Government Remains Silent on Emergency, No-Bid Obamacare Financial Management Contract

    Even before the October 1 launch, concerns were mounting over the ability of the government to handle the implementation of the Affordable Care Act (ACA), or Obamacare.  Though many expressed those concerns publicly, insiders at the White House, Health and Human Services (HHS), and the contractors hired to design and run the site and its programs were largely silent about potential pitfalls, or at least downplayed them.  However, some internal memos and reports have since come to light as the "glitches" mounted.  But at least one red flag is hiding in plain sight, and the impacts of the serious concerns expressed in an HHS document first reported on by THE WEEKLY STANDARD on September 16 are still looming against a fast-approaching January 1 deadline.
    In testimony before Congress on Tuesday,  Deputy Chief Information Officer Henry Chao for the Centers for Medicare and Medicaid Services (CMS) addressed a heretofore largely overlooked element of the federal government's role in Obamacare's ongoing functions: what happens beginning in 2014.  The website roll out problems have obscured the larger issue of the ongoing responsibilities of CMS.  But, as Politco reports, Chao spoke to some of those issues on Tuesday:

Financial management tools remain unfinished, he said, particularly the process that will deliver payments to insurers... 

The functions need to operate correctly so insurers can enroll the right people in the right plans. That process, called reconciliation, has to work so people can get the care they seek starting as early as Jan. 1. 

...“back office” functions, including accounting and payment systems, were not yet complete.

    Last Thursday, President Obama said that the problems of Healthcare.gov stem from the fact that it is "very complicated.  The website itself is doing a lot of stuff."  While there may be room for debate about whether Healthcare.gov rivals Amazon or Travelocity in complexity, arguably the real work of the ACA still lies ahead: this financial management of ACA functions over the long haul to which Chao referred.  While the current functions of the website may be complex, the financial management functions that CMS needs to have in place by January 1 are far more involved.  Details of these functions and the concerns CMS expressed about its readiness and ability to carry them out are contained in a Justification and Approval that accompanied the awarding of a no-bid, emergency contract to Novitas Solutions, Inc. in early August of this year.
    THE WEEKLY STANDARD in September reported the $11.6 million contract award, noting that in early August CMS had recognized that the "specialized financial management services and expertise are needed beyond what was initially anticipated and beyond CMS' currently available resources," and that development and testing, at that point less than two months from the October 1 launch and less than five months from the January 1 effective date of new coverage, were "already minimally two months overdue."
    The document is remarkable both for its dire warnings and its candor. CMS disclosed that the need had "reached an unusual and compelling level of urgency. The prospect of a delay in implementing the Marketplace by the operational date of January 1, 2014, even for a few days, would result in severe consequences, financial and other..." and "...if payments are not made and debts are not collected, with critical consideration given to timeliness, accuracy and integrity, the Agency's implementation and operation of the Marketplace and the Affordable Care Act will certainly be jeopardized."  These statements are part of a rather lengthy narrative describing the tenuous position in which CMS found itself, but it is worth an extended look to appreciate the magnitude of the task with which CMS believed it was faced and the level of CMS's concerns regarding the dire circumstances that would likely result from any further delay [emphasis added]:

Since enactment of the Affordable Care Act and establishment of the new Marketplace, CMS has been actively developing and refining new and existing procedures and requirements to ensure the successful implementation and operation of the new, complex Marketplace. Throughout every phase of implementing such a large and dynamic program of a kind that has never been done before and as requirements and procedures are being developed and are emerging, CMS continues to learn, evolve and gain insight. As the deadline for implementing the new Marketplace nears, the Agency has been assessing and testing its plan and solution for implementing the new Marketplace. With every unknown and variable encountered, CMS has been leveraging resources and changing, refining and retesting its solution, to not only ensure that the Marketplace is operational on January 1, 20l4, but to ensure that this vital part of the Affordable Care Act is operating effectively and efficiently with as little complication as possible. CMS has recently learned that specialized financial management services and expertise are needed beyond what was initially anticipated and beyond CMS' currently available resources... 

