Over the past 14 months, the state of Vermont has paid an out-of-state contractor more than a half million dollars to perform a job that doesn鈥檛 appear to exist.
That鈥檚 among the findings detailed .
Audio from this story will be posted at approximately 11 a.m. on Friday, April 17.
The $580,000 expenditure, paid to a firm called Benaissance for processing payments that were never actually made, represents only a fraction of the more than $120 million the state has invested in Vermont Health Connect so far. But Hoffer says it offers a stark example of how organizational mismanagement at the outset of the project continues to exact a financial and operational toll on the program today.
鈥淔or some time ... they鈥檝e been paid about $40,000 a month to not do anything about [a] particular element of the contract,鈥� Hoffer said in an interview Wednesday. 鈥淎nd I was puzzled by that. I think other people will be puzzled by that.鈥�
Hoffer says the shortcomings at Vermont Health Connect are myriad, and the hurdles to its success tall. Hoffer writes in the 62-page performance audit that the 鈥淰ermont Health Connect system has critical shortcomings and the extent to which the corrective actions, taken or planned, will resolve its deficiencies are uncertain.鈥�
Wake-up call
Hoffer nonetheless says he鈥檚 鈥渃autiously optimistic鈥� the Shumlin administration will eventually deliver a functional exchange. And he says management, governance and oversight of the exchange have improved drastically since its launch in October of 2013.
鈥淭he problems, as painful as they鈥檝e been for everyone involved, has been a major wake up call for the state,鈥� Hoffer said in an interview. 鈥淎nd the transition from [where we were] to where we are today 鈥� if it works out, can perhaps 鈥� help the people of this state believe again that the state can handle and manage successfully a project of this complexity and expense.鈥�
Lawrence Miller, chief of health care reform for the Shumlin administration, says Hoffer鈥檚 report spotlights deficiencies in the new program that are worthy of public scrutiny.
Miller says he learned first from Hoffer鈥檚 audit that the state has paid the processing firm Benaissance more than $500,000 for making sure small businesses鈥� premium payments went from the state-run exchange to the carriers to whom those payments are due. The problem is that the state long ago made the decision to have businesses bypass Vermont Health Connect altogether, and enroll directly with insurers, so there aren鈥檛 any small business payments to process.
The payments, according to Hoffer鈥檚 audit, are the result of a contractual clause that guarantees Benaissance a minimum of $41,750 per month for processing the business payments. The contract was signed prior to the decision to have businesses bypass the exchange.
鈥淚t was certainly news to me, when I reviewed the audit,鈥� Miller said Wednesday.
Miller says he immediately looked into the situation regarding small business payments to Benassiance after Hoffer鈥檚 report came out. He says he learned Thursday morning the continued payments were part of a verbal agreement between the administration and the vendor, in which the state agreed to leave payments in place in exchange for Benaissance agreeing not to seek more money for 鈥渁ll the extra costs they were dealing with.鈥�
Miller says Benaissance incurred development expenses beyond what the parties had anticipated in the original contract. Rather than reopen the contract, Miller says the administration decided to continue the small business payments, and call it even.
鈥淲e weren鈥檛 paying for nothing鈥� Miller says. 鈥淲e just weren鈥檛 paying for the thing that was specified.鈥�
Miller says the state is on the verge of inking a new contract with Benaissance that will eliminate the small business payments, but increase the amount the vendor is receiving for other work.
Miller says the issues that have plagued Vermont Health Connect, and the customers trying to use it, are in many cases on the verge of resolution. And while the construction process has been fraught, Miller says the technological foundation on which Vermont Health Connect now rests is sturdy enough to build on.
鈥淚 think we owe it to people to show, not tell, why things are better at Vermont Health Connect,鈥� Miller says. 鈥淏ut I think over the next couple of months we鈥檒l be able to do that.鈥�
Financial consequences
The state originally signed an $87 million contract with the tech firm CGI to undertake the exchange project. CGI completed fewer than a quarter of the 鈥渄eliverables鈥� for which it was responsible, but received more than $66 million from the state, under the terms of a separation agreement negotiated last fall.
The state has since hired a firm called Optum to finish the work. The problems haven鈥檛 gone away, however, and lack of basic functions continue to frustrate consumers, and cause serious financial consequences for customers and insurance carriers.
In the face of mounting pressure from lawmakers and the public, Gov. Peter Shumlin last month unveiled a contingency plan wherein he鈥檒l abandon Vermont Health Connect, in favor of a federal version of the website, if the exchange doesn鈥檛 meet two milestones later this year.
