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Maryland fires Obamacare exchange IT contractor

Maryland Gov. Martin O'Malley speaking before President Barack Obama takes the stage at a Costco store in January 2014 in Lanham, Md.
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Maryland Gov. Martin O'Malley speaking before President Barack Obama takes the stage at a Costco store in January 2014 in Lanham, Md.

Some may say it's a couple of months late and $65 million short, but Maryland finally fired the contractor that designed its botched Obamacare exchange.

To replace the ousted Noridian Healthcare Solutions, the state chose UnitedHealth Group subsidiary Optum/QSSI as the prime IT contractor on its health-care website on an interim basis.

The site hired Optum/QSSI in December to oversee repair efforts, after the federal government in October promoted the company to general contractor to fix its crippled Obamacare site, HealthCare.gov, shunting aside the original one, CGI Federal.

Dr. Joshua Sharfstein, chairman of the board of the Maryland Health Benefit Exchange, said Monday that on Sunday night its board "voted to end of the role of Noridian Healthcare Solutions as prime IT contractor for the exchange."

Maryland has already paid Noridian almost $65 million, and the company has billed the state for $13 million more under its contract to build and run the exchange. Noridian and a subcontractor had stood to gain another $125 million under the original contract.

(Read more: Hospital cuts out the middleman and sees success )

Sharfstein said the exchange "is preserving all rights to seek damages against Noridian and its subcontractors for problems with the IT system."

Those problems became evident just minutes after Maryland's health insurance exchange launched Oct. 1, The site crashed, and thousands of people eager to shop for and enroll in Affordable Care Act plans could not be assisted.

The site has had so many technical difficulties that its enrollment is a paltry 33,000—significantly below what officials had hoped to see for Maryland, which is one of just 14 states operating its own Obamacare marketplace.

(Read more: Good reason to question Obamacare enrollment)

Maryland is considering turning over some or all of the exchange's functions to HealthCare.gov.

Thomas Kim, deputy secretary of operations at the Maryland health department, told officials last week that Noridian had "severely misrepresented the maturity" of the online system it was building for the exchange.

Kim also said that the company had outsourced "its leading role to an unauthorized subcontractor under an undisclosed profit-sharing agreement," The Washington Post reported last week. He told officials that squabbles between Noridian and the subcontractor, EngagePoint, led to "the stoppage of work in the most critical period," the paper said.

Noridian fired EngagePoint after the site's flawed launch.

An earlier inquiry by the Post had found that Maryland officials were warned a year before launch about technical problems with its exchange.

Rebecca Pearce, the director of Maryland's Obamacare exchange, resigned in December after it was disclosed that she had spent a week on vacation in the Cayman Islands in late November, as the website struggled and state legislators demanded an explanation for the debacle.

Tom McGraw, president and CEO of Noridian, said his company and the Maryland Health Benefit Exchange "are negotiating a mutual agreement regarding the transition of Noridian's role as prime contractor on the [Maryland Health Benefit Exchange]."

(Read more: Fed probe sought for Oregon's Obamacare site )

Throughout the past four months, he added, Noridian "has complied with its contractual obligations under tremendous pressure and constant changes by the state."

"As prime contractor, Noridian has implemented 163 infrastructure fixes and performance-tuning activities, and identified and completed 445 enhancements and bug fixes, including the nine critical incidents identified by Gov. [Martin] O'Malley—all greatly increasing the functionality of the state-run exchange," McGraw said. "Noridian is committed to providing access to affordable care to all Marylanders and will continue to do so by working with the state on ensuring a successful transition of software, licenses and subcontractors supporting the goals of MHBE."

By CNBC's Dan Mangan. Follow him on Twitter @_DanMangan.

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