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PS-TG White Paper on MMIS in the 21st Century |
Presented by the
Private Sector Technical Group (PS-TG)
October 15, 1997
Contributors, Editors and Advisors
The past quarter century has seen remarkable growth and success in the development and implementation of the systems supporting the Medicaid program. The development and use of these systems in a continuously changing environment is in itself a great success story. State Medicaid agencies, the federal government, and the vendor community have all been a part of that success.
Our foremost objective is to begin a conversation that can lead to better, more informed decisions by all of the stakeholders associated with the Medicaid program, including states, HCFA, and private sector vendors.
From the beginning, the Medicaid Management Information System (MMIS) was subject to ongoing changes at both federal and state levels in response to changes in program policy and operational and technical improvements. Change is nothing new to Medicaid program staff, MIS directors, and supporting contractors. However, to many participants in the design, implementation, and operation of MMIS installations, the current environment appears to be more unstable than in previous times due to a convergence and acceleration of changes on all fronts. To name some:
Now, with two years to go to the next Millennium, we are all probing the possibilities of rejuvenation, rebirth, and cloning for our Medicaid systems. The severity of the demands pressuring the present day MMIS has prompted the PS-TG to publish this paper as a way of contributing to the change process.
Our foremost objective is to begin a conversation that can lead to better, more informed decisions by all of the stakeholders associated with the Medicaid program, including the states, the Health Care Financing Administration, and the private sector vendor community. We believe this sharing of perspectives can help all participants become better educated about the issues and requirements facing each party.
We certainly do not profess to have all the answers, and we fully recognize that the vendor community has a responsibility to not only raise issues of concern, but also to contribute constructively to solutions. In fact, we believe that in today's fast-paced, ever-changing, and highly-demanding Medicaid program environment, it is critical for all stakeholders in the program to establish win-win partnerships based on trust and demonstrated performance, rather than adversarial relationships.
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The comments, ideas, and "trial balloons" discussed in this paper are offered in this spirit. They do not necessarily reflect the views of all of the PS-TG members, or even the consensus view of the authors and editors of this paper. However, they do represent an attempt to identify some of the key issues and observations from the private sector community's perspective. On a going-forward basis, we believe it is critical for all stakeholders to identify the highest priority issues and concerns that need to be communicated, and then work together to initiate a process for addressing them. At the end of this paper, we will offer some specific suggested next steps for establishing this working process.
We also recognize that the challenges facing state officials today span beyond those that are directly related to Medicaid systems. In fact, a broader conversation that could include other private companies (such as managed care plans) and other state or federal agencies (such as those concerned about welfare or public health issues) might be very appropriate. However, given the focus of the PS-TG, we felt it was most suitable for us to concentrate our attention on the systems issues directly related to the Medicaid program.
That is why our attention in this paper is primarily on the procurement process, from the initial specification of business requirements to the pricing of the technical solutions, as the best way to frame the issues, present alternatives, and discuss pros and cons. While most vendors and states agree on many of the key issues associated with Medicaid systems, there is not always consensus regarding the solutions. Therefore, this paper has two primary objectives: (a) to highlight the issues and present currently held, sometimes divergent perspectives on the solutions, and (b) to serve as a catalyst for change.
The purpose of the paper is to examine how the pressures of the environment affect the procurement and installation of MMIS systems, including design, transfer, enhancement, and maintenance; and to present some ideas regarding how we can work together to tap the vast potential for improvement which is also part of the MMIS legacy. Our 25-year old functional model which has served almost all states, has shown remarkable resilience and ability to re-invent itself in response to daily changes from many directions.
The MMIS is indeed facing a critical and important time in its history. If we work together to examine the problems we are facing, and look cooperatively toward their solutions, we will be able to realize the great benefits and opportunities that lie ahead in the future. Better communication will help us draw benefit from the changing environment rather than be controlled by it. Our collective end goal should be to address the challenges of today and tomorrow through improved communication and collaboration.
Using the procurement process as the focal point we examine:
Section 2: Key Drivers in the Medicaid Environment-It is the consensus of the PS-TG that the complexity and frequent changes of the Medicaid program, the rapid pace of change in technology as well as the challenge and risk in harnessing it, the time crunch which usually drives the system enhancement or replacement project, and the difficulty in attracting new bidders- all conspire to push the twenty-five year old model of the MMIS to the brink.
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In Section 2 we discuss several "drivers", forces within the Medicaid environment which impact the design, installation, and operation of systems supporting the Medicaid program: Constant Change, Communications, Time, Great Expectations, Technology, Cost, Resources, Welfare Reform, the Health care Industry, Procurements, Turf Protection, and Changes in the Vendor Community. These environmental realities are difficult for individuals to control, however, through better communication and collaboration, we can begin a process of improving the environment. The discussion of the drivers at work in the Medicaid environment is intended to set the stage for the major topics presented in the remaining sections of this paper.
Section 3: Business Requirements Analysis-The MMIS is a rules-based information system. It contains the official body of business rules representing state and federal policies. Despite improved methodologies for collecting and documenting requirements, there are no industry standards for presenting the state's needs to the bidding community. Questions include how detailed should requirements be, how should they be collected and documented, at what point in the project should requirements be completed. Other issues discussed are: budget and schedule constraints, levels of participation of state and contractor staff, and communication with the vendor community in advance of issuing the APD and RFP.
