State auditors say Maryland's health department did not follow proper procedure when it hired a contractor to replace the system used to process Medicaid payments. The department later had to suspend work with the company.
In a report released Wednesday, auditors said the Department of Health and Mental and Hygiene did not follow the procurement process, and kept information that raised red flags about the contractor from the state Board of Public Works, which approved the five-year, $171 million contract.
Health officials said they followed all regulations, but could not provide some communications because too much time had passed since the procurement process. They said they would follow the state's recommendation to keep better records.
"It is our contention that we followed the rules and the regulations as stipulated in state law in regards to the communications with that particular contract," said Thomas V. Russell, the health department's inspector general. "We will make sure there is an audit trail of communications going forward."
Auditors did not name the contractor, but records show that the Board of Public Works voted in 2012 to approve the contract with Northern Virginia-based CSC. CSC declined to comment.
Auditors said the health department did not convey all the risks to the state spending board, including information that the contractor had performance issues in other states.
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The agency was criticized for initially considering a low cap on liability requested by the contractor.
Health officials responded in the audit that they explained to public works officials the circumstances of the award. They said changing the cap after the contractor was selected would have required the state to allow CSC and another bidder to revise their offers. The other bidder declined, leaving only CSC.
Auditors said CSC had cost overruns and delays on similar projects in other states, but Maryland health officials did not tell the public works board.
"These are important things that happened along the way that the board probably should have known about," said Tom Barnickel, legislative auditor at the Maryland Department of Legislative Services' Office of Legislative Audits. "They could have made their decision having more complete information."
CSC is locked in a court battle with the health department over details of the contract, including the scope of the work for which the company is responsible. The contract has been suspended indefinitely and the state is using the old system.