What went wrong with Nevada’s Obamacare exchange?

Linda Rolain was in a fight for her life.

After four months of chemotherapy and radiation treatments for lung cancer, the Las Vegas casino worker was ready in September 2011 for surgery to deal her tumor a knockout blow.

At that same moment, the new Silver State Health Insurance Exchange was planning its first board meeting, an October affair in Las Vegas to establish the agency’s bylaws, choose officers, discuss startup grants and talk staffing.

There was no way for Rolain and her family to know how critical that meeting would be for them. It would launch a series of actions, from website proposals to contractor hires, that continues to affect the family today.

The effects of that meeting continue to plague the state. The latest version of the exchange, launched Nov. 15 via the federal healthcare.gov site, works well, but hundreds of residents still lack insurance they paid for, and a lawsuit looms in early 2015.

Planning for the exchange’s online marketplace, Nevada Health Link, went awry in myriad places. But observers point to bungling in three key areas: a pie-in-the-sky request for proposals for the system; limited project resources; and unusual premium-payment policies.

If you’re looking for someone to blame, that’s a tougher call. There was a state agency with decision-making authority and a contractor who promised experience and expertise. Both were somewhat bound by rigid federal rules.

Still, there are lessons in this story.

TROUBLE AHEAD

By March 2012, things were clicking for both Linda Rolain and Nevada Health Link.

Rolain was mostly recovered from her lung cancer and back at work on the Eastside Cannery casino floor. She was able to enjoy time with her grandchildren and meals out.

Exchange officials, meanwhile, had issued a request for proposals — commonly called an RFP — seeking contractors to build Nevada Health Link’s website and call center.

Yet there were ominous signs in both camps.

Rolain was feeling tired, which her family attributed to lingering side effects of radiation and chemotherapy, said her daughter-in-law, Erin Scull.

The state’s RFP, meanwhile, was unrealistically ambitious, considering its timeline.

A request for proposals is a “critical document” that establishes the relationship, expectations, imperatives and rewards for an agency and its contractor, said Len Ashby, an information-technology consultant and expert trial witness with the Montreal-based firm Ashby-Bachmann.

Get it wrong, Ashby explained, and the whole project suffers.

There was a lot wrong with the proposal, Ashby said.

For starters, it asked for way too much — one contractor would build the website and launch a customer-service call center. Other state exchanges planned call centers but as separate projects. Connecticut, now considered one of the best state exchanges, did it that way.

Nevada would add in premium aggregation, with the contractor collecting payments to forward to insurers, rather than letting insurers bill members directly. No other state tried premium aggregation as a one-stop shop for consumers buying multiple policies.

Also unusual to Nevada’s exchange were its standalone dental plan and the scope of its small-business marketplace.

A project so ambitious might have worked, with time. But the contractor would have just 15 months. The federal deadline of Oct. 1, 2013, was unmovable — a schedule “dictated by politics and legislation rather than an objective analysis of what needed to be done,” said Ashby, who reviewed the state’s RFP at the Review-Journal’s request.

The timeline also was unreasonable based on the number of public and private parties involved and the volume of systems interfaces, some of which had yet to be developed.

Nevada wanted a “miracle,” Ashby said.

The state’s RFP also showed “a lack of collaboration and shared responsibility implied between (the exchange) and the vendor,” and a “range and nature of items within and out of scope” that “added complexity and removed control from the vendor,” Ashby said.

Worse still, bidders might not have had time to fully understand the project. The state’s purchasing division issued the RFP on March 26, 2012, and asked for responses by April 27, 2012.

“Simply put, a 30-day response time is way too short for a project like this and probably helped doom the project from the start,” said Larry Allen of Allen Federal Business Partners, a Virginia-based firm that consults and testifies on government contracting and procurement. No contractor “could possibly have understood the scope and made a reasonable response in this time period.”

The hard federal deadline was crucial to the system’s failure. But someone had to write the request for proposals. And someone else had to bid, assuring they could handle the job.

Bruce Gilbert, executive director of the Silver State Health Insurance Exchange, wasn’t with the agency when the RFP went out. But he said available paperwork shows no one person was responsible for writing it — exchange staff, outside consultants and staff from other state agencies helped craft the request. The state’s purchasing division, run at the time by Director Jeff Mohlenkamp, was responsible for publishing the request.

Rather than intimidating potential vendors, the request drew four competitors: Xerox, Choice Administrators, KPMG and Deloitte Consulting. The purchasing division scored the companies on financial stability, demonstrated competence, experience and performance on comparable contracts, expertise and availability of key personnel and cost. State law requires contracts to go to the highest-scoring company. Xerox edged out Deloitte — builder of Connecticut’s exchange — by four points.

The exchange board awarded Xerox a $72 million contract in July 2012 — nine months after Linda Rolain’s lung surgery and just weeks before she would start to notice symptoms of a more troubling problem.

It’s unclear if Xerox officials knew when they landed the contract that they couldn’t handle the job.

