The state is waiting on federal approval to abandon its new $56 million Medicaid billing computer system officials now believe will never work right, and instead pay a private vendor to process claims.

Department of Health and Human Services Commissioner Brenda Harvey wrote a letter last week to the head of the regional Center for Medicare and Medicaid Services officially asking if the federal government would help pay for the new plan.

Time is of the essence since the federal Medicaid office stopped supporting the development of an in-house system being built by CNSI of Maryland as of July 2005 because it wasn’t living up to promises.

Referring to the project as a “shared tragedy,” the department outlined its rationale to move to an outside vendor after more than two years of trying to make the in-house system work.

Harvey is estimating the transition to an outside vendor could take 18 to 27 months. The vendor would have to adapt an existing system to Maine’s schedule of benefits for the state’s 275,000 residents on Medicaid. There has been no official price tag placed on contracting out the service, but Harvey said in January it could result in cutting 100 state jobs.

During the transition, the state had hoped to continue paying CNSI to operate the in-house system as is, without doing further development on its functions. But in its report to the federal government, the state says, “CNSI has indicated it may not agree to entering into a contract to provide day-to-day operations of the MeCMS system.”

That plan to continue paying CNSI raised eyebrows at the Appropriations Committee last month because of frustration with the company, which was awarded the contract to build the in-housing billing system in 2001.

CNSI had never built such a complicated system before and missed multiple deadlines. When the system went live in January 2005, it didn’t work.

At the height of the meltdown, more than 500,000 bills from the state’s Medicaid providers were stuck in the system and couldn’t be paid, forcing the state to send out hundreds of millions in estimated payments.

The system is now paying most bills and providers worry that a second transition to an outside vendor will result in delayed or wrong payments once again.