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Smaller companies seize opportunities in Iowa Medicaid project


A storefront where South Siders once bought groceries now houses a program that promises to bring better health care to low-income residents statewide. It’s also home to seven companies eager to prove a new public-private model for providing services to the state’s 300,000 Medicaid enrollees.

On July 1, the Iowa Department of Human Services launched its Iowa Medicaid Enterprise inside the former Albertson’s supermarket at 100 Army Post Road. The 50,000-square-foot building was completely renovated last year to house all of Iowa’s Medicaid program administration under one roof. The new venture also marks a shift from one company performing much of the operations from outside the state to a combination of vendors that independently bid for nine components of the project, each of which must be performed at the Des Moines center.

The “best-of-breed” arrangement is creating new opportunities for a wider variety of companies, from both inside and outside the state, to do business and find new clients within Iowa, said Kevin Concannon, director of the Iowa Department of Human Services. A total of 23 companies bid for the nine contracts.

“When we let these contracts a year ago, we made a condition that the people be here in Des Moines,” said Concannon, who with Gov. Tom Vilsack on July 12 presided at a ceremony marking the launch of the new center. For the past eight years, Affiliated Computer Services Inc., a Texas-based company, had the entire state Medicaid contract but provided many of the services at centers outside Iowa, Concannon said.

“We hope this can be a model for the rest of the country,” he said. “Most states contract with just one of a handful of large companies. With this approach, you can be more nimble to adjust to changing issues.”

Legislative leaders, however, acknowledged that the concept is a “work in progress” and that adjustments to the program may be needed when the General Assembly reconvenes in January.

The Iowa Foundation for Medical Care, a non-profit medical information management company based in West Des Moines, was awarded two of the initial one-year contracts that began this month: a $2.2 million professional services contract to provide medical care assessment services and a $1.8 million pharmacy services contract.

Fargo-based Noridian Administrative Services LLC, a subsidiary of Noridian Mutual Insurance Co., will handle the largest single component of the work, with a $7.2 million annual claims processing contract. Several other out-of-state companies, with headquarters in New York, Colorado and Indiana, have also established operations at the center.

The healthcare industry is closely following Iowa’s approach, said Dayakar Veerlapati, president and CEO of S2Tech. The company, based near St. Louis, is working with both ACS and its successor, Noridian, to assist them in the transfer of the claims processing functions.

“Iowa did a very innovative arrangement compared to other states,” Veerlapati said. “People are closely watching how that’s going to shape up.” From his and other vendors’ perspectives, the national attention means companies are particularly motivated to perform well and possibly win other states’ business if they adopt this model.

“We’ve worked in 14 other states,” said Veerlapati, who launched his company in 1997 to deal with Y2K issues and has since expanded into software support for health care and other industries. “What we’ve seen in Iowa is that the vendors are much more eager to work with clients.”

With approximately $2 billion paid out annually in provider reimbursements, Medicaid is Iowa’s largest state program, serving approximately 10,000 Medicaid providers who care for more than 10 percent of the state’s residents. It’s a cost that officials are eager to attempt to trim through more efficient use of funds and cost-saving programs. Concannon said he believes the new contracting approach will reduce administrative costs, which have averaged $20 million per year under the previous all-in-one contract.

“We expect that over the life of the five-year contract it will definitely save money by the effect on quality,” he said, noting that the new contracts have tougher performance measures than those with ACS. “The only way to save money in health care is through better quality.”

The center’s start-up coincides with the launch of Iowa Cares, a program designed to enroll 100,000 additional low-income Iowans in a Medicaid expansion program that will require participants to pay monthly premiums based on their income levels. The program provides a way for non-disabled, low-income couples with no children or single adults who are ineligible for Medicaid to receive assistance in paying for care.

In less than two weeks, more than 1,000 residents have already signed up for Iowa Cares, Vilsack said.

“If we were in Missouri, we’d be talking about $350,000 in cuts to the state’s Medicaid program,” Vilsack said. “In Tennessee, we’d be talking about over 300,000 people removed from their program. Here in this state, we’re talking about more coverage for people. We’re not talking about cutting; we’re talking about expanding.”

Other initiatives that will be tested through Iowa Cares, Concannon said, include programs to introduce electronic medical records for Medicaid patients; provide more Medicaid-paid home care rather than nursing home care; provide financial incentives for Medicaid providers that adopt best practices for care; provide regular dental care for all children with the Medicaid program; and provide medical assessments of developmentally disabled Medicaid recipients to pinpoint undiagnosed health problems.

The Iowa Cares program was made possible from $32 million in federal funds released to the state by the federal government, in exchange for Iowa’s pledge that it would end the practice of using “recycled” federal funds to pay the state’s 10 percent share of Medicaid costs, Concannon said. “After a year of negotiations, we said, ‘We will end this practice if you will allow us to begin practices that will allow us to save money.’”


A Missouri-based company that provides software services for the Iowa Medicaid Enterprise uses an innovative approach to 24-7 support: Have programmers on call in India to respond to early-morning emergencies or to perform quick-turnaround projects overnight.

This outsourcing approach, which its contract with Iowa prohibits it from using, is one that few states it does business with will allow, said Dayakar Veerlapati, president and CEO of S2Tech.

“Also, the states that allow it, they don’t want to talk about it,” said Veerlapati, who said he has signed non-disclosure agreements that prevent him from listing the states that permit the outsourcing. “But in the business world, there are no constraints, and they are doing it,” he said. “If it makes business sense, let’s do it, they say. There’s no inhibition there.”

About one-third of Veerlapati’s 150 employees work in India, while the remainder are employed at contract sites in the United States. “I think we are doing about 90 percent of the work here and 10 percent in India,” he said.”It’s almost like Federal Express. We can get critical and time-sensitive requests done in India.”

Veerlapati said his company, whose clients include Accenture Ltd., Verizon Wireless and Sallie Mae, hopes to add clients in Greater Des Moines, particularly insurance companies. Though S2Tech achieves up to 50 percent cost savings now because of the programming performed in India, that advantage is shrinking each year as wages increase in that country.

“How long they would save that, I can count on one hand, because wages are going up 30 percent each year in India,” he said. “It’s ultimately going to be the convenience factor and speed that’s going to make the difference.”

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