FORESEEABLE ERRORS

Xerox has said it underestimated the resources and effort needed to build Nevada Health Link but declined an interview for this article. The company provided only a statement: “Ultimately, everyone’s goal has been to provide Nevadans with access to affordable health care. We are proud of the work we have done to that end, and the Xerox team will continue to provide services to Nevada Health Link with the highest level of professionalism and teamwork for the 2014 policy year.”

But Ashby said any experienced contractor should have seen the risk. Xerox is a Fortune 500 company that won the job based in part on decades of experience with private exchanges and state Medicaid programs.

“It is reasonable to assume … they already had extensive resources dedicated to other projects of a similar nature,” Ashby said. “This can be both an advantage and a liability. While they may not have known at the time that other, similar projects were in jeopardy, they must have realized that there was significant risk of resource scarcity, and project failure, if any of the projects began to slip.”

Even so, vendors are loath to turn away government work, Ashby said, and Nevada’s relatively quick turnaround and a competitive bidding market might have made Xerox overly optimistic. Contractors often “hope and expect that client change requests will provide ample opportunity to increase the fees, and exempt them from project delays,” he said.

Exchange board Chair Barbara Smith Campbell raised that concern at a board meeting in December 2011, asking if the agency was “setting itself up for change orders because the (RFP) does not reflect policy decisions that the board has not addressed.”

The exchange did modify the contract in 2013 to accommodate mounting project delays and missed milestones, but with no additional money for Xerox. The company has received about $15 million from its $72 million deal.

So how much of a problem was the RFP?

It’s hard to pin all of the exchange’s problems on it, Gilbert said, because marketplaces struggled even in states with a smaller scope of work. From Hawaii to Maryland, at least a half-dozen states had major website problems. Xerox wasn’t the exchange contractor for any of them.

“A number of states — not just Nevada — bit off more than they could chew,” Gilbert said. “There were an awful lot of really smart people who have been successful but who experienced many of the same issues and problems you saw here. And they were using different vendors, consultants and state staffs. It was a widespread issue.”

But Nevada was alone in how little it would spend on its exchange.

SHORT-CHANGED

Jon Hager, the exchange’s first director, boasted in a July 2012 board meeting that the federal government saw Nevada’s contract as a “low-cost example for other states.”

While demanding a more complicated build than other exchanges, Nevada Health Link had fewer dollars to make it happen.

Individual state exchanges requested federal start-up grants for what they estimated as their need. Nevada received $90.8 million in grants. Connecticut, with far fewer system functions, got $164.5 million. Rhode Island claimed $105.3 million. Massachusetts collected $180.1 million. Maryland, $171.1 million.

Staffing disparities have been even starker. Nevada Health Link has 13 employees. Connecticut’s exchange lists 46 staffers on its website; Rhode Island has about 40 employees, Gilbert said.

Nevada’s exchange staff is likely the nation’s smallest, he said. That’s partly because the exchange put Xerox in charge of functions such as the call center, which it might otherwise have staffed itself.

Staffing decisions were “based on attempting to be fiscally responsible, with an understanding that we didn’t want to build a bureaucracy,” Gilbert said. “Would it have helped to have additional boots on the ground? Maybe. But we don’t think it would have changed the experience. The initial goals for the exchange were extraordinarily ambitious. We wanted to bring 118,000 people into qualified health plans. I think it was misunderstanding the market, not really understanding the demographics and not really recognizing the way this would play out.”

It made sense for Nevada’s exchange to run leaner than marketplaces in other states because of its small population, Gilbert said. But a more apt measure might be the number of uninsured — the population the exchanges serve.

Nevada in 2013 had roughly 600,000 uninsured residents, or more than 20 percent of its population. Linda Rolain would come to rank among them and would need the exchange’s services.

Connecticut, in contrast, had about 345,000 uninsured residents, according to a 2013 state analysis. Rhode Island had 140,000 uninsured residents in 2010, showed numbers from the Rhode Island Health Care Association. Massachusetts had 242,000 uncovered citizens before 2014, according to the Kaiser Family Foundation.

It’s worth noting that better-funded and better-staffed exchanges also failed. Technical glitches forced Massachusetts to change vendors, and Rhode Island’s difficulties had officials weighing a move to the federal healthcare.gov.

But Nevada Health Link’s own policies contributed to its failure.

NICKELS AND DIMES

Insurance brokers say carriers typically give consumers leeway when a premium payment falls short. If your premium is $100 and you send in $90, they’ll post the payment and send a bill for $110 the next month, said Lou Cila, a broker with Best Nevada Insurance Agency in Las Vegas.

But Xerox wouldn’t post payments that were as little as a nickel short.

“I don’t know of any company that would hold up a payment for 5 cents,” Cila said.

It’s unclear how many Nevadans saw coverage ensnared in the refusal to post short premiums, but the exchange’s premium-aggregation system was generally behind 75 percent of its problems, said Las Vegas broker Pat Casale.

At the peak of its troubles last winter, the exchange reported more than 30,000 cases where consumers couldn’t sign up for or pay for a plan. It’s unclear from exchange meeting minutes who decided on the payment-posting policy.

Cila said it likely wasn’t Xerox.