Section 4: What Is An MMIS?-In this section, we explore the evolving concept of a "virtual" Medicaid Information System versus an all-in-one-package MMIS; the decision to buy, borrow, or build; the potential for regionalization and multi-state, shared systems; the role of proprietary software; and the merits of baseline versus customized systems.
Section 5: Technical Solutions-Changes in the Medicaid program and the difficulty in pinning down business rules in a uniform way are compounded by the rapid changes in information management technology. What or how to build, borrow, or buy has become a major challenge to procurement decision-makers. Some implementations of promising new technical solutions have ended in dismal failures. We comment on the fact that even legacy systems have been modernized, and that no one can stand still on the technological highway. Progress is needed, but how much, to what end, and at what cost?
Section 6: Procurement Process -In this section we suggest that often the APD and RFP process exacerbates the problems described in the previous sections. Publicly funded programs require scrutiny, standards, and monitoring. However, the burden of problems described in the previous sections of this paper (paucity of information in the APD, unreliable definition of requirements in the RFP, inadequate time frames and levels of state staff participation in developing the requirements, the burden of the Terms and Conditions, misunderstood technology, and the search for a protest-free evaluation process), comes to bear on the procurement process. We suggest ways to lighten the burden by emphasizing the need to communicate the state's vision with the vendor community and discuss technical feasibility and costs at critical points during the APD and RFP process.
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Section 7: Pricing Strategies-The issues raised in the first four sections of this paper (e.g., requirements analysis, technology decisions, the APD/RFP process) are linked to the increasingly difficult task for both client and bidder to price the requested systems and functions. Shallow or overly detailed requirements, the mysteries of new technology, the battle between standardizing and customizing, prolonged development periods, and scope creep lead to "sticker shock", discourage competition, and promote dissatisfaction and legal action. We explore various remedies and encourage on-going discussion of ways to make pricing fair to all parties.
Section 8: Dispute Resolution-In light of the high cost of disputes and settlements and the nightmare of stopping an implementation after a year or more of effort, a built-in approach to resolving disputes is strongly recommended. This should be an early and continuous part of the process and not a last-ditch effort when things have gone hopelessly wrong.
Section 9: Next StepsWe conclude with suggestions for realizing the improvements in communications, which this paper strongly promotes, at all stages of the systems procurement and contracting process. We welcome all feedback and look forward to continuing the conversation.
The MMIS is challenged daily with the demands of high-speed operations and the need for information, now. It is buffeted by pressures of Welfare Reform, agency reorganization, program reengineering, and the addition of managed care business rules layered on top of already complex fee-for-service business rules. The attraction, even the imperative, of the latest technology, without time or experience to master new tools, adds to the risk of system implementations. Many feel that the procurement process is flawed and cannot support the demands of these times. prome
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In this section we itemize some of th key drivers of the Medicaid environment which seem to make it more and more difficult to predict the architecture and functionality needed to support the Medicaid program in the future. These drivers, like environmental forces, are difficult for the individual to control, but collectively, we can make progress towards using them rather than being controlled by them.
Change-Whether change is perceived as good or bad, it's a constant, and unlike light, it is speeding up. MMIS veterans state that change has always been a factor in systems management. It is a fact of life in this environment. Changes in political direction, legislative enactments, new administrations, new technology, new programs, new methodologies-all end up with a requirement for enhancements, changes, and sometimes replacement of the MMIS. But now, many conclude that demands for change are accelerating, bringing with them a higher risk for failure.
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Communications-Is anybody listening? One of the key problems is that all too often there is a partial or complete breakdown of communications. From the vendors' point of view, the states often don't seem to know what they want, or recognize how much it will cost, and states may feel that vendors are often unable to develop or deliver the product they promised at the price bid. In such a situation, what is needed is better communication of needs and desires, and a process which facilitates that communication. Many procurement practices seem to discourage or eliminate communication, leaving each party in a virtual void.
Time-Rome wasn't built in a day; if it was, we would have hired their contractor. A constant complaint from all sides is the lack of time to properly plan and define what is needed and wanted. The complexity of the changing health care environment, the development of leading edge systems, the transition to managed care-are all factors that simply cannot be dealt with in the period of time frequently allotted for the procurement process.
Great expectations-Promise, hope, expectations and delivery-when they are out of synch, watch out! Whether it's politics, work, families or friends-promises that are made and not kept are a recipe for trouble. The last few years have seen many promises made, which leads to hope and expectation, only to run into real trouble when there is no delivery-or there is delivery, but at many times the cost and twice the time. This human element is really a further sub-part of Communications, but if and when communications are improved, keeping in mind the nature of promises to be made, and the ability to deliver on those promises, is critical.
Technology-This is not your father's MMIS; and... leading edge or bleeding edge? We live in a time of great successes and great failures-in a single year and in a single company, we have failure at the Olympics, and the astounding success of Deep Blue. The model for the MMIS system is more than twenty years old and, increasingly, new technology is demanded, probably faster than it can be assimilated, developed, and implemented. It all goes back to communication- purchaser, vendor and consultant working together to figure out what is needed, how much it will cost, and whether and how it will work. While it's not your father's MMIS, unfortunately many people driving the bus are the same people who have presided over these systems for many years-change is often difficult for them and for us.
