For the past eight years, the administration of Iowa’s $2 billion Medicaid program has been handled by the same Texas-based Fortune 500 company.   

Now, the Iowa Department of Human Services is moving forward with plans to split up the $20 million annual contract — the state’s single largest outsourcing contract — into nine separate pieces.  

On Thursday, DHS officials will open bids from 23 companies that are competing for one or more of the nine contracts, based on requests for proposals that were put out in October. To generate interest, the department has taken out display advertisements in publications across the country, including ads in the New York Times and The Wall Street Journal.   

The winning bidders will begin a one-year transition process to the new system beginning this July to take over administration of the program by July 2005.   

The shift comes at a time when many state human services agencies are doing just the opposite — further consolidating services under all-in-one contracts.

Kevin Concannon, director of the DHS, said unbundling the contract will create a “best of breed” selection, making the service providers more accountable and give his department greater control over the quality of the administrative services provided.

Additionally, he said, it will give Iowa-based companies a chance to compete for pieces of a contract that now only about a half-dozen national giants can handle. Three Greater Des Moines companies are among the bidders for one or more of the contracts.

An executive with the current contract holder, Dallas-based Affiliated Computer Services Inc., said splitting up the complex contract will result in higher administrative costs and in poorer service to medical providers. ACS says Iowa will be swimming upstream with its plan.

Concannon doesn’t mind the swim, and feels that other states might even want to join him in the water.

“We’re really excited about the fact we have 23 companies expressing an interest in bidding,” Concannon said. “Traditionally, the way the service has been bid bundled the services, and allowed only about a half-dozen companies nationally to bid on it. My experience is you never really get good services from those (largest) companies. You get good service in some areas and not-so-good service in others.”

The decision point came last summer, when ACS’s contract had reached the maximum renewal period and had to be rebid in 2004.

“We decided last summer that we could either go out for the same bundled services, or we could parse it out to the nine major functions,” Concannon said. Those functions include claims processing, drug rebate processing, disease management and other medical services, provider enrollment and other provider services, member services, revenue collections, and audits.

Under the restructured process, 25 DHS staff members will be relocated to a single location with contract employees from the nine contracted areas. A DHS supervisor will manage the entire operation. Additionally, the state’s Medicaid database, now located in Pittsburgh, will be relocated to Des Moines.

About 120 ACS contract employees currently administer the Medicaid contract in Des Moines; Concannon said he expects at least an equal number of contract employees would be required from the various companies that win the unbundled contracts.

“We will retain the contract with ACS for the next year,” he said. “The reason for that is we want to make sure there’s a seamless handoff, because it’s a very complex program, literally millions of transactions. So we need to make sure the system isn’t disrupted as we make this transition.”

Harvey Braswell, group president and chief executive for ACS’s state health-care group, said splitting such a complex contract into nine pieces is asking for problems. The group currently handles Medicaid claims processing for 13 states.

“We feel so strongly about it that we’re not going to submit a bid for it,” said Braswell, who has been told that bidding on all nine components as a package is not an option. “Basically we’ve just decided to write off $20 million in business, we feel so strongly about this.”

The state could accomplish the same objective by writing a clear scope of work for each component within a single contract, he said. “They could accomplish the same thing consolidated, and it’s cheaper. There’s no doubt in my mind that the state of Iowa is going to spend more on the program than it is now.”

The bottom line, Braswell said, is whether the medical providers are being paid and whether they are satisfied with the service they’re receiving.

The Iowa Hospital Association has not yet taken a position on the proposal.

We’re all for greater efficiency, and we see that as the rightful goal of the state,” said Scott McIntyre, the association’s communications director. “We’re also concerned about having additional vendors, and the complications that could come from that. Really, we’re still evaluating it as it’s emerging.”

Joe LeValley, a senior vice president for Mercy Medical Center, said Medicaid represents a much smaller portion of the hospital’s billings than Medicare — about 5 to 7 percent, as opposed to about nearly half of all payments for Medicare.

“The reality is, nobody knows (what the effect will be) because it’s early in the process,” he said. “We really don’t know if it will be nine separate companies. Without knowing who those people are, we don’t know whether administration of it will get better or worse.

“We have expressed some concern to the state about splitting the contract into parts, just because the system is so complex,” LeValley said. “Just intuitively, you would think there would more opportunity for more administrative complication and complexity than when you have a single contractor do it. We’ve not had an all-out push to stop it, because we don’t know what the effect of it will be.”