The first test arrives on May 30, which has become the new Shumlin-imposed deadline for completion of what鈥檚 known as 鈥渃hange of circumstance鈥� functionality. The exchange鈥檚 inability to register automatically the life changes that alter people鈥� insurance status has caused serious problems for thousands of Vermont Health Connect customers.
Looming deadlines
Hoffer鈥檚 report recalls a situation faced by one Vermont Health Connect customer who, upon the death of their spouse, was forced to continue paying family-plan prices for several months, because the system was unable to account for the fact that they were newly widowed.
Miller says problems like that will largely disappear when the state finally completes change-of-circumstance functions by the end of next month. Hoffer, however, says internal documents suggest the administration will be hard-pressed to meet the deadline.
As recently as last week, according to the performance audit, Optum said the 鈥渞isk鈥� for meeting the May milestone was 鈥渉igh, due to the aggressive schedule.鈥� Insurance carriers, according to Hoffer, say 鈥渢here could be difficulties meeting one or more of the dates in the schedule,鈥� since the time frame to test and fix defects is so tight.
If Optum doesn鈥檛 meet the deadline, Hoffer says there鈥檚 no consequence for the vendor, since the contract it signed lacks any monetary consequences for failing to deliver on key services.
The contract also doesn鈥檛 include a 鈥渞etainage鈥� clause, wherein a portion of Optum鈥檚 earned money is withheld until completion of the entire contract. Hoffer says the contract also 鈥渄oesn鈥檛 include provisions to measure vendor performance.鈥�
Limited accountability
鈥淲ithout these types of clauses, Optum has assumed little contractual risk, and the state has limited its ability to seek recourse if the contractor鈥檚 performance is unacceptable,鈥� Hoffer wrote in the audit.
Miller says Hoffer is right that the timeline is aggressive, and 鈥渄oesn鈥檛 leave a lot of room for error.鈥�
鈥淚f significant defects emerge the timeline will be impacted,鈥� Miller says. 鈥淏ut it鈥檚 considered to be achievable.鈥�
Miller says the state would have preferred a contract that included financial penalties for Optum if it didn鈥檛 meet certain deadlines. But he says the state was asking Optum to repair someone else鈥檚 faulty work, and that the firm wasn鈥檛 interested in assuming downside risk. Miller says the state didn鈥檛 exactly have the bargaining power needed to force the issue, and that any insistence on financial penalties would simply have resulted in higher contract costs.
Hoffer says the state is also at significant risk of missing the second milestone, which arrives on Nov. 1, the beginning of open enrollment for 2016. It鈥檚 at that time that Shumlin says the exchange needs to have automated enrollment functions in place, so as not to repeat the time-consuming and expensive manual enrollment process Vermont Health Connect this year. The state is still working to enroll customers. Many of them won鈥檛 receive their first invoice until that process is completed next month, and when it does finally arrive, it will seek payment for four or five months鈥� worth of premiums.
Hoffer says the state doesn鈥檛 yet have a 鈥渄efined scope of work鈥� for the November milestone, and the state is up against tough obstacles to reach it, including 鈥渃ompetition for staff and technical resources.鈥� Hoffer says the state鈥檚 chances of meeting that deadline also suffer 鈥渇rom the absence of a contract to complete the fall release.鈥�
'Convoluted' payment process
Even if the state can successfully meet the May and November deadlines, then Hoffer says the exchange still won鈥檛 be able to perform key functions, such as enrolling small businesses, and giving employees that work at those business the ability to select from the full range of insurance options available on the exchange.
Hoffer鈥檚 report also targets a 鈥渃onvoluted鈥� payment process whose dysfunctional design to begin with has been exacerbated by the technological shortcomings the state is working to fix.
As of Feb. 28, more than $5 million in payments made by Vermont Health Connect customers were floating in bureaucratic limbo, sitting in accounts maintained by Benaissance, and not sent to the insurance carrier much of the money was due.
Vermont Health Connect rules prohibit Benaissance from remitting payment to carriers until the full invoice is paid. That means if a customer sends a check for a dollar less than what is owed, Benassiance holds on to the money indefinitely.
Records from Blue Cross Blue Shield obtained by Hoffer showed that 6,310 customers owed a combined $5.5 million. But because of the hang ups at Benassiance, the carrier didn鈥檛 know who among those customers had paid, or how much.