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Cost-Is there ever enough mone? Probably not, but there are certainly increased budgetary constraints. One of the reasons why it is urgent to move forward with new technology is that despite assaults on the federal system, and in particular on Medicaid, it has survived and the federal government is still funding the major share of the effort. This is not guaranteed for the indefinite future, however, and we need to find less expensive ways of doing much more. Hopefully, the answer lies in new technology which will do what is needed more quickly and efficiently so that costs can be kept in check in the future. There is clearly no blank check, and accountability for expenditures in both the public and private sector is on the increase.
Resources-If you don't have them, you'll never get there; and, there's no such thing as a free lunch. It is crucial that states realize that they will not succeed if they don't make available the money, the people and the climate for success. There has been a definite cutback in many of the states in terms of people and money; while expectation and demands are higher than ever. Further, vendors must make increased investment of people and money as well. And it may be that with the increasing demand, and the decreasing availability of money and people able to do the job, that centers of excellence, regional and/or shared resources, and much closer working arrangements between states, federal officials, and vendors are needed in the future.
Consolidation - Medicaid, Health, and Welfare-A Brave New World…are we brave enough to face it? Recent legislative changes have forced the Medicaid agency to take on new programs and responsibility for eligibility determination and maintenance. These changes will have a profound effect on systems planning and capacity. The ramp-up of implementation may appear slow at present, but is certain to accelerate over the near term. New ways of thinking on the part of public and private sector will clearly be necessary to meet the challenge of the reforming systems and processes.
Health care industry-Chaos, crisis, and conundrums. The shifts to managed care, the collision between the for-profit, not-for-profit, and not-for-obvious-profit sectors, and the prospect of dual Medicaid and Medicare eligibility in acute and long term care, are just a few of the many elements that have changed the rules in the health care industry. A trillion dollars a year is spent in health care (if you spent $1 million every day, starting 1,997 years ago, you would not spend $1 trillion until well into the third millennium!), but the way in which these dollars are spent, and the incentives for their expenditure are undergoing rapid change. Medicaid systems will be expected to track and respond to these changes.
Procurement-Hitting the wall. It is extraordinarily difficult to go where we need to go in the context of many state procurement rules and regulations, compounded by poorly utilized APD and RFP processes. If the APD is not used for real advance planning, and the RFP does not provide an adequate description of requirements, the whole process is in jeopardy from the start.
Vendor community-Changing times and changing partners. We are in an era where a number of the larger companies are having difficulty producing the necessary return on investment on their current systems and operations, and in designing and developing the next generation of systems requested by the clients or promoted by the competition. A number of new companies have recently come to the Medicaid arena bringing innovation, but often without prior Medicaid experience. New alliances and competition between old and new players are taking shape, shattering the past predictability of the world of Medicaid vendors.
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Leadership vacuum-Who's driving the bus? Where is it going? Some see a credibility gap among state, HCFA, and contractor communities, a leadership vacuum, and a climate of instability throughout the Medicaid program nationally. What is an MMIS? What is the basis for federal certification in the present environment of change? Who decides what technological components to purchase or defer? How do we fund all the changes? Faced with so many pressures and changes, time and budget constraints, who has the experience and authority to direct the future of Medicaid systems, and how can anyone make an informed decision?
In this constantly shifting environment, we recommend some collective survival strategies such as:
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These are examples of ideas presented throughut this paper. There have been major disappointments in many MMIS procurements in the 1990s. Is there any relief in sight? We believe there is. The following sections of this paper explore in more detail the issues and potential solutions
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It's a jungle out there!-The MMIS functions in a stressful environment of rapidly changing business requirements to accommodate managed care, waivers, program carve-outs, unbundling of functional requirements, Welfare Reform, and new reimbursement strategies; and dramatic changes in technology without commensurate increase in staff skills.
The Medicaid program has always osed a major challenge to staff who translate policy into business requirements and oversee the operation of the MMIS system and/or fiscal agent contractor. The key issues include:
Timing of the definition of business and system requirements-The environmental difficulties cited in Section 2, changes in state business objectives associated with a procurement, availability of staff, and lack of consensus within an agency can result in inadequate time to decide upon and document the business and system requirements for a procurement. When to perform the detailed requirements analysis is a subject of controversy: should it be completed before issuing the RFP or is it the responsibility of the new contractor? Should reengineering of the entire organization precede the definition of system requirements?
We recommend:
The time required to design a new system is long and costly; we recommend careful consideration of other alternatives prior to undertaking a "build" project.
To be successful, models and guidelines mentioned above need to be created through a consensus building process involving state, federal, and contractor participants.
Level of detail of the requirements in an RFP-State RFPs differ greatly in the amount of information provided to the bidders. There is no industry standard for the presentation of an MMIS business requirement. In some RFPs requirements are over-specified, too detailed, and too prescriptive. This discourages creativity. In others, the requirements are over-simplified, too open-ended. This leads to differences in assumptions among bidders, and scope creep and contract disputes after award.
Requirements should reflect the type of procurement. A takeover contract can point to the current operating system documentation; a transfer or build approach should focus on the outcomes desired, not on prescriptive directives. The bidder should be asked to explain how its system meets the business requirements stated in the RFP. The RFP should clearly communicate the business rules of the agency.
One suggestion to improve the communication of requirements is to develop model industry guidelines, with how-to examples, to illustrate appropriate level of detail, focusing on required functions and outcomes. This effort requires participation of all stakeholders: clients, payers, and vendors.
