(Bloomberg) — Hewlett-Packard Co. and Xerox Corp. are vying for an estimated $500 million contract to replace New York's Medicaid management system, the biggest in the U.S., according to two people familiar with the bids.
The companies are seeking the five-year pact as they battle for dominance in the market for Medicaid, the joint state- federal health insurance program for the poor, said the people, who requested anonymity because they aren't cleared to publicly discuss the competition. Computer Sciences Corp., which runs the current system, didn't bid.
The company chosen to develop a new program to process claims for New York's $52 billion Medicaid program may be positioned to win similar deals with other states. New York is shifting to a managed-care approach for Medicaid that's aligned with the goals of the Patient Protection and Affordable Care Act (PPACA), and other states are likely to follow.
"The industry has been waiting for a state that will go forward and sponsor a more efficient way that's adapted to the new regulatory regime," said Peter Bendor-Samuel, chief executive officer for Everest Group, a Dallas-based consulting firm that focuses on technology. "The benefits are very significant for New York, the recipients of the services and very big for the winning vendor because if they figure out how to do it, there's going to be every other state looking to do it, too."
Over the last decade, with the help of acquisitions, HP and Xerox have expanded their business and government-services operations to offset losses and slower growth in their core segments: personal computers for HP, document printing for Xerox. Last year, services sales made up 55 percent of Xerox's company's $21.4 billion in revenue.
The companies have already clashed from California to New Hampshire as states seek to update Medicaid payment systems, with as much as 90 percent of the cost funded by the federal government.
PPACA is expected to expand Medicaid enrollment by more than 9 million while it pushes states to move recipients from programs that pay for each service to managed-care plans with costs set for each patient. The shift is meant to generate savings because providers will profit only if they spend less on each patient than the reimbursement they receive. Under the current system, providers can inflate bills by, for example, ordering tests a patient might not need.
To make the shift to managed care work, new computer administrative systems must be developed, said Paul Keckley, managing director of the Navigant Center for Healthcare Research and Policy Analysis in Chicago.
"A platform that's even nine or 10 years old is probably not adequate for what they have to do," Keckley said.
Governor Andrew Cuomo began moving New York's Medicaid recipients into managed care in 2011, the year he took office. The state issued a request for proposals in June for a new system, asking companies to provide plans that would help implement the shift, according to Jason Helgerson, New York's Medicaid director. The winner was supposed to have been decided by Jan. 20.
"It's a big decision, and we want to make sure we make the right one," Helgerson said in an interview. "This is a decade's leap forward in terms of the use of technology. It's one of the largest contracts in state government and is another step in the direction toward managed care."
