Leasing has overhauled the automobile industry in the past decade for both manufacturers and consumers. In exchange for never completely paying off a car -- thereby providing car-makers with a steady flow of lease payments -- consumers avoid the headache of major maintenance costs.

West Virginia will avoid its own headache by outsourcing claims processing for its health-care programs and avoiding future maintenance costs for the life of the contract.

In April 2003, the state's Bureau for Medical Services, located within the Department of Health and Human Resources, signed an eight-year, $61 million contract with Unisys Corp., under which Unisys will serve as the state's fiscal Medicaid agent, in addition to handling administrative duties for other state health-care programs.

By abandoning its legacy system -- a Medicaid Management Information System (MMIS) purchased from First Health and modified by the Bureau for Medical Services -- the state will avoid the Y2K-like overhaul needed to comply with the Health Insurance Portability and Accountability Act of 1996 (HIPAA), a multiphase law designed to increase the security, privacy and accessibility of electronic health-care transactions.

Programmers on the Bureau for Medical Services staff modified the old system based on their own designs, in addition to using features developed by New Mexico and other states. All of these designs are public domain materials because the federal government has reimbursed 90 percent of the development and programming costs. Any state can borrow such programs from any other.

A HIPAA gap analysis performed by Affiliated Computer Services (ACS), the state's Medicaid claims processor through January 2004, placed a $20 million price tag on upgrading the legacy system.

"We'd had the same fiscal agent for 10 years, so by federal regulations, we had to rebid these contracts," said Pat Miller, acting director of the Office of Administration and Claims Processing for the Bureau for Medical Services. "For us, it was a better choice not to upgrade the MMIS and do it as part of our RFP."

New Benefits

To fulfill its contract with the state -- which involves processing claims submitted by approximately 11,000 health-care providers who serve nearly 300,000 state beneficiaries -- Unisys will deploy its custom-designed claims processing system, the Healthcare Payer Administrative Solution (Health PAS). Unisys representatives claim Health PAS will provide cost savings both now and in years ahead.

"Our application does not run on a mainframe, unlike the current legacy application, so the cost of operation is significantly less, from a hardware standpoint and within the licensed software environment," said John Singleton, director of market management for Unisys Health Information Management (HIM).

In addition to lowering operating costs by $1.5 million annually, Health PAS will allow the Bureau for Medical Services to eliminate most of its programming costs.

"The current legacy MMIS uses all COBOL programming," Miller said. "Unisys uses a relational database, so you can change a parameter to change the reports available."

Because of its relational database and table-driven engine, Unisys said Health PAS offers the West Virginia Legislature opportunities for belt-tightening that weren't previously possible.

"Within the Medicaid space, the No. 1 thing states are concerned about, with some even putting it in their RFIs, is the difficulty of putting changes into their systems when they need them," said Paul Kruelle, vice president and general manager of Unisys HIM. "Often the legislature will want to change its health-care system for reasons of cost. Particularly now, with most states having budget problems, they're looking for ways to do business a bit differently and save some money."

Health PAS will allow West Virginia to easily adjust the benefits provided to different beneficiary populations, if such a move is required for budgetary reasons.

"You can change the copay structure, restrict certain benefits, or limit the number of services per year," said Kruelle, noting that this flexibility allows the state to escape paying extra to make such changes.

Additional improvements over West Virginia's MMIS include automation of certain work functions and real-time processing of claims, which replace the daily or weekly batch cycle used by mainframe applications.

Finally Unisys will create and manage a secure Web portal that will allow providers to submit claims electronically and give beneficiaries access to their health-care information.

"Currently we do most everything by paper mailings," Miller said. "Basically the recipient interfaces with the county worker, but as people become more Net proficient, with the Unisys system they'll be able to see information related to their claims online that they currently don't have access to."

Weighing the Options

Though the legacy system might have been dated, when the Unisys contract ends the state will have no system at all to fall back on.

"You do have concerns in that respect," said Miller, for whom it makes more sense to go to one of four major Medicaid vendors available in a competitive market -- even a system that's on lease -- rather than fund improvements of a limited use mainframe system.

West Virginia's contract with Unisys consists of a four-year base period and four one-year options. To determine whether to renew the contract, the state will use a fiscal agent monitor to examine whether claims are processed promptly, and procedures for communication with providers and recipients are met. The Bureau for Medical Services also employs a quality assurance unit that samples claims at random to verify their accuracy.

For its part, Unisys said it plans to create an online report card for Health PAS that will be available through the intranet between the company and the state.

"We'll establish goals for a large number of metrics -- such as number of claims processed by the next day, number in inventory and a data entry inventory -- and we'll update our report card daily, weekly and monthly, so the state always has visibility into our performance," Kruelle said.

Managing HIPAA Costs

Just as those who lease autos avoid major expenses such as engine replacement, West Virginia won't need to fund future updates to Health PAS.

"With the public domain system of the past, the state must fund whatever development it wants," said Singleton. "Now, it's incumbent upon us as the license holder to keep the application as robust and current as possible because we're continuing to sell it to other players in the market. The state gets technological currency, which should save them money in the outer years [of the contract]."

The U.S. General Accounting Office has estimated that up to $45 billion will be spent on overall HIPAA compliance, which makes West Virginia's contract a small drop in a very large bucket -- especially when taking into consideration the contract covers far more than just HIPAA.

Still Kruelle said just as the need for HIPAA compliance spurred West Virginia into outsourcing nearly all its health-care claims processing, HIPAA has generated an epidemic of RFPs from other states that outsource their health-care applications.

"You're not seeing a lot of people outsourcing who didn't already do so," he said, adding that the states outsourcing are looking for funding to upgrade their current systems.

Kentucky, for example, recently amended its contract with Unisys to install Health PAS and comply with HIPAA. With Congress still working out the details of some elements of HIPAA, it's too early to tally up the final bill just yet, but West Virginia's Department of Health and Human Resources can rest easy knowing its costs are set -- for the next eight years at least.