Methodology used to define requirements-The jury is still out on the best practices in defining the agency's business requirements. Many approaches are used, from traditional one-on-one interviews to full-blown business process reengineering and Joint Application Development. Contractors fear the "open-ended JAD" where new requirements can pop up after the start of a fixed-price contract. On the other hand, states want assurances that their business objectives are being met as opposed to the contractor's desire for implementation expediency and/or showcasing new technology. K
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The debate includes:
Scope of the requirements definition phase: how much to cover
Timing of the definition phase: should the RFP specify the system solutions desired, or is the burden placed on the bidder to explain how its system solution meets the state's business requirements?
Level of involvement: Agency-wide, top down from the Medicaid director to staff, or limited to a select group of technical and operational users
What specific information engineering methodology to use or which Computer Assisted Software Engineering (CASE) tool.
Roles and responsibilities-Who is responsible for the requirements? It is important to identify and involve all key stakeholders in the requirements definition process. An underlying assumption is that the client is responsible for defining clear business objectives and the contractor is responsible for informing the client how its system solution meets all the business requirements.
Pricing-Everything has a price tag. There is a direct correlation between requirements and cost.
Some examples of price-sensitive requirements issues are:
The experimentation in the '90s with new technology, new development methodologies, and new interfaces led us away from the security of the old ballpark figures and into a brave new world where there are no benchmarks. This is one reason why we are seeing considerable differences between bid prices especially for new components such as data warehouse and decision support applications. Section 7 of this paper looks in more detail at pricing issues and solutions.
In this section, we explore the evolving concept of a "virtual" MMIS versus an all-in-one, integrated package system; the question of whether to build, buy, or borrow part or all of an MMIS; the potential for a multi-state, shared MMIS; the role of proprietary software; and the merits of baseline versus customized systems.
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What is an MMIS?-Since the early '70s, the MMIS has been a model of required functions and data, even though from the beginning, there have never been two identical MMIS systems and each state's version of the system is constantly changing. Throughout it all, the MMIS has maintained a certain integrity due to the requirements of maintaining federal certification and financial participation.
From the tightly-knit package of six subsystems of the '70s, today's MMIS is becoming a "virtual" system, integrating claims processing, managed care functions, decision support, utilization management, and others function around a hub of eligibility, provider, rendered services, and reference databases.
Already many states have carved out functionality from the core MMIS and have engaged different contractors to support TPL recoveries, SURS utilization review, prior authorization, hospital admission approval, HMO choice and enrollment, data warehouse with information retrieval and decision support capability, pharmacy point of service processing, carve-out services, and eligibility verification.
These clusters of functions in today's MMIS applications continue to act as a whole through interfaces and integrated data repositories. An effective and affordable MMIS does not have to reside on one platform or be operated by one entity, but it must align with functions required by federal statute and the business needs desired by the user, must be manageable, and must be within the authorized or available purchasing budget.
Some implications of this emerging, multi-faceted MMIS are:
Build, buy, or borrow?-Whether a state operates a tightly-knit or multi-component MMIS, staff must periodically decide to upgrade or replace component parts. Some states have compelling reasons to undertake new system development projects. However, the price tag on new developments, and the alarming number of failures, indicate the need for caution in making the decision to build from scratch, purchase a propriety solution, transfer and modify another state's system, or takeover and modify the current system. Only adequate analysis and planning will prepare decision makers to make the right choices. Decisions should also be made during the planning stage regarding non-critical enhancements which could be deferred to a later date.
Degree of customization-The majority of systems design efforts in the Medicaid program are based on the premise that a baseline system will form the foundation of the desired system solution. Two common difficulties accompany the baseline system concept: the urge to ignore the base and develop a new capability (a tendency exhibited by both client and contractor); and the complexity of adding, bypassing, altering, and realigning logic in the core application.
Core functions in the MMIS are similar from state to state, but are never the same. Therefore, when one state decides to upgrade its MMIS by adopting another state's system, it must be prepared for a major effort to compare its business rules, functionality, and technical framework with that of the other state.
Some recommendations are:
capabilities
in meeting the requirement (this applies to new designs, transfers, and enhancements
or add-ons). We realize that this advice is easier said than done. Often there are extreme differences of opinion between client and contractor understanding of what is required. Ideally, the buyer has time to define the "must have" business requirements and to distinguish these from the "nice to have if we can afford it." However, political forces, legal decisions, or agency reorganizations can complicate the process of drawing the boundaries around the end-product. Improvement in communications and investment of time and resources are necessary to resolve this dilemma.
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How About a Regional or Multi-State MMIS?-A regional MMIS was first proposed in the '70s. Perhaps its day has come (there is already a contemporary example of a four-state regional pharmacy processing system).
A regional MMIS would significantly lower operating costs to each individual participating state, however, it would require adequate time and funding to establish the model, collect the different business rules from participating states, work through a process of consolidating and differentiating policies, and build a shared but partitioned data repository.
Despite the initial effort and investment, the potential rewards are many:
Proprietary software-At the opposite end of the spectrum from customization is the purchase of services from a vendor who uses proprietary software (a "black box" from the client's point of view) to perform the service. One reason the service oriented approach has not gained more acceptance from states may be related to restrictive state statues or the perception that HCFA objects to these licensing arrangements. There is also skepticism regarding the ability of over-the-counter system components purchased from the commercial health care market to adapt to the complexity of Medicaid business rules.
