An outside review of the problems with the state’s ill-fated Medicaid billing system confirmed that Maine is paying the price for accepting a low-ball bid from a vendor that had never built such a system before, and any fix is going to cost taxpayers more than the $56 million already spent.

The report also reveals some unusual problems, like the fact essential software Maine thought it was purchasing as part of the deal is apparently owned by a company in Dubai Internet City’s facility in Egypt. The state’s Office of the Attorney General is investigating.

And, it raises the question of why everybody involved – from the federal government on down – let the project move forward.

The report, done by an outside firm hired by the state, questions whether the system vendor – CNSI of Maryland – can complete the system without additional financial assistance. That’s a problem because the federal Center for Medicare and Medicaid Services has stopped supplying the 90 percent funding for the state’s Medicaid claims management system, known by its acronym MECMS, because it is not meeting federal requirements.

The federal government announced earlier this year it was cutting off funding retroactively, dating back to July, 2005, and Maine taxpayers currently are picking up the tab for fixing the system.

“Even if funding were not an issue, we believe it may still be some time before CNSI can deliver a federally certified (system) to the state of Maine,” said the report, done by the firm, First Data Government Solutions.

Commissioner Brenda Harvey, who heads the state Department of Health and Human Services, said the report validated some issues the state knew it was facing.

“What’s in the report are issues we have been talking about,” Harvey said. The question now is what the state is going to do.

“We’re looking at all options. We’re not speculating at this point on which one we will select,” Harvey said. “The goal is getting the system certified as quickly as possible with the least cost to us and the federal government.”

Those options include continuing to try and fix the CNSI system or looking for an alternative. One could be having an outside firm handle the state’s Medicaid claims as a third-party processor – something other states have done.

“Nothing’s off the table,” agreed Dick Thompson, the state’s head of information technology. “The report tells us that we need to look at all the available options. It tells us that we have been working very, very hard and yet we have been unable to complete the additional functionality that this system requires.”

The system is finally paying the bills to the state’s health care and nursing home providers, who take care of the more than 270,000 Maine residents on Medicaid. It is not, however, doing other necessary things, from producing required reports to complying with federal privacy or Health Insurance Portability and Accountability Act regulations.

The report states up front there is plenty of blame to go around:

“State and Centers for Medicare and Medicaid Services (CMS) perception is that CNSI failed to deliver on their contract and proposal as promised. First Data Government Solutions agrees; however, we also understand that CNSI, the state and CMS drastically underestimated what would be needed for a new company to successfully enter the Medicaid Management Information System (MMIS) market place and to deliver a certifiable MMIS to the state of Maine in the 14 month timeframe estimated.”

Legislators have been told the federal government, which pays the lion’s share for new state Medicaid claims systems, was eager for other vendors to enter the market to make prices more competitive.

The state signed a contract with CNSI in 2001 with the hope of completing the system toward the end of 2002. After missing several deadlines, the decision was made to go live in January of 2005, and the system completely malfunctioned.

For more than a year the state had to send out estimated payments to its 7,000 Medicaid providers to keep them whole while the state and CNSI tried to work out the bugs. On top of the $25 million contract the state ultimately had with CNSI, which grew from the original bid of $15 million, the state also has spent more than $30 million on outside vendors and its own office of information technology to work through the problems.

Bills are now being paid on time, as the state tries to collect on the double payments it made to providers – first as interim payments and then when their claims finally processed.

The report notes that tracking what has or hasn’t been done right by CNSI is hard to do, since good record-keeping was not done.

“CNSI and the state conducted business in an informal manner for many years,” the reports said. “First Data Government Solutions has not been able to locate a consolidated set of records documenting deliverable submissions and signoffs.”

Thompson said the lack of good record-keeping is a poor practice that has become more important because of the problems with the system.

“If everything else went well on the project, you would come back and fix it,” he said, but everything has not gone well. “You need that documentation and it’s either incomplete or not there.”