Penny-Wise and Pound-Foolish: Problems of Privatization
Thanks to the Affordable Care Act, Ohio’s Medicaid system got funding to improve administration by replacing an old information technology system. Originally this sounded like a good deal: The federal government covered most of the cost and the modern “touchless” system was to do most of the work, allowing county case workers to focus on helping clients.
It hasn’t been so easy. Director Maureen Corcoran of the Ohio Department of Medicaid recently sent a memo to the governor that highlighted a high rate of errors in processing applications and eligibility for important health services.
Many problems stem from glitches in the new system, called “Ohio Benefits.” The state hired a private vendor, Accenture, to develop and maintain it. According to Corcoran’s memo, Ohio Benefits threw people out of the system, lost their eligibility materials, exposed private health data to the wrong recipients and connected children with the wrong families. Corcoran found 1,100 defects in the system; each creates the risk of error. County caseworkers must painstakingly navigate around each defect, which takes up their time and can cause even more errors, leading to a backlog in processing and long waits for people who need care.
Medicaid makes sure people get the health care they need and improved health outcomes. Poverty and racism make people sick, but Medicaid can help. Ohio’s Medicaid program has continued to provide access to a doctor’s care for about a quarter of Ohioans. But the problems the director outlined in her memo will have to be fixed, and it will be hard to do that.
When private vendors develop and maintain a public program, in-house expertise can be eroded and critical data made inaccessible, hampering oversight. Lack of access to data is one of the problems cited by Corcoran. Ohio’s state and county administrators and caseworkers can’t even get at some data they need: “Many eligibility documents are hidden in [Ohio Benefits] tables accessible only by Medicaid’s vendor and are not accessible by caseworkers, auditors, or Medicaid IT staff.”
Relationships with private vendors can be troubled and costly because of loopholes in the contract, unforeseen circumstances, unclear communication and inadequate oversight. Many state and local governments have experienced some of the problems of privatization. For example:
Texas has had repeated failures of private vendors’ information technology systems.
Missouri lawmakers called for investigation of the privately-developed “Missouri Eligibility Determination and Enrollment System” maintained by Red Mane Technology, concerned about denial of services to eligible families and failure to comply with elements of federal law.
The Kansas Eligibility Enforcement System, developed by Accenture, went over budget by about $46 million as its initial rollout was delayed by years while developers tried to work out the bugs.
Virginia’s $2.3 billion human service information technology system developed by Northrop Grumman was plagued by poor performance; the state paid the company over $100 million more than originally envisioned to fix the problems.
States don’t turn to private vendors because of federal laws or rules. It can be hard to get the funding to hire staff to build a new information system in today’s political climate and hard to find the right expertise. But it’s a complex undertaking. Assuming an outside vendor saves a lot of money can be penny-wise and pound-foolish. Back-end costs can spiral without up-front funding of in-house expertise and close oversight. Without that, an agency can become dependent on the vendor for expensive fixes and lack the expertise to change vendors or fix problems themselves. In some cases, litigation adds to costs.
Going forward, Ohio’s lawmakers and the private vendor, Accenture, must work together to fix the 1,100 defects in the Ohio Benefits system. Accenture must bear its fair share of the cost. It must ensure that all data is fully available to state, local and federal officials. The relationship must be more tightly controlled by the state, which should hire in-house expertise to make sure the system works well in the short term and in the long run. After all, Medicaid insures 2.7 million Ohioans. It is lawmakers’ responsibility to fund the system sufficiently so that it works well.