In the '70s and before states took advantage of 90 percent matching funds for development, there were some proprietary MMIS, and some carved out services such as pharmacy and dental programs. For many years, however, most states have favored ownership of public domain MMIS software. The advantages of ownership are seen as protecting continuity by allowing takeover contracts, control over processes and data, obtaining 90% FFP for development. However, there appears to be current interest in the concept of purchasing a service as opposed to a system. By purchasing a service, the client pays a license fee for the use of the software but has no direct expense for its maintenance or enhancement.
We are witnessing a changing Medicaid systems environment. Perhaps we need to collectively revisit the concept of the MMIS and work together to define a Medicaid Information System concept for the 21st century.
We devote a section of this paper to technology because of its major impact on the procurement process and system costs. We live in an age of continuous technological breakthroughs. Advances in technology create some of the most daunting environmental forces confronted by MMIS developers, operators, and users. It is very difficult for either state or contractor staff to keep up with the almost daily new and enhanced product announcements, let alone assess their merit in a particular MMIS installation. There is great risk, as well as potential reward, in being a leader in technological solutions. There is also risk in waiting too long to adopt new technology.
The following are some basic observations about the 25 year old model MMIS as it faces a rite of passage into the 21st century:
Many legacy systems have kept up with the times-There is no vintage MMIS still operating which is unchanged since its installation a quarter of a century ago. The legacy system has received many facelifts in the form of EVS, AVRS, and POS interfaces, addition of decision support and data warehouse capability, imaging, and on-line inquiries and report viewing. We caution against abandoning tried and true functionality. On the other hand, it is important to know when there is a better approach or use of new hardware, software, and communications technology which can greatly enhance performance, outcomes, and costs. There is also a time when continued patchwork becomes painfully inefficient or fragile.
Technology impact -Use of contemporary or just-introduced technology can yield leading edge or bleeding edge results. Similarly, technology can be a tremendous enabler or disabler.
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Conversely, to ignore proven, efficient technology capabilities is tantamount to relying on a typewriter when word processing is available. One of the most critical factors in assessing appropriateness is the determination of the likelihood that skilled users of the technology will be available to effectively implement it. A chain saw is a very efficient tool when used by a skilled lumberjack, but rather dangerous when handled by a youngster. Technology is the same. It must be used smartly to be of value.
Sheepherders vs. cattlemen-There is an on-going tug of war between the proponents of the mainframe and the advocates of desktop computing. Recent experiments in client/server technology have yielded both promising and disappointing results. The old reliable black box does continue to get the transaction processing tasks done accurately, timely, and without fail. But the LAN/PC environment offers superior, faster, and user-friendly access to data for analysis. The wisdom of the day seems to be to make use of the platform and technology most appropriate to the function, and continue to blend the old with the new until an all-in-one platform is invented.
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Technology is a set of tools; how do you choose the right ones?-The education and skill level of state and vendor staff are key to making these decisions. There may be mandates and imperatives to modernize now. The cost of deferring modernization can be difficult to overcome. Another key factor is that even after the right tool is selected, it still has to be properly installed and individuals must be well trained in its use and maintenance. A good design and technical approach can still be undermined by inexperienced implementers.
With intense competitive pressures at work within the health care industry, information technology is forcing health care payers, providers, and supporting players to become more efficient and improve the quality of service. Because this is a phenomenon that is at work across the industry, new resources are being invested in product development and standardization of communications. These factors all add fuel to the technology race.
Year 2000 and beyond-The clock is ticking! Besides the obvious imperative to get the job done and tested before the stroke of midnight of the Millennium year, there is an added stress for technical managers of MMIS systems. The MMIS is a moving target. System maintenance is continuous. Y2K plans must be realistic and unobtrusive to enable ongoing changes to program logic to occur without impeding or interfering with Y2K progress. And, as if the Year 2000 were not enough, we now have a new set of massive changes invoked by the Balanced Budget Act, i.e., the national provider identifier (NPI) and encounter data collection will be required by dates perilously close to Y2K, followed by expansions of diagnosis and procedure codes. We are talking about reworking hundreds of thousands of lines of code in every state.
Examples of good practices in technology selection include:
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States can benefit from information exchanges of what is working and what is not on all of these different technical fronts. In addition, we advise all parties to budget staff time to keep pace with the major technological developments. This includes investment in professional training (courses and expositions abound). Publications in major fields of technology (data warehouse, EDI, client/server, et al) are important resources as well as subscriptions to Internet technology update services. Client and contractor staffs need training and exposure. Many advances in technology benefit the Medicaid program, but it is difficult to keep up with the pace of development.
Some additional advice to consider in planning technology-driven projects is:
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The prudence of "wait and see" at the edge of the information highway is giving way to a new imperative to modernize now or face the risk of being unable to keep up with the demands and changes in the Medicaid program. Competition for resources will continue to intensify as more of the risk of social programs is shifted to the states. As in any industry, those who fall behind may find that the cost of deferred modernization is so steep that recovery becomes unaffordable, leaving the viability of health programs at risk.
The importance of having the right people at the right time in a MMIS project cannot be overstated. States and vendors alike face adverse consequences when the skills and vision of the people on the project do not match what is required. The choice of technologies must always be tempered by an objective determination of the skills of the people who need to make it work.
Previously discussed issues re definition of business and system requirements, use of technology, and pricing all have an impact on the procurement process. In addition, there are some important issues which are associated specifically with the procurement process. Both states and vendors have a vested interest in assuring a fair and competitive process. States have an obligation to their citizens and the federal government to run a fair procurement, and vendors want to know they are competing on a level playing field. In spite of everyone's best efforts, the procurement process has developed into one that is intensely procedural. The net results to states in some recent procurements are too few bidders, delivering systems that fall short of expectations, and/or which cost more than states want to pay.
