Xerox's Medicaid business struggles
More than a dozen states and the District of Columbia contract with Xerox Corp. for help running their Medicaid programs. New York is expected to join them.
But the company might not be able to count on glowing testimonials from some of its customers.
The company has hit speed bumps with several states relating to its Medicaid work there. Texas canceled its Medicaid contract with Xerox in May, and is suing the company. Montana in June complained that Xerox is in breach of its contract, which the state said it was considering ending. Those problems were resolved last month. And Xerox and Alaska are in mediation over complaints Alaska has regarding the state's new Medicaid payment system, put in by Xerox.
All of those are in addition to separate problems Xerox has encountered in a related business, running the Nevada health insurance exchange.
The Medicaid jobs "are really, really tough projects," said David Hamilton, group president of Xerox's government healthcare solutions. "This is a tough environment to work in. We don't like to see challenges with customers or projects, but sometimes they happen. We do all we can to work through those challenges, whatever the form might be."
Medicaid — the federal health care program for low-income individuals and families — is a huge entitlement program, and getting bigger. The nation's Medicaid spending, today slightly less than $300 billion a year, is expected to hit nearly $600 billion a year by 2022, thanks largely to increased eligibility, according to Congressional Budget Office projections.
And that represents potential big bucks for Xerox. "The government health care market is relatively large and it's definitely growing and the demographics are all tailwinds for it, all in the favor of government health," Xerox CEO Ursula Burns said in a conference call with analysts in April. In May, the Department of Health announced that Xerox won a five-year contract worth an estimated $500 million for a major overhaul of the state's Medicaid management system.
While Xerox's Medicaid contracts vary by state, they generally have to do with providing services similar to those the company might provide a private-sector health plan, such as enrollment, paying providers and settling claims, with the state providing the funding and detailed instructions on what should or should not be paid for, Hamilton said.
The company got into Medicaid — and many other business services — with its $6.4 billion purchase of the business process outsourcer ACS in 2010. Today, Xerox and Hewlett-Packard Co.'s HP Enterprise Services business — the erstwhile Electronic Data Systems business started by H. Ross Perot and bought by HP in 2008 — are the two top rivals in the Medicaid services world, Hamilton said. "We're number one today by a number of different dimensions, they'll be number one two years from now," he said. "It's a relatively tight market of suppliers that serve this market."
One of the reasons why there are so few competitors is because of the difficulty of the market, Hamilton said. "We sign up for a contract that says, 'We'd like you to do A, B and C,' and sometimes the feds will come in or the states will come in and say, 'Change in direction,' and we have to do something differently."
In the case of Montana and Alaska, both states essentially are installing new operating systems that run their Medicaid systems, Hamilton said. "Those transformations are really challenging for both the customer and for Xerox. It takes a while to get through that development effort.
"Even on the corporate side, when companies install these very large systems, it's not uncommon to have a 'burn-in' period. Nobody likes them. I don't mean to sound insensitive, accepting where we are now."
And when such problems have erupted, Hamilton said, "It's common for us to move resources around — certainly we'll airlift people in, shift resources around from state one to state two."
The New York state Department of Health, when asked whether the woes Xerox is having in other states is giving it pause in its own dealings with Xerox, said it "cannot comment because this is an open procurement."
Hamilton acknowledged the company had concerns about how those high-profile conflicts with such state customers could affect its reputation with others. "It's something we worry about quite a bit."
The Montana Department of Health and Human Services on July 18 wrote Xerox a letter saying it was no longer considered in breach of the $70 million state contract awarded in 2012 — at least for now. State Health and Human Services Director Richard H. Opper wrote: "Xerox has given us ample reason to be concerned about its ability to deliver an acceptable product in a timely fashion. You have assured me of Xerox's commitment to this project, and I take you at your word. The fix is easy; Xerox needs to meet all deadlines."
Hamilton said he expected to have Alaska "back on track." And Xerox has numerous other states it points to as Medicaid contract success stories, such as New Hampshire, Wyoming and California, where it got a letter of commendation from the state Medicaid management information system director.
With Texas, however, "We have a fundamental disagreement with the state with the direction — or we think the misdirection — of looking to us instead of a number of bad actors in the delivery community." The Lone Star State's Health and Human Services Commission canceled Xerox's Medicaid claims administration contract after the company allegedly approved thousands of requests for dental braces that weren't medically necessary. The company has said that instead of focusing on how it administered the state's orthodontic program, Texas should be going after "the dentists who took advantage of the program."
Hamilton said the expectation is Xerox will continue providing at least some Medicaid-related services for Texas. "There are areas where we have strong agreement in Texas and feel like we do extraordinary work, and those will continue," he said.
However, he added, "For the couple of projects where we have some hiccups going on, I've got dozens and dozens that are on track and doing well."
MDANEMAN@DemocratandChronicle
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