Alaska News

Health care providers sue Xerox over bungled Medicaid payment system

Three Alaska health care providers filed a lawsuit this week against the private company they say implemented a bungled Medicaid payment system by reimbursing bills for services late or sometimes not at all.

The failures by Xerox State Healthcare LLC, the state's Medicaid contractor, resulted in hundreds of millions of dollars in costs incurred by the state's providers, the lawsuit charged.

South Peninsula Hospital in Homer, Alaska Speech and Language Clinic in Kenai and the Kenai Vision Center sued Xerox Thursday. They asked the federal court to certify it as a class-action lawsuit, which would open participation to all the state's health-care providers which had payments rejected, suspended or delayed by the Medicaid system.

The lawsuit over the botched Medicaid payment system follows one filed last year by the Alaska Department of Health and Social Services. The state health department filed a claim against Xerox State Healthcare, a subsidiary of Xerox Corp., and asked for $46.7 million in damages. The state argued Xerox breached its contract when it didn't complete the multimillion-dollar software system within the time frame agreed upon.

At the time, Bill Streur, state health commissioner, called the Medicaid payment system his "greatest challenge in over 40 years of working in health care."

In the more recent lawsuit, the health-care providers said that Xerox was negligent, or acted with reckless indifference, when it designed, implemented and administered the new Medicaid system. They said Xerox falsely represented that the system was tested and ready to go live on Oct. 1, 2013. They also argued that Xerox breached its contract with the state and, by extension, the state's health-care providers.

Erin Isselmann, Xerox's director of health-care communications, said in a short written statement Friday: "Xerox has not been served with the lawsuit so it would be inappropriate to comment at this time."


"Alaska's Medicaid Management Information System is processing provider payments at or better than the previous system," the statement said. "Xerox remains committed to continuing its proud service to all Alaskans, including its present efforts to expand Medicaid so that even more residents receive health care."

Alaska's Medicaid system makes payments to more than 22,000 health-care providers each year, said the complaint filed Thursday by the Kenai providers.The project at issue dates back to 2007, when Affiliated Computer Services won the bid to replace the 27-year-old Medicaid payment system, which covers bills for eligible, low-income Alaskans.

The federal Centers for Medicare and Medicaid Services agreed to fund 90 percent of the roughly $32 million cost. ACS had two years and eight months to design, develop and implement the new Medicaid payment system, but did not meet that deadline. In February 2010, Xerox acquired ACS. After many delays, the system went live in 2013.

"All, or substantially all, claims submitted were rejected by Xerox for the first several months of implementation," the complaint filed Thursday said. "These rejections, which were caused by Xerox's defective MMIS, cost the health-care providers of Alaska hundreds of millions of dollars."

Providers did not get regular reimbursements for many months. They had to submit improperly rejected claims again and again. That increased labor costs. Some claims that were rejected repeatedly eventually violated the Medicaid regulation that all claims be submitted within a year of service. They were then ultimately deemed untimely, the complaint said.

The complaint described the system when rolled out as "fundamentally flawed." It "caused immediate financial hardship for many providers," the complaint said. "The impact on providers has continued to increase up to the present."

The state Department of Health and Social Services extended more than $160 million in loans to health-care providers who struggled to stay afloat as the Medicaid payment system failed, it said.

The complaint said that before the 2013 system conversion, the South Peninsula Hospital received reimbursements on a weekly basis. In the first full year of the new system, "very few, if any reimbursements" were made for MRI procedures. "Many other categories of claims were also delayed for many months," the complaint said.

Medicaid also began taking back claims that it had paid in prior years. The hospital received no explanation, the complaint said. During the past two years, the hospital paid for 971 hours of overtime for employees to submit claims again and again. The hospital has still not been reimbursed for at least $1 million in claims from 2013 and early 2014, it said.

As for the single-provider Alaska Speech and Language Clinic, the complaint said its Medicaid reimbursements stopped in October 2013. Xerox said the claims had been paid, "when in fact they had not been." Between October 2013 and January 2014, the clinic submitted claims for more than $14,000 in reimbursements, but received no payments until March 2014. Because of the absence of cash flow and uncertainty about Medicaid payments, the clinic "curtailed its operations in 2014," the lawsuit said.

A phone number for the clinic went to the voicemail for Annette O'Connell, "formerly Kenai Speech and Language Clinic." She did not respond to calls for comment.

At Kenai Vision Center, the office manager discovered on Oct. 4, 2013, that it was impossible to log into the Medicaid payment system. After weeks, the center discovered that it needed an older version of the Internet Explorer web browser -- "information which Xerox had not provided," the complaint said.

Between October and early December 2013, the center received less than $2,500 in Medicaid payments. It had submitted $33,000 in claims, the complaint said. Xerox rejected all claims throughout 2014 for eye examinations. The center's office manager spent more than 200 hours troubleshooting for payments during the last quarter of 2013, it said.

By the time the lawsuit was filed, the center was still short reimbursement for $3,000 in claims.

Meanwhile, a stay has been issued in the court battle between the DHSS and Xerox, said Sarana Schell, a department spokeswoman. Schell said in an email Friday that the parties agreed at a hearing in February to put off the hearing until August.

"There was a lot of progress made during this time, so the stay was extended to January 2016," she said. "At that time a hearing or a settlement conference will be scheduled."

The Medicaid payment system is currently processing around 139,000 claims a week, with payments that total about $29.4 million, Schell said. Schell said "new claims are paying well."


The Medicaid payment system has reprocessed more than 324,000 claims, she said, and has not finished analyzing the rest, "but believe we have about a million more to go," Schell said. "We hope to have it all done by the end of the calendar year."

As of Friday, 88 defects with the system remained, she said. There were 64 identified in the past 90 days. "It's normal to identify new defects as we correct other issues," she said.

An influx of Medicaid recipients are expected to enter the system this year after Gov. Bill Walker expanded the health care program beginning Sept. 1 to cover more low-income residents. The Legislature sued to stop him and the legal challenge remains pending in state court.

Tegan Hanlon

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