Some of the conditions contributing to the problem are:
Too little time to conduct a satisfactory procurement-A HCFA Regional Office VII survey of 26 states showed that the amount of time devoted to developing the RFP varies widely. In general, the time appears to be too short to allow for adequate clarification of project scope and development of realistic cost expectations by the state. We encourage the stakeholders to come to a consensus on guidelines for adequate time to complete the type of procurement envisioned (i.e., takeover, major enhancements, new technology-all suggest different timelines).
Timing of the RFPs-The vendor community does not have the capacity to generate multiple proposals at the same time nor, more importantly, to support multiple, concurrent implementations. Some states are disadvantaged when their procurement schedule and implementation plan compete with other states'. It would help if we had a central clearing house with a 24-36 month horizon showing future procurement schedules. It would be better for all players if RFP and implementation dates could be staggered. A regional MMIS is another way of reducing the burden on individual states and contractors.
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Insufficient opportunities to share ideas-Vendors need to meet with states prior to APD/RFP release to gain better understanding of what is requested and desired. States are sometimes unwilling to share information ahead of time, a procurement climate is not conducive to open dialogues, and some may claim that unfair competitive advantage is given to one firm over another. We feel that better exchange of user objectives and vendor solutions will be a major improvement to the procurement process. Such communication will help states to share their vision of business objectives to be supported by the MMIS and benefit from feedback from vendors. When APDs and RFPs are vague and incomplete, bidders will interpret and price requirements differently, or not participate.
Breathe new life into the APD-The APD has degraded into a perfunctory hurdle to be cleared en route to receiving federal matching funds. This is very unfortunate because the APD process offers a great opportunity to tease out issues and clearly develop expectations. However, we recognize that in some cases it is important for the state to obtain federal approval for funding based on general design plans, without locking the agency into a direction which is still being debated, in order not to delay what may already be a two to three year undertaking.
Some suggestions for elevating the usefulness of the APD are:
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There is no substitute for clearly defined business requirements-Here are some guidelines:
Ts and Cs and LDs-Terms and Conditions and Liquidated Damages clauses appear onerous to many contractors. Open-ended liabilities (e.g., requirements that the MMIS meet all future state and federal mandates at no additional cost) discourage all but the most entrenched bidders. At the same time, states believe that these contract clauses are their best defense against non-performing contractors. This is a highly controversial area. Our recommendations for improvement include:
Share the characteristics the state is seeking in its selection of a contractor-It is important for the bidder to understand the state's priorities and the features the state is seeking in the selected vendor. Otherwise, it is difficult for vendors to see the value in bidding. The actual evaluation process must be completely protected by the state, however, the state will benefit by increase in qualified bidders who perceive that the state is interested in them.
RFP complexity and proposal effort-RFPs vary considerably in the requirements for the technical response. There should be a sound business reason behind all proposal requirements. We also suggest that some national, industry-wide guidelines could be established regarding the structure and presentation of the RFP and the requirements for the response from vendors.
Unreasonable demands for resources on-site-By requiring key, named individuals and a guaranteed number of technical staff, the RFP may favor the incumbent. Rather than being prescriptive, we suggest outcome-oriented performance criteria which the contractor must demonstrate. This would still allow for the top positions to be named.
Again, open communication is essential to improving the environment in which states procure new systems or obtain system enhancements.
Business and systems requirements definition and technology decisions can roll up into significant pricing issues. In the '80s vendors frequently bid with only pennies separating their cost proposals because the demands of the legacy MMIS system were well known, enhancements were anticipated, and some sturdy MMIS were successfully transferred from one state to another. States benefited from the healthy competition.
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Contractors benefited from the known quantities and lower risks. In today's procurements, many states face sticker shock when their expectations regarding bid prices are far lower than the bids received. At the same time, contractors have not faired well in their ability to assess the cost of new technologies and methodologies.
Key conditions responsible for driving up prices include:
Any of these conditions can result in increased costs to contractor, state, or both; and increased risk for disputes and litigation. At the same time, we note that higher costs to implement new technology could result in future savings through increased automation and efficiency.
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Below we discuss some of these price drivers:
Relationship between JAD sessions and project costs-Joint Application Development approach can drive the costs up if it is used as the vehicle for defining or expanding requirements after the contractor is awarded a fixed price contract.
A collaborative requirements analysis phase is a necessary beginning to every systems design project. However, if the JAD phase is used as an opportunity to clarify vague requirements in the RFP or to add significant new ones, there should be a reasonable mechanism for contractor compensation to accommodate the expanded scope of work. For example, bidders could be asked to bid a fixed price for a specific number of hours of JAD sessions, and a rate per hour for sessions exceeding the cap or for sessions addressing new requirements. Or the contractor can be asked to bid a fixed price for the requirements definition and then be able to adjust the price quoted for implementation if there are significant changes over the original scope of the design as presented in the RFP.
Some states have tried the two step procurement: a preliminary RFP to develop the requirements, followed by the MMIS development and implementation RFP. However, disputes can arise when the implementer is different from the design contractor and finds faults with the blue prints.
The above ideas have their pros and cons, and there may not be one best solution. We encourage discussion regarding how to ensure the state gets the system it needs and the contractor is fairly reimbursed.
