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NC health agency unhappy with critical audit

Wed, 01/11/2012 - 6:05am
GARY D. ROBERTSON - Associated Press - Associated Press

The department that manages North Carolina's Medicaid program pushed back hard on a review critical of how it handled delays and expenses while building a new claims processing system, saying auditors were ill-prepared to study the project and unfair in their findings.

The Department of Health and Human Services called the performance audit by State Auditor Beth Wood's office on the replacement Medicaid Management Information System project an "unproductive 11-month exercise" that overstated the project's expense to the state.

Wood's office on Tuesday released the final report from a performance audit on the project, which is designed to more efficiently handle the processing of millions of claims per months involving more than 70,000 health care providers. It originally got off the ground eight years ago but has been beset by problems and a contract fight that required the agency to start over and choose another vendor.

Attached to the final report was the official response from the department - at 31 pages longer than the audit itself - in which department Secretary Lanier Cansler called the review a waste of time and unbalanced because it didn't focus on the savings the state will generate.

"We cannot state that this audit has been of any value to the state due to fundamental flaws in the audit process," Cansler wrote, arguing the audit team lacked enough experience in information technology and Medicaid contracts and failed to follow expected auditing standards.

"It is regrettable that such a beneficial IT project for the state has been subject to such ill-informed, negative and unfounded criticism," he added.

A legislative committee already grilled health agency leaders about the problems last month as the General Assembly received a draft of the findings. The cost of the project being carried out by Computer Sciences Corp. originally was estimated at $265 million. Auditors say project delays and other changes have more than doubled the cost.

The HHS response said the audit's calculation that the project will exceed initial cost estimates by $320.3 million is wrong. Operational costs will be $116 million less than what the state Medicaid office would be paying HP Enterprise Services, which manages the current system for the state, to keep the outgoing system running. Federal Medicaid and state policy and legislative changes beyond the project office's control comprised the balance of the additional costs, the response said.

The auditors went out of their way to disagree with Cansler's assertions in Tuesday's final report, saying the audit team has enough skills and experience to perform the audit and did so in compliance with auditing standards.

"While we recognize that an audit report can result in a lot of defensiveness and emotion, we want to make sure the reader stays focused on the issues," the auditors wrote in the report's appendix.

Like the draft report, Wood's final report said the system office didn't fully document its analysis of the impact schedule delays had on the system's implementation. Wood also has said higher-than-expected staff turnover at the company contributed to delays and the department wasn't aware of changes that Computer Sciences Corp. had made to the project for more than a year.

The contract with Computer Sciences Corp. had the system up and running in 2011 but now the project won't come online completely until mid-2013 because of federal and state legislative changes and required updates to the current processing system, the project office told lawmakers last month.

Cansler also alleged the State Auditor's Office withheld the department's earlier written response to a draft report. The draft was obtained by The Associated Press the day of last month's legislative committee. The response to the draft was sent four days prior to the meeting, Cansler wrote. State law didn't require the State Auditor's Office to include the earlier HHS response because what was shared with the Legislature wasn't a final report, according to auditors.

Ninety percent of the contract cost will be paid for by the federal government. Medicaid is a federal-state partnership providing services to 1.5 million North Carolina residents.

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