You asked us to compare DSS's contract with EDS to the contracts other New England states have for processing medical assistance claims and based on the outcome determine whether Connecticut is paying more than necessary.

Marcia Mains, director of DSS's medical operations division, and Kevin Walsh of EDS provided all of the information in this report on DSS's contract.

SUMMARY

Federal law places numerous requirements on the state agencies that administer Medicaid programs and offers them enhanced reimbursements for automating these functions. Thus, states that contract with companies to provide Medicaid support services must, at a minimum, include provisions for meeting the federal requirements.

Many states have taken it upon themselves to hire a "fiscal agent" to handle some or all of these requirements and 19 of them, including Connecticut, have contracts with EDS. However, we cannot say whether any of these contracts go above and beyond the minimum Medicaid management information services (MMIS) requirements.

In addition to the state's Medicaid program, DSS' s contract with EDS requires the company to perform functions for a number of other medical assistance-related programs-HUSKY, State-Administered General Assistance (SAGA) medical assistance, town GA medical assistance (Norwich only), the Connecticut Pharmaceutical Assistance Contract to the Elderly and Disabled (ConnPACE), and Connecticut Drug AIDS Drug Assistance Program (CADAP).

Three other New England states have contracts with EDS-New Hampshire, Rhode Island, and Vermont. These contracts appear to be limited exclusively to Medicaid-related functions. Massachusetts has a contract with another company to process pharmacy claims only. Maine apparently does all of its medical administrative functions in house.

Based on the different services provided under the various EDS contracts, including the fact that states (like Vermont) are constantly looking at different ways to structure MMIS programs, we believe that it is not possible to say with certainty whether Connecticut is paying EDS more to administer its Medicaid program than other states. However, it appears that EDS's use of a mainframe system in Connecticut, in addition to a client server system, may make its MMIS more costly to run than the MMIS programs in Vermont and New Hampshire, where EDS uses client server systems.

WHAT THE FEDERAL GOVERNMENT REQUIRES

In 1972, Congress passed a law that provided enhanced federal reimbursements to states that designed, developed, installed, or operated mechanized claim processing and information retrieval systems that the federal government approved. These systems are commonly referred to as MMIS. The main objective is help states administer their Medicaid programs more efficiently, effectively, and economically. State Medicaid agencies can meet their MMIS obligations through in-house systems or can contract with a fiscal agent (e. g. , EDS).

Federal law requires state MMIS programs to have at least the following six core subsystems or "functionalities" in place as a condition of receiving the enhanced federal match.

1. a recipient subsystem that identifies all applicants eligible for Medicaid, allows for new recipients to be added, and maintains a computer file that can be used for claims processing and other functionalities;

2. a provider subsystem that facilitates provider enrollment and maintains a computer file for the same functions needed for the recipient subsystem;

3. a claims processing subsystem;

4. a reference file subsystem, which allows for updates of the charges for services and periodic checking for duplicate claims;

5. a surveillance, utilization, and review (SUR) subsystem that profiles health care delivery and utilization patterns of providers and recipients, investigates misutilization, and identifies potential defects in care quality; and

6. a management and administrative reporting (MAR) subsystem that reports information to assist in planning, control, and policy and regulation development and review (Section 1903(a)(3) of the Social Security Act; 45 CFR Part 433, et. seq. ).

CONNECTICUT'S EDS CONTRACT-CONTRACT FUNCTIONS

DSS has maintained a contract with EDS since 1981. The company performs a variety of functions related to the administration of the Medicaid, ConnPACE, SAGA, GA, and Connecticut AIDS Drug Assistance programs. While the vast majority of what EDS does is for the Medicaid fee-for-service population, it handles provider enrollment for the HUSKY and Medicaid managed care programs. And although claims processing is a major function of what the company does, EDS performs a number of other duties as well.

The EDS contract does not include medical review and prior authorization of medical services. Likewise, retrospective drug utilization review (DUR) is done in-house, but prospective DUR is part of the contract.

Specifically, EDS:

1. processes claims, including mail and mailroom activity, assigning unique identifiers to every claim and attachment received, archiving, data entry, error correction, edits and audits, and other insurance confirmation;

2. operates a pharmacy point-of-sale system to ensure that drugs are appropriately prescribed;

3. provides third party liability (TPL) support, which helps DSS verify whether there are third party payments available;

4. supports a Provider Assistance Center where representatives help providers with, among other things, billing questions, client eligibility and restrictions, provider enrollment, and electronic data interchange;

5. performs enrollment services for the ConnPACE program;

6. provides automated eligibility verification services to providers for the over 350,000 Medicaid, SAGA, and CADAP clients;

7. maintains a Connecticut-specific website for provider publications;

8. processes all of the state's drug rebates;

9. pays medical providers coinsurance and deductible for people who qualify for Medicare and Medicaid;

10. operates three major reporting systems (SUR, MAR, and Ad Hoc, see below for more information on these systems); and

11. provides all systems maintenance and computer operations for DSS' medical assistance programs.