Additional ideas are:
Fixed prices for unclear or unstable scope of work-Fixed price bids for development costs, sometimes with a payment ceiling coupled with a fixed fee per processed claim, and combined with unclear requirements, lead to high risk for the contractor.
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Some alternatives for reimbursing development include:
These reimbursement mechanisms have been used successfully for other state and federal procurements. On the other hand, states are concerned about managing the budget for an open-ended system development project.
Reimbursement strategies for the operational phase-The traditional fixed payment per claim or claim line is no longer viable as the single basis of contractor payment in states with capitated contracts, multiple contractors, significant EDI, new interfaces, and innovative technologies. One new model envisions a combination of monthly administrative fee covering core operations and a variable per member per month fee based on the mix of fee-for-service beneficiaries and managed care enrollees. Both the core and variable components are adjusted for volume.
HCFA policy already allows states to offer alternatives such as a basic fee per month based on a combination of price per adjudicated claim, encounter transaction, and member month. Other reimbursement methods include sharing in the savings realized from cost containment initiatives and improved system and services.
Sticker shock -Sticker shock is a new phenomenon and there are different perspectives on its cause. Contractors may feel that states are often not prepared for the implementation and/or operating expenses associated with the technology they are requesting.
Alternatives to reduce costs include:
In many cases, states are basing their procurement estimates on the prices bid in other state procurements, as opposed to the actual costs to implement the requirements and specifications in those states. The price tags are further driven up when contractors feel compelled to cover the risks of bidding a fixed price on undefined or unclear requirements. The states' perspective, on the other hand, may be that contractors are contributing to the upward swing by lack of familiarity with the technology proposed, use of inexperienced or costly subcontractor staff, and the shrinking of the competitive field.
One suggestion to avoid sticker shock is for states to meet with a broad range of vendors prior to submission of the APD to validate assumptions regarding the feasibility, availability, and cost of acquisition of the desired services and technology. This would reduce the problem of finding out at the end of the bidding process that the desired technology is too costly or that no bidder has proposed the desired solution.
Evolution from legacy to new systems-In the '80s the MMIS of the day provided a more stable and predictable base for pricing. New technology and new program demands introduce higher risk. To reduce the increase in cost for desired new technology, we suggest states allow contractors to bid-without limitations-the system components that most effectively satisfy RFP requirements. This feature will allow vendors to bid proven technology for functions where that is the best solution and new technology or proprietary software for the newer functionality, e.g., managed care operations and information retrieval. At the same time, contractors can use but retain their rights to technology that has cost millions of dollars to develop for commercial applications.
Must all systems be so highly customized?-With Welfare Reform, new managed care initiatives, and technology upgrades, customization is on the rise. Customization has a direct relationship with pricing increases. Recent experience has shown that even transfers of systems from one state to another are increasingly more expensive and risky. Many RFPs require the transfer of a certified or certifiable system in order to reduce costs and risks, however, due to the major modifications that many states are requiring, states are losing the price and risk reduction benefits that should be expected from a system transfer.
Some solutions to over-customization are:
Longer development time associated with technology drives up the cost ("Time Equals Money") Newer, more complex technology requires longer periods of time to implement. Although standard mainframe MMIS systems can be implemented in 12 months, more recent (and more complex) implementations have required 18 to 24 months or more. Such projects require experienced planning and oversight in order to achieve the benefit presumably associated with the longer and more costly development phase.
Considerations include:
Pricing and payment issues are obviously very controversial. More discussion is needed to explore fair-play alternatives to current contractor payment approaches, especially in regards to design and development projects.
Given the high cost of law suits and settlements and the losses suffered by a state when an MMIS development project is frozen due to disputes, the relatively minor investment in dispute resolution, promises to yield huge savings in time and money.
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The past several years have witnessed increasing difficulty in the relationship between vendors and states in the development and implementation of Medicaid information systems. At the present time, lawsuits have been brought, contracts have been prematurely terminated, some vendors have retreated from the market, and there is a general sense that the relationship between the states and vendors is becoming more and more strained. The present perception is that on-time, within-budget, good and smooth functioning relationships are fast becoming the exception, while expensive and disruptive disputes are becoming far more common. In this section, we examine pathways to preventing disputes from occurring in the first place, and resolving them as quickly and painlessly as possible if they do occur.
The problem-Present technology, which has served so well for the past twenty years, is becoming stretched to its limit and in many states is outmoded in terms of hardware, software, and fundamental structure and design. The challenge is how to respond in a manner that will address these problems and demands productively, in a win-win situation, instead of in a manner calculated to result in disputes, liquidated damages, and lawsuits. In recent years a serious gap has developed between the hopes and expectations of those who are requesting and paying for new systems, and the promise and delivery of those who are supposed to design and build them.
As discussed in Section 6, the present procurement process takes place largely in a vacuum and that often leads to trouble. As a result, an entire process can go forward, involving the expenditure and commitment of many millions of dollars, without addressing the true needs of the client, the feasibility of the enterprise, and the alternatives for meeting the requirements. By the time the problems are discussed, it is often in the context of unmet deadlines, liquidated damages, and steps designed to escalate, rather than to prevent, mediate, or moderate dispute.
