California's Department of Health Care Services awarded IT outsourcing firm ACS, Inc. a $1.6 billion, 10-year contract to provide complete financial management services for Medi-Cal, which pays health benefits for 7 million Medicaid recipients served by more than 80,000 health care providers in the state.

Under the deal, Xerox Inc.-owned ACS will replace California's 1970s-era Medicaid Management Information System (MMIS) with the firm's Health Enterprise system.

"This is huge, obviously, because it's the largest MMIS contract in the country," said John Crysler, ACS's executive director for the Medi-Cal project. "Procurement for this went on for two-and-a-half years and involved two draft RFPs, and our proposal was in excess of 10,000 pages. It was a very rigorous process."

ACS will take over from HP Enterprise Services, the incumbent (then operating as EDS) on the contract for 23 years. HP also bid on the new contract. Chrysler noted that ACS, HP and Medi-Cal will work together for the next nine months to ensure a smooth transition.

In February 2011, ACS will officially start providing "fiscal intermediary services" for Medi-Cal, including claims processing, provider training, beneficiary customer services and fraud and abuse detection.

IBM and CGI will provide technology assistance as subcontractors to ACS on the contract.

Beginning in 2015, ACS will start migrating operations from the existing MMIS mainframe to the Health Enterprise system, a project that will take place over four years and four phases Crysler noted.

Medi-Cal decided on a phased approach and a longer implementation period after reviewing and visiting other states that have gone through a MMIS modernization.

MMIS modernization projects are extremely complicated and a growing number of states have endured budget and schedule overruns and, in the case of Nebraska, outright failure. ACS itself is currently off track in New Hampshire and North Dakota, two of three other states that have purchased the Health Enterprise systems.

The Medi-Cal contract calls for "a much longer period of time for implementation than you see in typical RFPs, which are often required to be completed in just two or three years," Crysler said. "This is something that you'd want to do very carefully, very precisely and in a way so there's no disruption in the transition from the legacy system to the new system."

The Health Enterprise solution, which is also being installed in Alaska, is Web-based, has a service-oriented architecture and is aligned with the new Medicaid Information Technology Architecture (MITA) standards.

California was sold on the solution, in part, because of Health Enterprise's speed and flexibility in incorporating program and policy changes to the MMIS, according to Crysler.

"Its design allows those changes to be done by a business analyst as opposed to a technical specialist," he said. "That will not only provide the state the ability to manage their program more flexibly and change it more quickly but also to operate it more cost-efficiently."