Health and Science

GAO report blasts for lax planning, oversight

Lax oversight of contractors, a rushed schedule and changing requirements all led to the debacle that was the launch of last fall, a scathing government report charges.

The federal health-care exchange was developed "without effective planning or oversight practices, despite facing a number of challenges that increased both the level of risk and the need for effective oversight," a Government Accountability Office director said in prepared testimony released Wednesday in advance of a congressional hearing Thursday.

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And the federal agency that oversees the $840 million health-care enrollment site and related systems "incurred significant cost increases," changes in schedules and delays in getting the system working as designed "primarily due to changing requirements that were exacerbated by inconsistent oversight," said William Woods, the GAO's director of acquisition and sourcing management.

Health and Human Services Secretary Sylvia Burwell testifies before the Senate Appropriations Committee on Capitol Hill in Washington.
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Woods' testimony Thursday before a House of Representatives committee will focus on the GAO report that looks at what led to's disastrous launch last fall.

When it opened for business Oct. 1,, which sells private health insurance plans through the exchange in 36 states, was unable for weeks to handle applications and enrollments for significant numbers of people. The site required a massive, around-the-clock repair effort that took nearly two months to bear fruit.

The Centers for Medicare and Medicaid Services "launched without verification that it met performance requirements," said Woods in his prepared remarks.

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Woods also warned that unless CMS improves its management of contracts and "adheres to a structured governance process, significant risks remain that upcoming open enrollment periods could encounter challenges."

Although was made functional enough to enroll more than 8 million people by mid-April, much of the site's back-end infrastructure remains to be built and tested. That part of the site will handle complicated calculations that insurers are relying on to minimize their financial risk in selling health plans on the exchange.

Woods noted that functionality of the back-end is "currently scheduled to be implemented in increments through December 2014"—more than a year after it was first scheduled to be working.

"CMS needs a mitigation plan to address these issues," he said.

Woods, in his remarks, noted that from September 2011 through this past February, estimated costs for developing grew from an initial obligation of $56 million to more than $209 million. And the cost of building the crucial data hub that determines enrollees eligibility for financial aid grew to nearly $85 million, from $30 million.

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"New and changing requirements drove cost increases during the first year of development, while the complexity of the system and rework resulting from changing CMS decisions added to the ( costs in the second year," Woods said.

"Moreover, CMS delayed the key governance reviews, moving an assessment of ('s) readiness from March to September 2013just weeks before the launchand CMS did not receive required governance approvals."

And because of "inconsistent contractor oversight...and unclear roles and responsibilities, there was confusion about who had the authority to approve contractor requests to expend funds for additional work," he said. In about 40 cases identified by the GAO, CMS staff "inappropriately authorized contracts to expend funds totaling over $30 million," Woods said.

"This is not to say the work was not necessary; however, the work was not approved properly."

He noted that CMS had used "cost-plus-fixed-fee" contracts for the contractors assigned to build and the related data hub. Those contracts, Woods pointed out, are "considered high risk for the government because of the potential for cost escalation and because the government pays a contractor's allowable cost of performance regardless of whether the work is completed."

Woods singled out CMS' handling, or mishandling of CGI Federal, the lead contractor for, whose work has been castigated ever since the site flopped upon launch.

"As the Oct. 1, 2013, deadline for establishing enrollment through the website neared, CMS identified significant performance issues involving the (site's) contractor, but the agency took only limited steps to hold the contractor accountable."

He noted that CMS ended up withholding about $267,000 in CGI's requested fees, which is about 2 percent of the fees paid to that contractor.

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U.S. Rep. Fred Upton, R-Mich., the chairman of the House Energy and Commerce Committee that will hear Woods' testimony Thursday, pounced on Woods' remarks to blast the Obama administration.

"As the cost of the exchange closes in on a billion dollars, even to this day the system is not fully built," Upton said. "The disastrous implementation of the president's health-care law has already led to canceled plans, lost access to doctors, and higher premiums. Now add to that hundreds of millions of taxpayer dollars wasted on an exchange that is still not ready for prime time."

Rep. Tim Murphy, R-Pa., who is chairman of the Oversight and Investigations Subcommittee, said, "The Obama administration was not up to the job, and American taxpayers are now paying the price. Despite repeated assurances to our committee that everything was 'ontrack'—it turns out it was on track to disaster."

"We have many questions tomorrow, but will the administration finally have answers on how we got into this near billion dollar mess?" Murphy said.

A senior CMS official, speaking to reporters Wednesday, said the agency has made a series of improvements that will address concerns raised by the GAO's report.

"We don't agree with 100 percent of the conclusions," the official said, but added, "We largely concur with the GAO's recommendations."

Those recommendations include assessing the causes of the system's cost growth and delayed functionality, making sure proper quality assurance plans are in place, tightening up oversight of contracts, and making sure CMS' IT projects following governmental approval rules before going into development.

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The official, whose name is not being disclosed as part of the rules of the background briefing, also suggested that the GAO report was focused on well-covered history.

"We've said repeatedly" that's initial performance "was unacceptable," said the official. "This is not news."

"We believe that we've come a long way."

The official also said that contractors were asked to build a complex technology in the face of tight time constraints and changing circumstances that all made an already difficult challenge more difficult.

He also vowed that will perform as designed when Obamacare's second open-enrollment season opens in mid-November.

"We're going to have a successful open enrollment," the official said.

By CNBC's Dan Mangan