first from Hoffer’s audit that the state has paid the processing firm Benaissance more than $500,000 for making sure small businesses’ premium payments went from the state-run exchange to the carriers to whom those payments are due. The problem is that the state long ago made the decision to have businesses bypass Vermont Health Connect altogether, and enroll directly with insurers, so there aren’t any small business payments to process.

The payments, according to Hoffer’s audit, are the result of a contractual clause that guarantees Benaissance a minimum of $41,750 per month for processing the business payments. The contract was signed prior to the decision to have businesses bypass the exchange.

“It was certainly news to me, when I reviewed the audit,” Miller said Wednesday.

Miller says he immediately looked into the situation regarding small business payments to Benassiance after Hoffer’s report came out. He says he learned Thursday morning the continued payments were part of a verbal agreement between the administration and the vendor, in which the state agreed to leave payments in place in exchange for Benaissance agreeing not to seek more money for “all the extra costs they were dealing with.”

Miller says Benaissance incurred development expenses beyond what the parties had anticipated in the original contract. Rather than reopen the contract, Miller says the administration decided to continue the small business payments, and call it even.

“We weren’t paying for nothing” Miller says. “We just weren’t paying for the thing that was specified.”

Miller says the state is on the verge of inking a new contract with Benaissance that will eliminate the small business payments, but increase the amount the vendor is receiving for other work.

Miller says the issues that have plagued Vermont Health Connect, and the customers trying to use it, are in many cases on the verge of resolution. And while the construction process has been fraught, Miller says the technological foundation on which Vermont Health Connect now rests is sturdy enough to build on.

“I think we owe it to people to show, not tell, why things are better at Vermont Health Connect,” Miller says. “But I think over the next couple of months we’ll be able to do that.”

Financial consequences

The state originally signed an $87 million contract with the tech firm CGI to undertake the exchange project. CGI completed fewer than a quarter of the “deliverables” for which it was responsible, but received more than $66 million from the state, under the terms of a separation agreement negotiated last fall.

The state has since hired a firm called Optum to finish the work. The problems haven’t gone away, however, and lack of basic functions continue to frustrate consumers, and cause serious financial consequences for customers and insurance carriers. 

In the face of mounting pressure from lawmakers and the public, Gov. Peter Shumlin last month unveiled a contingency plan wherein he’ll abandon Vermont Health Connect, in favor of a federal version of the website, if the exchange doesn’t meet two milestones later this year.

The first test arrives on May 30, which has become the new Shumlin-imposed deadline for completion of what’s known as “change of circumstance” functionality. The exchange’s inability to register automatically the life changes that alter people’ insurance status has caused serious problems for thousands of Vermont Health Connect customers.

Looming deadlines

Hoffer’s report recalls a situation faced by one Vermont Health Connect customer who, upon the death of their spouse, was forced to continue paying family-plan prices for several months, because the system was unable to account for the fact that they were newly widowed.

Miller says problems like that will largely disappear when the state finally completes change-of-circumstance functions by the end of next month. Hoffer, however, says internal documents suggest the administration will be hard-pressed to meet the deadline.

As recently as last week, according to the performance audit, Optum said the “risk” for meeting the May milestone was “high, due to the aggressive schedule.” Insurance carriers, according to Hoffer, say “there could be difficulties meeting one or more of the dates in the schedule,” since the time frame to test and fix defects is so tight.

If Optum doesn’t meet the deadline, Hoffer says there’s no consequence for the vendor, since the contract it signed lacks any monetary consequences for failing to deliver on key services.

The contract also doesn’t include a “retainage” clause, wherein a portion of Optum’s earned money is withheld until completion of the entire contract. Hoffer says the contract also “doesn’t include provisions to measure vendor performance.”

Limited accountability

“Without these types of clauses, Optum has assumed little contractual risk, and the state has limited its ability to seek recourse if the contractor’s performance is unacceptable,” Hoffer wrote in the audit.

Miller says Hoffer is right that the timeline is aggressive, and “doesn’t leave a lot of room for error.”

“If significant defects emerge the timeline will be impacted,” Miller says. “But it’s considered to be achievable.”

Miller says the state would have preferred a contract that included financial penalties for Optum if it didn’t meet certain deadlines. But he says the state was asking Optum to repair someone else’s faulty work, and that the firm wasn’t interested in assuming downside risk. Miller says the state didn’t exactly have the bargaining power needed to force the issue, and that any insistence on financial penalties would simply have resulted in higher contract costs.

Hoffer says the state is also at significant risk of missing the second milestone, which arrives on Nov. 1, the beginning of open enrollment for 2016. It’s at that time that Shumlin says the exchange needs to have automated enrollment functions in place, so as not to repeat the time-consuming and expensive manual enrollment process Vermont Health Connect this year. The state is still working to enroll customers. Many of them won’t receive their first invoice until that process is completed next month, and when it does finally arrive, it will seek payment for four or five months’ worth of premiums.

Hoffer says the state doesn’t yet have a “defined scope of work” for the November milestone, and the state is up against tough obstacles to reach it, including “competition for staff and technical resources.” Hoffer says the state’s chances of meeting that deadline also suffer “from the absence of a contract to complete the fall release.”

