Las Vegas Sun

July 16, 2018

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Nevada, Xerox in private talks to settle $75 million health care contract out of court

After firing Xerox for major flaws with its health insurance software, Nevada’s leaders are in confidential talks with the tech company to close out the $75 million contract and keep the dispute out of court.

The Silver State Exchange, the agency in charge of the software, hired Xerox in 2012 on a three-year contract. The company's job was to build software to accept online applications and payments from consumers buying from Nevada's health insurance marketplace under the federal Affordable Care Act.

The state launched the software a year ago today. But it never worked correctly. An audit found 1,500 glitches and consumers complained they paid for insurance but got nothing in return.

Under the original contract, the state was scheduled to pay Xerox $22 million by now. But the state has paid only $12.3 million.

Xerox has filed invoices, or requests for payment, for an additional $4.4 million this year. Requests for about one-quarter of that money came after the state fired Xerox in May, according to documents obtained by the Sun through a request under Nevada public records law.

That money hasn't been paid, and it's unclear why.

That leaves a balance of about $5.3 million on the $22 million schedule. The state either refused to pay or Xerox never asked for that money, said Shawna DeRousse, chief operating officer of the exchange.

The jobs that the company hasn't been paid for line up with problems highlighted by audits and consumers' complaints, including the payment system.

“There are still deliverables that we have not accepted,” DeRousse said

Nevada and Xerox have so far decided to resolve their disputes quietly, in private and out of court.

Officials at the state and Xerox declined to disclose details of their negotiations.

The Nevada attorney general also refused the Sun's request under the state's public records law to disclose all of Xerox's billings and invoices.

Normally, records about state spending are quickly disclosed. But in a letter, Deputy Attorney General Dennis Belcourt said public interest in keeping some of the state’s financial records private outweighed the public benefit in making them public.

Privacy, said state spokesman Tyler Klimas, offers “the best outcome and benefit for Nevadans.”

In addition to its state contract talks, Xerox faces two class-action lawsuits because of the exchange's failures. Around 150 consumers representing the class said they paid Xerox for health insurance but didn’t receive it. Insurance brokers also sued to recover fees they said they never received through the system.

Nevada and the nation

Nevada lawmakers and Gov. Brian Sandoval created the Silver State Exchange in 2011 to comply with the Affordable Care Act. Nevada was one of 17 states — and the only one with a Republican governor — to build a state-run system.

The state predicted 118,000 people would buy health insurance plans through the exchange. But only an estimated 38,000 people signed up. Because the software was so flawed, all of those people must re-enroll again this fall through the federal government's online software system.

Nevada is one of four states to scrap exchanges built for the 2013-2014 enrollment period. Maryland, Massachusetts and Oregon are the others.

Not all states and software companies have been so private about their breakups.

In Oregon, software giant Oracle sued the state in August in federal court and demanded $23 million. The state then sued Oracle in state court and accused the company of wire fraud.

In Nevada, both sides say the talks have been amicable.

Xerox has a reason to keep the break up graceful. The company, which hopes to continue expanding from copier company to software contractor, has ongoing business in Nevada and in the health care industry.

Its health care division serves 36 million people in 37 states, including Affordable Care Act software in Kentucky, Connecticut and Virginia. Xerox also recently won a $500 million contract in New York to build Medicaid software.

Despite its health exchange problems, Xerox salvaged other contracts in Nevada.

Sandoval briefly held up two Xerox contracts worth $7.8 million for work with the state Treasurer's Office. The contracts had no relation to the health care exchange, but Sandoval wanted to make sure the problems wouldn't be repeated.

Xerox also has a long history of providing copiers and scanners to state offices.

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