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State's health exchange settlement not a done deal

The settlement announced this week between the state and Noridian Healthcare Services over Maryland's bungled online health exchange is not quite a done deal.

The $45 million deal must still be approved by Centers for Medicare and Medicaid Services, the U.S. attorney's office for Maryland and the North Dakota insurance regulators, who oversee Noridian Healthcare's parent company.


If any of these parties don't sign off on it, the agreement could be void.

Under the agreement worked out by Attorney General Brian Frosh and approved unanimously Tuesday by the board that oversees the exchange, Noridian will repay the state $45 million of the $73 million it was paid for building the flawed system.


The online health insurance marketplace, created under the Affordable Care Act, never worked properly, delaying the applications of thousands of people without employer health care and in need of coverage.

"The process to secure all needed approvals is underway — by both Noridian and the state," said David Nitkin, a spokesman for Frosh. "We are optimistic for a positive outcome."

North Dakota Insurance Commissioner Adam Hamm said in a statement that his department will review the settlement and see if it complies with state law. He gave no timeline for a decision.

Marcy Murphy, a spokeswoman for U.S. Attorney Rod J. Rosenstein, said his office is involved in the negotiations but has not made a decision whether to approve it.

"CMS is currently reviewing the settlement," said Lorraine Ryan, a spokeswoman for Medicare and Medicaid. She declined to elaborate.

One sticking point that remains is how the settlement money will be split between the state and the federal government, which financed part of the buildout, Nitkin said.

The amount of money each side spent is still being determined, said Andy Ratner, a spokesman for the Maryland Health Benefit Exchange.

Under the deal, Noridian will repay $20 million up front and make annual payments of $5 million over five years. The settlement was just over 60 percent of what the state initially paid the company under what was to have been a $193 million contract to build and operate the site.


Frosh said earlier this week that the deal avoided potentially costly litigation and that "constraints" on Noridian's finances might not have yielded a higher judgment.

Noridian Mutual Insurance Co., Noridian Healthcare's parent company, also agreed to guarantee $40 million of the settlement, which is what must be approved by North Dakota regulators. The final $5 million payment is based on the financial condition of Noridian Healthcare.

The North Dakota-based insurer, which does business as Blue Cross Blue Shield in that state, fired its CEO last year after losing $80 million, $50 million of which was attributed to Noridian Healthcare.

The "continued solvency" of Noridian Healthcare would be the main factor in recouping the full amount of the settlement, Nitkin said. He added that Noridian has a viable model for its core business that gives state officials "a measure of comfort," so the state expects to get the final payment.

"The guarantee we secured is very strong, and grew stronger as a result of intensive discussions with the company over time," Nitkin said.

The state terminated its contract with Noridian about four months after the website crashed on its first day in October 2013. It hired another contractor to nurse the crippled exchange through an extended enrollment period.


Neither Noridian nor the state accepted liability in the settlement.

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Noridian Healthcare's top executive defended the company's performance earlier this week, saying it delivered many technical enhancements to Maryland's exchange. He pointed out that the website exceeded many goals, including enrollment, despite the problems.

The state got rid of the website and adopted technology from Connecticut in time for the second open enrollment in 2014, which went smoothly but cost the state about $41 million dollars. Then-Gov. Martin O'Malley pledged to sue those responsible.

State officials said investigations continue into other companies involved in the development and implementation of the exchange, but would not say who. Officials from EngagePoint, a key subcontractor brought in by Noridian, didn't respond to a request for comment earlier this week. IBM, whose software was also blamed for the troubles, still works with the state and had no comment.

Massachusetts appears to be the only other state to have experienced technical difficulties that it has publicly settled with a main contractor. In that case, the state agreed to pay the company $35 million more to wind down operations; however, the Massachusetts attorney general launched an investigation of the troubled exchange that could recoup up to $12 million from CGI, a cap agreed to as part of the settlement, according to a Boston Globe report.

Oregon remains in litigation with its main contractor and isn't likely to settle soon, according to David A. Friedman, associate professor of law at the Willamette University College of Law in Salem, Ore.