With the impending and mandated October 1, 20l3 Marketplace enrollment and January 1, 2014 go-live deadlines nearing, CMS' need for contractor-provided financial management services has reached an unusual and compelling level of urgency. The prospect of a delay in implementing the Marketplace by the operational date of January 1, 2014, even for a few days, would result in severe consequences, financial and other. The effect of those consequences would most importantly be measured by the impact to the estimated millions of Americans and small businesses that have no health care today or access to affordable health care. Furthermore, if payments are not made and debts are not collected, with critical consideration given to timeliness, accuracy and integrity, the Agency's implementation and operation of the Marketplace and the Affordable Care Act will certainly be jeopardized.
In addition to the urgent and compelling nature of this requirement and the potential for financial and other harm to the Government if the Marketplace is delayed, regrettably CMS does not have enough time to conduct a full and open or limited competition. Acquiring contractor financial services to assist CMS in developing and testing its Marketplace financial activity implementation solution is already minimally two months overdue; therefore, the contractor will be working under an accelerated and fast-tracked schedule...

    The document goes on to describe how CMS arrived at the decision to award the no-bid contract to Novitas, a contractor that already does a considerable amount of work for CMS.  The approval was signed by no fewer than nine CMS officials, up to and including  Chief Operating Officer A. Michelle Snyder.
    The type of work to be done by Novitas is quite extensive and is itemized in the project description:

The contractor shall provide financial management, accounting and reporting services in support of CMS' administration and oversight of the Marketplace financial activities and functions using CMS' accounting system, the Healthcare Integrated General Ledger Accounting System (HIGLAS) to include: accounting, printing and mailing, tracking of accounts receivable and accounts payable, documenting funds collected by CMS, data validation, activity reporting, debt management functions, application of receipts to appropriate transactions, referral of debt to the Department of the Treasury (Treasury), specified batch payment functions in HIGLAS, and systems interface testing and support for HIGLAS functionality.

     The contract announcement and accompanying documents are not completely clear how these activities translate into functions to carry out the ACA and support Healthcare.gov. For example, regulations governing the marketplaces say that an "Exchange may establish a process to facilitate through electronic means the collection and payment of premiums to QHP issuers."  It remains unclear if Healthcare.gov offers such a facilitation process yet, or if that feature will be activated later. (Maryland recently announced that its state-run exchange was indefinitely suspending the bill-pay feature.)
    In any case, as another example, CMS will be responsible for facilitating the payment of the advance tax credits for consumers receiving government subsidies for their plans.  The regulations describing that one function alone reveal a complex formula to determine how, when, and to whom the funds should be remitted, and notifications and other requirements regarding the disposition of the credits.
    However, since the exact nature of the contractor's work remains unclear, we contacted CMS on September 26 to ask for clarification on the contract, and how the work related to the ACA and its functions.  The following email was received in reply:

    However, despite repeated followup email requests, no further information has been received from Mr. Olague or anyone else at CMS in the seven intervening weeks.  A similar email to the contractor, Novitas, was answered promptly, but the company declined to provide further details and referred questions back to CMS.
    The lack of proper operational and security testing of Healthcare.gov that was revealed in the last month and a half give rise to serious questions about the readiness of other areas under CMS's purview related to Obamacare.  Though the agency acknowledged back in August that development and testing were "already minimally two months overdue," there has been no  publicly available update on the status of the Obamacare financial management system until Chao's rather vague testimony on Tuesday that the system may be 60% or so complete.  Without some level of transparency from CMS, the public has no way of knowing if CMS's warnings of "severe consequences, financial and other" will materialize, or whether concerns that the "Agency's implementation and operation of the Marketplace and the Affordable Care Act will certainly be jeopardized" have been adequately addressed.


Note: A version of this article first appeared at The Weekly Standard.