Three Kenai Peninsula health care providers filed a lawsuit against Xerox State Healthcare for failing to provide contracted services.

South Peninsula Hospital in Homer, the Kenai Vision Center and the Alaska Speech and Language Clinic, both in Kenai, filed the lawsuit in federal court, requesting that it be designated a class-action lawsuit.

Xerox State Healthcare, a Georgia-based subsidiary of Xerox Corporation, provides Medicaid claim technology to state health care organizations. Alaska implemented one of Xerox State Healthcare’s Medicaid Management Information Systems in October 2013, intending to use it to manage reimbursement.

However, the system was unable to accept new, legitimate claims that day. Claims were rejected, leading to a loss in reimbursement for the approximately 22,000 health care providers enrolled, costing “hundreds of millions of dollars,” according to the complaint.

“The providers were deprived of regular reimbursement for many months, and had to fund operations from other sources or go out of business,” the complaint states. “The need to resubmit improperly rejected claims required health care providers to incur labor costs of clerical time. Some larger providers hired additional staff, while others paid overtime to existing employees, to the detriment of other parts of their medical businesses.”

The plaintiffs also claim that Xerox knew the system was faulty. The state engaged a company called ACS State Healthcare to build an MMIS in 2007. Although the company said it would have a system ready to launch by October 2010, it was not ready to go live until three years later. Xerox acquired ACS in 2010.

The Alaska Department of Health and Social Services tested the system in September 2013, just before it went live, and found 44 errors that it requested Xerox correct. The company replied with reassurances that the system was ready to go live, which the DHSS believed, according to the complaint.

In addition to supplying a system that failed, Xerox also allegedly refused to fix the problem for months, according to the complaint.

A DHSS investigation in 2014 revealed that “hundreds of thousands” of unprocessed paper claims from smaller providers were sitting in stacks in the Xerox facility. A large number of electronic claims were also “suspended,” with no action for extended periods of times, according to the complaint.

Providers immediately noticed the problem when few claims were accepted, and those that were received no reimbursement. South Peninsula Hospital bills approximately $16 million to Medicaid every year, about 28 percent of its income; Kenai Vision Center bills approximately $150,000 annually, and the Alaska Speech and Language Clinic billed $14,160 between October 2013 and early 2014.

“The effect on providers was the same as with the unprocessed paper claims: reimbursements were not received, causing financial hardship,” the complaint states.

To bail out the health care providers, the DHSS lent out approximately $160 million, to be repaid when the claims were processed. All the providers had to resubmit all their claims between four and seven times over the next two years to receive payment, according to the complaint.

“In many situations, resubmitted claims were rejected as well,” the complaint states. “One dental practice has written off over $500,000 in claims that it was unable to submit within one year of the dates of service because of the MMIS failure.”

The Alaska Speech and Language Clinic was forced to cut back its services. Kenai Vision Center’s office manager spent more than 200 hours troubleshooting and still has not been reimbursed $3,000 for Medicaid claims. South Peninsula Hospital employees put in 971 hours of overtime as well as extra time during the day, which delayed billing to other insurance companies, according to the complaint.

Derotha Ferraro, the director of public relations and marketing for South Peninsula Hospital, said the state had multiple conversations with the hospital during the time the system was not working properly. Winning the lawsuit would be a positive outcome for the providers, but it is essentially compensation for what they have already spent to overcome the system’s failures, she said.

“We had hard costs, things like overtime, extra staffing trying to make heads or tails of things and resubmit claims and research claims and everything, just trying to survive that Medicaid confusion,” Ferraro said. “But then there’s also lost opportunity. We really had all of our staff, which isn’t very many, focused on this and we were missing other opportunities.”

The plaintiffs are asking for three times their damages plus punitive damages. Arthur Stock, an attorney from Philadelphia-based firm Berger & Montague who is coordinating the case with Kenai-based attorney Peter Ehrhardt, said it will be some time before any action is taken. Although the complaint lists a general punitive amount, he said he could not disclose a more exact figure.

A representative from Xerox did not reply to a request for comment.

This is not the first lawsuit over the failed MMIS system. Alaska DHSS sued Xerox in September 2014 over the failed system, demanding that the company fix the problems. The company responded and all major problems were corrected by March 2015, according to Gov. Bill Walker’s office.

Reach Elizabeth Earl at elizabeth.earl@peninsulaclarion.com.