Work on small business health exchange website halted

The contractor under fire for the botched rollout of the state's troubled online health exchange for uninsured people was also hired during a closed-door meeting to develop a similar marketplace for Maryland's small businesses — work that exchange officials acknowledge has halted.

The news has further dismayed those who want to sell or buy insurance on the exchange website. It also has given fuel to critics of the procurement process and exchange launch, both outside of state government and among some top state officials.

"I think we're on the third delay, and if they've stopped working on it, this may not be the last delay," said Jessica Cooper, state director of the National Federation of Independent Businesses in Maryland. "Technical problems have been widely discussed, but small businesses just want them to fix it. Delays make it extremely difficult to plan and prepare."

In September 2012, the exchange board awarded Noridian Healthcare Solutions the $19 million contract extension through a "task order" to develop the small business exchange website, known as SHOP. Delays will total 15 months, with a launch date planned for next January.

Officials say they need to concentrate on enrolling individuals before the March 31 deadline under the federal Affordable Care Act. Then they need time to decide whether to fix or ditch the software used by Noridian and blamed for thousands of lost and stalled applications and inaccurate subsidy estimates.

Work was stopped on the business site about three weeks ago, and Noridian has been paid about $8 million for its work on it, with the last payment in July, according to Dr. Joshua M. Sharfstein, state health secretary and chairman of the exchange board.

"Because of challenges with the website that has launched, we thought it both prudent and necessary to delay our plans for the SHOP website," Sharfstein said. "That's what we're doing."

Maryland is one of 14 states running its own exchange website — and one of the worst-performing. Sharfstein has said the exchange will consider options such as moving to the federal site or adopting another state's system and would evaluate whether to seek redress from Noridian. Officials at Noridian did not respond to a request for comment.

Sharfstein, however, won't be the only one probing exchange contracts. The legislature has begun hearings and Attorney General Douglas F. Gansler, a gubernatorial candidate, said in a public event last week that there were many problems with the exchange and his office would look into spending, which is expected to total $261 million by the end of 2015.

The exchange has cost $33 million more this year than expected for website repairs and extra call center help.

The attorney general's office "will undoubtedly be looking into trying to recoup some of the money from the contractors in months to come," Gansler said during a Baltimore Sun Newsmaker Forum.

Asked what else Gansler might pursue, office spokesman David Paulson said, "It's too early to determine the scope and reach."

Also last week, state Comptroller Peter Franchot reiterated his criticism of the exchange for bypassing the Board of Public Works, the agency charged with approving state contracts.

The quasi-independent exchange was permitted by the state legislature to bypass that board to save time, but Franchot said the exchange should have voluntarily gone through the normal state process.

"I'm not about to suggest this board is a magic wand," said Franchot, a board member, but he argued that greater transparency wouldn't have hurt. "There is a damn good reason why this board has stood the test of time since the Constitution of 1864."

The words echoed a warning Franchot gave in 2011 to Sharfstein about the exchange. He said that without proper vetting by the Board of Public Works, "You can create an environment where big mistakes are made and people are put in awkward positions."

A spokesman for Franchot, Andrew Friedson, added later that the small business contract extension "sounds like yet another example of the risk Comptroller Franchot warned about at the outset."

The Noridian contract extension was approved seven months after its original contract award in a closed session of the exchange board. Sharfstein said all exchange procurements are done privately so board members can discuss and debate bids.

Sharfstein said the Board of Public Works, which rarely goes into closed session, does not go through the same deliberative process when it votes on contracts because agencies make recommendations.

Sharfstein also has said the exchange board followed a strict procurement system incorporating best practices of the state.

Sharfstein said it was well known to those involved in Maryland's health care reform effort that Noridian won the small business contract extension and Noridian made a public presentation in an exchange committee meeting two months after the award. Minutes from that meeting show that work had begun on the project.

Sharfstein also said the exchange did not solicit new bids for the small business website because the bidders on the original contract had included information about this work, too. He said the board chose to stick with the same Noridian platform.

Dr. Peter Beilenson, who runs the Evergreen Health Co-op, which sells plans on the exchange, said he did not know Noridian was put in charge of the small business website or that work had stopped.

He has said both the individual and business exchange websites were important to make Evergreen competitive with bigger and better-known insurers.

Beilenson said beginning April 1, Evergreen would start selling plans directly to small businesses. That's when the state said insurers and brokers could offer policies including a two-year federal tax break to companies with fewer than 25 employees and $50,000 average salaries.

Cooper, at the federation of small businesses, said the tax breaks are welcomed but a website would make shopping much easier. There are 13 carriers offering small business plans.

"Without a website," she said, "the process is much more time-consuming and difficult."

Others said they saw Maryland's troubles coming.

Some states with the most functional websites, such as Kentucky and New York, have an opposition political party with some power, said Marc Kilmer, a senior fellow at the Maryland Public Policy Institute, a nonpartisan research and education organization. That may have made officials move more cautiously and scale back website ambitions to something achievable, said Kilmer, who did not support the Affordable Care Act in part because of its scale.

Kilmer said Maryland might have been too ambitious because it had a Democratic governor and lieutenant governor who are, or are presumed to be, running for higher office. The state also had a Democratic-controlled legislature that allowed exchange officials their own procurement process, he said.

And now, he said, it's not in "in the party's interests to hold anybody accountable."

Gov. Martin O'Malley's administration "was really betting on showing everyone how great this could be," Kilmer said, noting that President Barack Obama had held up Maryland as a national model. "That created a sort of pressure that trickled down. Government bureaucrats can cut corners if they really feel pressure. … And you see what we got."

Baltimore Sun reporter Michael Dresser contributed to this article.

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