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State to recoup $45 million it paid to build failed health exchange

The company state officials blame for the botched rollout of Maryland's online health exchange will repay $45 million to settle the claims in an agreement announced Tuesday.

The settlement — just over 60 percent of what the state paid Noridian Healthcare Solutions — was approved unanimously by the health exchange board during a meeting Tuesday afternoon. U.S regulators still must approve the deal, because much of the funding was federal.


The state terminated its contract with Noridian about four months after the website crashed on its first day in October 2013, after paying the company about $73 million of a planned $193 million to build and operate the health insurance marketplace created under the Affordable Care Act. The site never worked properly, delaying the applications of thousands of people without employer health care and in need of coverage.

"The roll-out of Maryland's Health Exchange was a debacle that could have been avoided," Gov. Larry Hogan said. "I have been one of the most vocal critics of this fiasco, and I am pleased that the process of recouping taxpayer losses has begun. This settlement represents only the first step in the process and we'll continue to aggressively pursue other avenues to recover damages."


Hogan said the settlement will lead to the recovery of funds for both Maryland and the federal Centers for Medicare and Medicaid Services, though the split hasn't been worked out.

Neither Noridian nor the state accepted liability in the settlement.

The company's top executive defended its performance, saying it delivered many technical enhancements to Maryland's exchange, which exceeded enrollment goals, despite the problems.

"We are pleased that we were able to resolve our differences with the state of Maryland over the Maryland health insurance exchange project and avoid lengthy and costly litigation," Tom McGraw, Noridian's president and CEO, said in a statement. "This settlement allows us to move forward and focus on our core business of processing health care claims and providing related administrative services."

The state dumped the website and adopted technology from Connecticut in time for the second open enrollment in 2014, costing the state about $41 million dollars. Then-Gov. Martin O'Malley pledged to sue those responsible.

Brian E. Frosh, the state's attorney general, said investigations continue into other companies involved in the development and implementation of the exchange.

"This company never delivered on what it promised, and, as a result, tens of millions of taxpayer dollars were wasted, and thousands of Marylanders suffered delays and frustration," Frosh said in a statement. "This settlement sends a message that the performance was unacceptable, and that those responsible will be held accountable."

Noridian will repay $20 million up front and make annual payments of $5 million over five years, under the settlement, signed by Frosh and Hogan, a Republican who used the issue to hammer his gubernatorial opponent, then-Lt. Gov. Anthony Brown, a Democrat and the state's point man on health reform.


Frosh said the settlement gives taxpayers a fair deal and avoids potentially costly and lengthy litigation that likely wouldn't have brought in more money even with a higher judgment because of "constraints on the company's finances."

Noridian Mutual Insurance Company, Noridian Healthcare's parent company, also agreed to guarantee $40 million of the settlement. The North Dakota-based insurer fired its CEO last year after losing $80 million, $50 million of which was attributed to Noridian Healthcare.

Of the other states that experienced technical difficulties, only Massachusetts appears to have publicly settled with a main contractor, paying the company, CGI, $35 million. Oregon, for example, remains in litigation with its main contractor and isn't likely to settle soon, according to David A. Friedman, associate professor of law at Willamette University College of Law in Salem, Ore.

Health Secretary Van T. Mitchell, who is also chairman of the exchange board of directors, recused himself from the vote and any settlement discussions with Noridian because he worked on behalf of the company as a lobbyist with Manis, Canning & Associates before being appointed this year by Hogan.

Carolyn Quattrocki, executive director of the exchange, said she was "very pleased to see the taxpayers recover the money spent on a system that didn't work."

She wouldn't comment on who else the state would pursue to recoup money. Officials from EngagePoint, a key subcontractor brought in by Noridian, didn't respond to a request for comment. IBM, whose software also was blamed for the troubles, still works with the state and had no comment.


Other critics of the exchange applauded the settlement.

"The bottom line is that obviously given the size of the settlement, Noridian realized that they didn't perform the way they were supposed to perform," said Rep. Andy Harris, a Baltimore County Republican who had called for a federal investigation into the mishaps at the exchange.

"Someone at the state was supposed to be overseeing Noridian. I still would like to know who was asleep at the switch," he said.

Rep. John K. Delaney, a Montgomery County Democrat who pushed to move to the federal exchange, said: "Our state's failure to manage this rollout — which cost our taxpayers tens of millions of dollars and prevented thousands of Marylanders from obtaining health insurance — was a painful lesson in government mismanagement and a national embarrassment."

Noel Isama, director of transparency and accountability with Common Cause Maryland, said the settlement doesn't address one problem that contributed to the collapse of the exchange: the lack of accountability in the procurement process, particularly when it comes to subcontractors.

The state legislature created a contracting system outside the state's normal process for the exchange, which then relied heavily on no-bid contracts to rebuild the website. Typically state contracts are reviewed and approved by the Board of Public Works, the exchange board was given freedom to award contracts without outside oversight.


"It is one of those things where I am glad some responsibility is being exercised," Isama said. "But at the end of the day for us, we have to make sure the citizens in Maryland are fully compensated for the debacle the exchange was. We want to make sure the settlement doesn't take the eye off the ball of the structural problems that that created this in the first place."