'Convoluted' payment process

Even if the state can successfully meet the May and November deadlines, then Hoffer says the exchange still won’t be able to perform key functions, such as enrolling small businesses, and giving employees that work at those business the ability to select from the full range of insurance options available on the exchange.

Hoffer’s report also targets a “convoluted” payment process whose dysfunctional design to begin with has been exacerbated by the technological shortcomings the state is working to fix.

As of Feb. 28, more than $5 million in payments made by Vermont Health Connect customers were floating in bureaucratic limbo, sitting in accounts maintained by Benaissance, and not sent to the insurance carrier much of the money was due.

Vermont Health Connect rules prohibit Benaissance from remitting payment to carriers until the full invoice is paid. That means if a customer sends a check for a dollar less than what is owed, Benassiance holds on to the money indefinitely. 

Records from Blue Cross Blue Shield obtained by Hoffer showed that 6,310 customers owed a combined $5.5 million. But because of the hang ups at Benassiance, the carrier didn’t know who among those customers had paid, or how much.

In a Feb. 2015 letter, Blue Cross executives told Miller of their “serious concerns that its aging customer balances have become uncollectible, citing VHC’s operations deficiencies as the cause.” Blue Cross, according to Hoffer, said “it didn’t think it was fair either to pursue full collection of these past due balances from customers, or to trigger grace periods for potential termination, and it therefore intended to invoice the state.”

Blue Cross never submitted the invoice. Miller says the problem was the result of a year-end “reconciliation” process that has taken months to complete. He says Blue Cross has since collected the bulk of the outstanding balances, and that the unaccounted-for sum is below $2 million, at last count. By the time the reconciliation is complete next month, Miller says he believes the outstanding amount will be “nominal.”

Kevin Goddard, vice-president of external affairs at Blue Cross, confirmed Miller’s account that that outstanding balance has fallen considerably since the carrier sent the letter. Goddard says Blue Cross won’t be in a position to know whether the final balance is “nominal” until the reconciliation process is complete.

Goddard says Blue Cross’ chief concern, however, is the delivery of a payment system that works, something he says the site has lacked since its inception.

“It’s about having a system and functions at Vermont Health Connect that can assure Vermonters get the service, get the coverage, get the security they expect when they purchase health insurance,” Goddard says.

As to whether Blue Cross is confident that improvements are in the offing, Goddard says the organization shares Hoffer’s concerns about the state’s ability to meet the new milestones.

“We agree with the auditor, I mean these are aggressive timelines, there’s no doubt about that,” Goddard says.

Billing restructuring?

Miller says the arrival of the change-in-circumstance functionality at the end of the May will resolve many of the bookkeeping issues that created the problem. But he says he agrees with Hoffer that the state needs to reconsider fundamentally the way it conducts its billing.

Benaissance is responsible for collecting the money, but the insurance carriers are responsible for sending late notices, or threatening termination. That’s created a major problem, given the months-long lag in some cases between money coming in to Benaissance and going out to the carriers. Hoffer says the situation has led to paying customers being threatened with termination, or insurers paying the claims of customers whose coverage should have been terminated.

Miller says it might make more sense to have Benaissance assume duties for sending late notices and threatening termination, “or perhaps that billing should move to the carriers … since they’re responsible for the termination process.”

“It’s at that fundamental level of who does what that we need to revisit this,” Miller says. “Unfortunately, that is also tied in to how all the IT is built, so when you make that decision, it’ll still be awhile to redo it.”

Miller says the critiques of Vermont Health Connect are justified and well-founded. But he says there are reasons to remain hopeful.

Cautious optimism

The number of “accelerated complaints” filed by VHC customers had for most of the life of the exchange remained at a steady 120 at any given time. Last week, they were down to 20, according to Miller. And the “escalated cases” – those needing emergency attention, of involving complex circumstances – has also fallen from a steady inventory or about 120 on hand at any given day to about 20.

“We’re certainly not asking people to accept that Vermont Health Connect will be okay based on blind faith,” Miller says. “We put a tremendous amount of work into reforming project management and reforming operations. And the results that I’m looking at are what give me confidence that things are getting better.”

While the May 30 deadline for change-of-circumstance functionality is fast arriving, Miller says meeting the milestone by the date isn’t a make-or-break proposition.

“We put a tight schedule on this,” Miller says. “We’re not going to sacrifice quality though. This release has to have been fully tested, it has to be free of substantial defects, or it will not happen on time.”

If it doesn’t happen on time, Miller says the missed deadline won’t necessarily result in a decision to scrap the state exchange, and move to a federal version.

“I have to make a recommendation to [the Legislature’s] Joint Fiscal committee in November as to whether not we should do something different,” Miller says. “I’ll make that recommendation based on where we are then, not where we are on June 1.”

Hoffer says the Legislature should ask for more frequent and detailed reports from the administration. And he says the administration should conduct a thorough cost-benefit analysis to determine whether it makes more sense to stick with Vermont Health Connect, or adopt a federal version of the exchange.

This story was edited at 11:31 a.m. on 4/16/15.

The Vermont Statehouse is often called the people’s house. I am your eyes and ears there. I keep a close eye on how legislation could affect your life; I also regularly speak to the people who write that legislation.
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