EDS PAYMENT

Table 1 shows the current payment structure, based on function, for the contract between DSS and EDS. The contract fee is based on 18 million claims, (between 23 and 27 million claims if we include separate accounting for claims that must be handled more than once because of multiple details, like more than one date of service). Under the contract, DSS pays EDS about $ 18. 6 million per year or, in other words, $ . 73 per detail claim or just over $ 1. 00 per claim.

Table 1: MONTHLY EDS CONTRACT PAYMENTS BY FUNCTION

(1) Includes all other functions provided but not specifically isolated in this table, except for an additional $ 2,106,000 that DSS pays annually for 27,000 system modification hours.

OTHER EDS STATES

Rhode Island

According to Lynne Harrington of Rhode Island's Department of Health and Families, the state pays EDS $ 11 million per year to process about nine million claims, in other words, about $ 1. 22 per claim. Harrington reports that the per-claim cost consists of $ . 35 for system costs and $ . 87 for things like the MMIS, and maintenance and modification hours.

We attempted but were not successful in getting a breakdown of functions comparable to what DSS provided us.

New Hampshire

New Hampshire pays EDS to perform certain MMIS functions through a client-server system. Until several years ago, reports Gary Thorne of the Department of Health and Human Services, EDS was responsible for all of the state's MMIS functions. At that point, the agency decided to change the MMIS to what he called a component-based program, the idea being the state should be able to get the "best of breed" for each functionality (see attached information sheet for more information about this concept).

Thus, certain components were taken outside of EDS. These included Medicaid managed care and a Medicaid decision support system, which would enable the state to do better cost containment and program management. EDS maintains the fee for service pieces of MMIS, except Medicaid pharmacy functions, which were contracted to a pharmacy benefits manager (PBM) in November.

Thorne indicates the state pays $ 1. 60 a claim. As a result of the November PBM contract, Thorne believes that the price per claim will fall to between $ 1. 45 and $ 1. 50. He cautions, however, that any savings could be offset by the new contract which covers services, such as prior authorization, that were not provided by EDS.

We have attached a high-level systems overview for your additional information.

Vermont

EDS is responsible for Vermont's MMIS. The EDS contract includes provider enrollment; claims processing; financial management processing (which allows the state to track payments by programs, revenue streams, as well as enables it to categorize people by the types of care they are receiving); and a small decision support system (much smaller than New Hampshire's).

The state is currently paying $ . 79 per claim, which essentially covers just the actual processing of claims. To this are added several other negotiated functions. These include the purchase of a new server, money for staff, postage, and a special education project. They also pay extra for provider relations. When these additional costs are added to the claims, the per-claim amount for EDS alone rises to $ 1. 97. Like Connecticut, the state pays EDS based on the number of processed claims. The state has a target of 4. 7 million claims but claims can go as low as 3. 7 million or as high as 5. 7 million before the contract must be renegotiated.

Like New Hampshire, Vermont contracts with another company to process its pharmacy claims. The state's per claim cost for these claims ranges from $ . 17 to $ 3. 00 per transaction, depending on the services provided. But the state still pays EDS $ . 023 to pay the claims.

Vermont officials suggest that one clear difference between their contract with EDS and Connecticut's contract is that EDS uses a mainframe system here, in addition to a client server, while Vermont and New Hampshire apparently use client-server systems only. They assert that with the latter system, a state can replace specific parts of the system as they go along and the costs for these can be scheduled out over time. A mainframe system, while relatively inexpensive in the beginning, can be quite costly to states over time as they can often be "quirky" as they age, which corroborates what Mains suggested in comments to our office.

MASSACHUSETTS

Massachusetts' Department of Medical Assistance has a contract with Affiliated Computer Systems (ACS) to do its Medicaid drug claims processing. The contract covers the actual claims, system costs, and a call center that is available to answer technical questions. In addition, ACS's fee covers a systems update necessary for the state to be in compliance with new federal reporting requirements. The state has a separate contract with the University of Massachusetts to do utilization review.

Under the current two-year contract, the state pays ACS a total of $ 14. 7 million. According to the state's pharmacy director, the contract price breaks down to $ . 16 per claim in the first year and $ . 21 in the second year.

We are still attempting to find out how the state handles its MMIS functions, which we believe are done in-house.

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