Some suggested process changes-One of the best ways to prevent disputes from occurring is to bring hope, promise, expectation, and delivery back into synchronization. The following are some suggestions:
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Disputes: a lose-lose proposition-Most disputes have their roots in a failure of communication at critical junctures. While the causes for disputes are many and diverse, the present system seems to have no organized way for the parties to step back, take a deep breath, and try to understand the other party's position. There even may be some built-in processes guaranteed to exacerbate dispute such as invoking Terms and Conditions and Liquidated Damages which are the first line of defense in many state contracts. The state feels these conditions are necessary to protect the public trust; the contractors see them as obstacles to participation in a contract, and when relations are deteriorating, as salt in the wound.
In addition, when millions of dollars are suddenly up for grabs, that is the point where the lawyers are usually called, and lawyers are often simply not trained to resolve or ameliorate a dispute, but are rather trained to go on the attack. Often, in good faith, an intensely adversary process has been created, which will be resolved only by bitter settlement or in court-truly a lose-lose process for everyone involved.
Resolving disputes that do occur-Even in situations where the process has resulted in a serious disagreement, that dispute if properly handled, can be resolved, and this can be done in a way that is win-win, rather than win-lose or as is most often the case, lose-lose. Most importantly, there has to be a process which is created where people are still listening to one another, positions have not hardened, and egos and careers are not yet on the line.
There are many very good reasons why it is a lose-lose proposition to escalate dispute. Lawsuits are very expensive and aggravating, and clear victory takes years, and can always be appealed. Consideration should be given to building effective dispute prevention/resolution components into RFPs and resulting contracts. We need to build in escape hatches that let fresh air in instead of flashing signs that say in one form or another "abandon ship." Identifying in advance individuals, companies, or resources that could assist in de-escalating disputes could be most useful.
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When the state's expectations and the contractor's view of the requirements differ to an extreme degree, the best thing to do is to put the issues on the table, with a person or process that can help mediate the dispute. It is possible to bring hope and expectation into concordance with promise and delivery, virtually at any time in the process.
There are a number of specific recommendations by those who have studied and written on the process of negotiation. Roger Fisher (Getting to Yes) recommends not engaging in positional bargaining, i.e., do not negotiate over a fixed position, because your position, or that of the other party, or both of you, may, in fact, be wrong. It is far better to utilize what he calls principled negotiation, which is understanding your basic principles and sticking with them, rather than taking a position in the bargaining that may be rigid and fixed and a long way off the mark from your underlying principles, and from the root cause of the dispute.
Fisher also suggests separating the people from the problem, which is another way of saying that it is often useful to get some new people into the mix to try to heal the personality and ego problems which inevitably accompany a serious dispute. It is helpful for both parties to articulate clearly just what outcome each party is seeking. A skilled negotiator or mediator ought to be able to assist the parties in assessing whether or not the relationship is reparable. It is almost always preferable to rescue a relationship and move forward, rather than terminate and begin all over again.
Lawyers are increasingly aware of the benefits to their clients of preventing and resolving disputes. It is essential that the mediator work closely with the lawyers on both sides, keep them informed, and gain their trust that the legal rights of neither party will be infringed by the attempt at resolution. It is often helpful to frame these discussions as "settlement negotiations only" and stipulate that nothing that goes on during this process will be used against either party if litigation does result.
"A good settlement is when both parties are equally unhappy"This is particularly true in situations where the relationship cannot be repaired and both parties must move on. If the relationship can be saved, it can become better than it ever was, and a win-win result is truly possible. For this reason it is extremely helpful to both avoid doing the same annoying things over and over, and also to document with reasonable precision the progress being made during dispute resolution negotiation.
Conclusion-Prevention and resolution of dispute is clearly possible and holds great reward for all involved. It is actually possible to prevent dispute by taking a careful look at the entire procurement, development, and implementation process and making changes which will bring people together instead of driving them apart. There are ways to lay out the fundamental issues and see if in fact there can be a reasonable accommodation to what is promised, hoped, expected and delivered. And even within the existing processes, there is always a way to work things out.
When it comes to responding to the challenges of new systems, the next generation of technology, and the next twenty years, we need to raise the level of the debate, pursue excellence and new knowledge individually and cooperatively. These are challenging times, there is much work to be done, and there is a path to the next generation of tools and systems which can be paved with major success instead of littered with bitter dispute.
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As described earlier, we believe the ideas discussed in this paper are "works in progress" that require better communication, cooperation and, in some cases, collaboration by key stakeholders, states, HCFA, and the vendor community, to address the challenges and opportunities of the 21st century. In the spirit of an improved partnership involving all parties, we offer the following specific suggested next steps:
HCFA could make a valuable contribution by playing a more active role in facilitating improved communication and education among all parties. (For the results of a survey of HCFA regional offices undertaken to obtain background information for this paper, please visit the PS-TG web site, at www.PS-TG.org, for the text entitled "HCFA's Role".) Specifically, we recommend that HCFA:
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Editorial Panel: |
Contributors
Other Contributors: Lynnette Cromer, Envoy and Mike Schell, GTE
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| Arthur McKay, Co-Chair
Consultec 770/594-7799, ext. 703 fax (770/552-6919) e-mail at amckay@consultec-inc.com |
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| Advisor Rick Friedman, State Systems, HCFA |
Authors of Supporting Texts Available
at www.PS-TG.org
Business Requirements Analysis
Barbera Bridgewater, FourThought
Technology
Ed Butler, VISCorp
System Design
Ward Becker
Pricing
Terri Brown
Procurement
Blaise Conwell, Imaging Automation
HCFA's Role
Ron Ayres
Preventing and Resolving Disputes Neil Chayet