The state of California and Xerox Corp. have reached a $123 million settlement to end their contract to replace the state's Medicaid claims processing system. The California Department of Health Care Services will walk away from the nearly decade-long effort and start over with a new approach.
Under terms of the settlement, Xerox will pay the state $103.3 million in three cash payments through January 2017, provide it with another $15 million in computer equipment and drop $5 million in pending claims.
In 2007, California began its lengthy procurement effort to install a new claims system for its MediCal program, eventually signing a six-year, $1.6 billion contract with winning bidder ACS State Healthcare in March 2010.
Xerox had acquired that firm's parent company, Affiliated Computer Services, in 2009 for $6.4 billion.
In late 2014, Xerox completed early work on the first phase of the replacement claims system and began design and development work on its second phase. But, according to the agreement, “the pace of technological change for health enterprise data systems has significantly accelerated” since 2007 when California first issued its request for proposals for a new system.
“These changes have created an opportunity for DHCS to reevaluate the nearly decade-old design, development and implementation strategies of the replacement system, and to reconsider the best course” forward, according to a state Department of Health Care Services news release.
Xerox will continue to run California's legacy claims-management system through September 2019, unless the state finds the financial intermediary services and support to implement a new system that meets its needs earlier than that date.
Last year, California was one of four states that resorted to a work-around to get its Medicaid program into compliance with the federally mandated conversion to the ICD-10 coding system. Because of difficulties upgrading its aging computer system, MediCal used a controversial “cross-walk” to convert incoming claims coded in ICD-10 back to the old ICD-9 code system for calculation and payment.