Maryland’s health department has set aside $12.5 million to launch a plan that calls for outsourcing its Medicaid claims processing service

The state health department has set aside $12.5 million this fiscal year to launch a plan that calls for outsourcing its Medicaid claims processing service to contractors that can update the agency’s outdated computer system by mid-2013.

The Maryland Department of Health and Mental Hygiene accepted bids from companies or teams of them that can develop and replace the agency’s labor-intensive system for sorting Medicaid bills with one that will be able to handle more claims and adapt to new payment codes that will hit the health care industry in three years.

The introduction of a new system could help Maryland better cope with a rising number of Medicaid enrollees, said Charles Lehman, executive director of the agency’s office of systems, operations and pharmacy. The number of low-income Marylanders covered by Medicaid has grown from about 650,000 in 2007 — before the recession and an expansion of the program passed by state lawmakers — to about 850,000 now.

The number of Marylanders in the $7 billion Medicaid program has grown along with the state’s unemployment rate, and it will spike again after the health care reform law passed in March adds tens of thousands more Marylanders to the Medicaid rolls, starting in 2014.

Maryland is one of 15 states that operate their own system for processing Medicaid claims, but Lehman said the task has become too cumbersome and difficult for about 250 DHMH employees to maintain. The state has had its system for 15 years.

DHMH plans to award the project by next January, and it could take another 30 months before the new system launches, Lehman said. That would put the agency and its new privatized Medicaid claims processing system slightly ahead of an October 2013 deadline for industry-wide changes to the codes used to match the treatment given to a patient with the amount his or her health care provider is to be paid.

Lehman declined to say how much the entire system could cost, but said the state plans to pay the vendor based on the number of people in the Medicaid program each month. DHMH has set aside $12.5 million in its current budget to fund the new system’s launch, Lehman said, states the Baltimore Business Journal.