“At the end of the day, it’s not the contractor that makes that decision. It’s the exchange or management itself,” he said. “I could never imagine why these things existed. Some of this stuff was so wacky.

“It would normally be a management decision,” Cila said. “It’s not even something you would bring to a board meeting.”

Gilbert, an experienced private insurance exchange consultant, said it’s difficult to “question the judgment” of the agency’s initial decisions.

“There may have been perfectly good reasons why they did what they did,” said Gilbert, who joined the exchange in August.

“My preferred way is that money comes in and money goes out, and whether you’re off a nickel, a dollar or $100, ultimately, the insurance company has to decide what to do with people who short-pay.”

Now, the exchange, using healthcare.gov, bills consumers directly, ending premium holdups at the state level.

That’s because the exchange board decided in May to fire Xerox and move onto the federal system for 2015 enrollments. Xerox will be out once the company finishes administering 2014 plans.

While many of the issues that hurt the exchange have been fixed, many Nevadans still feel the pain.

FATAL DELAY

In January 2013, Linda Rolain was experiencing dizzy spells. She became forgetful and began having vivid dreams of a 19-year-old granddaughter who had recently died.

Her husband, Robert, picked her up from work one afternoon and took her to the doctor. After imaging tests came the diagnosis: A brain tumor. Her symptoms soon forced her onto temporary disability.

In June 2013 — as Xerox was starting to miss key deadlines for exchange system testing — Linda Rolain no longer could work. After her company insurance ran out in July, the family tried to enroll her in Medicaid, but she and Robert had too much income to qualify.

So in October 2013, the Rolains visited the new nevadahealthlink.com, along with hundreds of thousands of other Nevadans, to enroll in a private, federally subsidized plan. And like thousands of others, they ran into a thicket of technical glitches and red tape.

They picked a plan, made a payment in November for coverage to begin Jan. 1, and waited for a confirmation letter and membership cards. January came. So did February and March. They paid the $136 premiums every month, but no paperwork arrived.

The Rolain family’s attorney, Matthew Callister, said Linda’s coverage was ensnared in a series of administrative problems, including ascribing two separate accounts to her.

“The bottom line was a complete failure to do anything correctly, except take her payments,” Callister said.

Approval for treatment finally came in May, but Linda Rolain’s May 15 surgery came too late. She died in hospice June 30.

Callister said the surgeon told him Rolain’s life — and quality of life — could have “at least been extended” by faster treatment.

The Rolains are now part of a lawsuit over botched exchange policies. Callister said 400 to 500 people have joined the lawsuit since April, and 30 to 50 of them experienced delayed medical treatment. He said 8,000 to 10,000 Nevadans might have paid for plans they never received. If his firm, Callister, Immerman &Associates, wins class-action certification in late January, he said he will investigate the request-for-proposal process and payment-posting practices.

“I served in the Legislature,” said Callister, a Nevada assemblyman and senator in the 1980s and ’90s. “I’m aware of how easy it is to have a skilled, well-oiled lobbyist approach you and say, ‘This is Xerox, they’re a good company, they can build this,’ despite whatever the state requirements for bidding were at the time.”

Meanwhile, the exchange said in early December that its list of problem cases was down to around 700.

But the Rolains still have issues with the exchange.

Scull said Robert Rolain, who paid premiums from January until his wife’s death in June, received an October letter warning that if he didn’t catch up on the premiums, Linda would lose her coverage.

HARD LESSONS LEARNED

The exchange’s initial turmoil doesn’t have to be a total loss if state officials learn from it, observers said.

Investing 5 percent or less of the contract cost in a “project health check” could have identified red flags early, Ashby said.

Nor is it a bad idea for public employees who deal with RFPs to learn contract management, he added.

For Gilbert, the message is that the exchange “really fell short in two areas.” Its technology wasn’t “robust” enough, and its customer service wasn’t strong enough.

“Some of that (service) relates back to the technology issues,” he said. “When the boat starts to sink, everybody is trying to figure out what to do. Aside from improvements in our technology, one of the things we have made certain of this year is that we can’t be like the proverbial DMV, where you have people wait in line and get to where they think they want to go, only to be told, ‘No, you belong over there.’ To some degree, that happened last year. So we’ve spent a lot of time talking about being advocates for consumers, assisting them, and adopting not a bureaucratic mindset but a service mindset.”

The exchange’s first chapter will soon close. Xerox’s Silver State Health Insurance Exchange contract ends in March, when the company is to wrap work on 2014 enrollments.

That’s also when Linda Rolain would have turned 65 and become eligible for Medicare, the guaranteed federal insurance program for seniors.

The irony is not lost on her daughter-in-law, Erin Scull.

“I blame them all. Not only Xerox, but the state exchange, too,” Scull said. “They tried to slam together a full Thanksgiving meal at 1 p.m. on Thanksgiving Day. It’s not gonna happen. You can’t do that much stuff in that little time. You can’t open a website that’s not ready.”

Contact Jennifer Robison at jrobison@reviewjournal.com. Follow @J_Robison1 on Twitter.