State and Xerox reach settlement over botched Alaska Medicaid payment system

The Alaska Department of Health and Social Services has settled its complaints with Xerox over management of Medicaid claims, resetting its health-care contract with the business giant for an agreed-upon series of performance standards.

The state's claim against Xerox State Healthcare LLC followed the company's start of a multimillion-dollar Medicaid payment system about three years ago. The state said Xerox failed to issue timely and accurate payments to Alaska health care providers, among other problems.

Jon Sherwood, Alaska's deputy commissioner for Medicaid and health care policy, said Tuesday that since the department filed its claim in 2014, the state and the company have reached an agreement and established "a path forward for having an accurate, efficient system to process claims."

The state has agreed to continue to pay Xerox millions of dollars under its contract and the company has agreed to provide additional hours of work for free and to drop some prior charges. The company will complete performance reports and provide hardware system upgrades, said the settlement, signed Monday by a state administrative law judge.

"We filed a claim because we wanted to get an efficient, accurate system and we think this goal has been achieved under this agreement," Sherwood said.

[Read the settlement reached between the state and Xerox]

The settlement comes after the state health department filed a claim in 2014 with the Alaska Department of Administration, using a state procurement process, demanding that Xerox produce an extensive action plan to remedy the broken system, which pays medical bills for eligible, low-income Alaskans. The state was seeking $46.7 million in damages in 2014. William Streur, health commissioner at the time, called the payment system his "greatest challenge in over 40 years of working in health care."


Streuer said in 2014 the Medicaid payment system paid some providers too much, some too little and some not at all. Sherwood said Xerox made a counterclaim, arguing Alaska owed it money.

In the recent settlement, Alaska agreed to pay Xerox the nearly $26 million in money still owed. Some of those payments will be tied to performance measures. For instance, Alaska said it would pay Xerox about $2 million after the federal government certifies the state's Medicaid payment system.

Sarana Schell, health department spokesperson, said in an email Tuesday that under the settlement, the state will not have to pay for nearly 100,000 hours of work from Xerox. She said so far, the state has paid Xerox about $112 million for the design, development, implementation and operation of the Medicaid payment system.

The state health department still expects to pay Xerox roughly the original amount agreed upon in the contract, Schell said. The 10-year contract started in 2007 and has three one-year extension options. Its total is roughly $124.7 million. Each additional year cost about $15 million, according to Schell.

Erin Isselmann, Xerox's director of health-care communications, said in an email Tuesday the settlement was mutually beneficial and would not have any new financial impact on Xerox.

"This system efficiently serves the needs of Alaska's citizens and both parties look forward to working together in the future," she said.

According to Xerox's website, the company has "successively implemented" and received federal certification in 32 state Medicaid programs.

But Xerox has also ran into problems outside of Alaska. In 2014, Texas terminated its contract with another Xerox subsidiary, Texas Medicaid and Healthcare Partnership. The state sued Xerox, claiming the company misspent money on medically unnecessary medical claims, reported The Texas Tribune. In 2015, Xerox announced it would not finish the implementation of the new Medicaid payment systems for Montana and California, The Associated Press reported.

In Alaska, the effort to implement a new Medicaid payment system dates back to 2007 when Affiliated Computer Services won the bid to replace the old system, which no longer met government standards. The federal government agreed to pay 90 percent of the costs to upgrade it.

ACS had two years and eight months to design, develop and implement the new Medicaid payment system, but it did not meet that deadline. In February 2010, Xerox acquired ACS. After many delays, the system went live in 2013.

Schell said Tuesday the system still had 167 total defects, 69 of them affecting payments in some way. Sherwood said some glitches are expected.

"These are large, complicated systems with many rules and you never get it perfect," Sherwood said. "You want it to be functioning at a high level with no serious defects or deficiencies."

Tegan Hanlon

Tegan Hanlon was a reporter for the Anchorage Daily News between 2013 and 2019. She now reports for Alaska Public Media.