In a Feb. 2015 letter, Blue Cross executives told Miller of their 鈥渟erious concerns that its aging customer balances have become uncollectible, citing VHC鈥檚 operations deficiencies as the cause.鈥� Blue Cross, according to Hoffer, said 鈥渋t didn鈥檛 think it was fair either to pursue full collection of these past due balances from customers, or to trigger grace periods for potential termination, and it therefore intended to invoice the state.鈥�
Blue Cross never submitted the invoice. Miller says the problem was the result of a year-end 鈥渞econciliation鈥� process that has taken months to complete. He says Blue Cross has since collected the bulk of the outstanding balances, and that the unaccounted-for sum is below $2 million, at last count. By the time the reconciliation is complete next month, Miller says he believes the outstanding amount will be 鈥渘ominal.鈥�
Kevin Goddard, vice-president of external affairs at Blue Cross, confirmed Miller鈥檚 account that that outstanding balance has fallen considerably since the carrier sent the letter. Goddard says Blue Cross won鈥檛 be in a position to know whether the final balance is 鈥渘ominal鈥� until the reconciliation process is complete.
Goddard says Blue Cross鈥� chief concern, however, is the delivery of a payment system that works, something he says the site has lacked since its inception.
鈥淚t鈥檚 about having a system and functions at Vermont Health Connect that can assure Vermonters get the service, get the coverage, get the security they expect when they purchase health insurance,鈥� Goddard says.
As to whether Blue Cross is confident that improvements are in the offing, Goddard says the organization shares Hoffer鈥檚 concerns about the state鈥檚 ability to meet the new milestones.
鈥淲e agree with the auditor, I mean these are aggressive timelines, there鈥檚 no doubt about that,鈥� Goddard says.
Billing restructuring?
Miller says the arrival of the change-in-circumstance functionality at the end of the May will resolve many of the bookkeeping issues that created the problem. But he says he agrees with Hoffer that the state needs to reconsider fundamentally the way it conducts its billing.
Benaissance is responsible for collecting the money, but the insurance carriers are responsible for sending late notices, or threatening termination. That鈥檚 created a major problem, given the months-long lag in some cases between money coming in to Benaissance and going out to the carriers. Hoffer says the situation has led to paying customers being threatened with termination, or insurers paying the claims of customers whose coverage should have been terminated.
Miller says it might make more sense to have Benaissance assume duties for sending late notices and threatening termination, 鈥渙r perhaps that billing should move to the carriers 鈥� since they鈥檙e responsible for the termination process.鈥�
鈥淚t鈥檚 at that fundamental level of who does what that we need to revisit this,鈥� Miller says. 鈥淯nfortunately, that is also tied in to how all the IT is built, so when you make that decision, it鈥檒l still be awhile to redo it.鈥�
Miller says the critiques of Vermont Health Connect are justified and well-founded. But he says there are reasons to remain hopeful.
Cautious optimism
The number of 鈥渁ccelerated complaints鈥� filed by VHC customers had for most of the life of the exchange remained at a steady 120 at any given time. Last week, they were down to 20, according to Miller. And the 鈥渆scalated cases鈥� 鈥� those needing emergency attention, of involving complex circumstances 鈥� has also fallen from a steady inventory or about 120 on hand at any given day to about 20.
鈥淲e鈥檙e certainly not asking people to accept that Vermont Health Connect will be okay based on blind faith,鈥� Miller says. 鈥淲e put a tremendous amount of work into reforming project management and reforming operations. And the results that I鈥檓 looking at are what give me confidence that things are getting better.鈥�
While the May 30 deadline for change-of-circumstance functionality is fast arriving, Miller says meeting the milestone by the date isn鈥檛 a make-or-break proposition.
鈥淲e put a tight schedule on this,鈥� Miller says. 鈥淲e鈥檙e not going to sacrifice quality though. This release has to have been fully tested, it has to be free of substantial defects, or it will not happen on time.鈥�
If it doesn鈥檛 happen on time, Miller says the missed deadline won鈥檛 necessarily result in a decision to scrap the state exchange, and move to a federal version.
鈥淚 have to make a recommendation to [the Legislature鈥檚] Joint Fiscal committee in November as to whether not we should do something different,鈥� Miller says. 鈥淚鈥檒l make that recommendation based on where we are then, not where we are on June 1.鈥�
Hoffer says the Legislature should ask for more frequent and detailed reports from the administration. And he says the administration should conduct a thorough cost-benefit analysis to determine whether it makes more sense to stick with Vermont Health Connect, or adopt a federal version of the exchange.
This story was edited at 11:31 a.m. on 4/16/15.
