The state’s new Medicaid computer billing system, which was completely dysfunctional the day it was turned on almost two years ago, still isn’t working properly, and the administration is trying to figure out its options – including pulling the plug on the whole project.

Rumors have been circulating for the last week at the State House that the state was ready to scrap the system. The immediate problem with such a plan is there is no back-up computer to pay the bills of the nearly 7,000 Medicaid providers in the state, from doctors to nursing homes. The current system, so far, has cost the state and federal government $56 million.

“It’s too early to say,” said Becky Wyke, the governor’s finance commissioner, of the possibility that the flawed system would be replaced. An outside auditing firm has been hired to help the state determine what to do next.

“Until we see the report, we’re not going to know if that’s warranted,” said Wyke, who has been leading a team to oversee the progress being made to fix the new computer billing system in the Department of Health and Human Services.

At the very least a lot more programming work is needed on a system that went live in January of 2005 and immediately started rejecting claims. The state sent out more than $500 million in estimated or so-called interim payments to health- care providers while technicians were scrambling to fix codes. The system is now paying the bills – or at least most of them – but can’t do other necessary functions like conform with federal privacy and other requirements and analyze data so the administration can accurately forecast Medicaid spending.

Attempts to add those functions this summer sabotaged the payment system that was finally working. It created strange errors like paying $21 on a bill of $2,000, and then made it impossible for the system to delete the mistake.

“There are a lot of problems to solve and there is no breakthrough,” Wyke told the Legislature’s Appropriations Committee on Friday. Earlier estimates that the system would be fully functional by the end of 2007 are now off the table.

“We don’t have confidence in the current schedule,” Wyke said.

The state decided to replace its aging Medicaid billing computer system in 2001, at the urging of the federal government, which subsidizes the program that offers health care to the poor. In Maine, that program spends more than $2 billion annually, with roughly 65 percent of the money coming from the federal government.

After missing several deadlines, the state decided to go live with the computer system in January 2005 and had no backup. The system failed and hundreds of thousands of bills got stuck in the system. The state started sending out interim payments and did so through all of 2005 and into 2006. When the computer started paying bills, the state ran all the old claims through the system to create an accurate record, and therefore ended up paying some providers twice.

Nearly $300 million of those double payments have been recovered, but another $217 million is still outstanding, although a third of that is under agreement.

“I want to know what we’re going to do to force providers who received that money to give it back to us,” said Sen. John Martin, D-Aroostook County, who serves on the Appropriations Committee. “I want to know when were going to start using a hammer to get that money back.”

Wyke said the state needs to collect $131 million of the outstanding $217 million by the end of June 2007 to balance this year’s budget. The state would like to collect the full amount, but some of the money dates back to bills already covered through supplemental appropriations in previous fiscal years. The plan now is to start withholding full payment on new bills from providers, who still owe double payments back, until the debt is cleared.

“We’ve been using that collaboratively with providers,” who agreed to the plan, said Kirsten Figueroa, a deputy commission in charge of finance at the Department of Health and Human Services. “Our next step is a letter to tell them we’re going to start offsets.”

The whole computer debacle has taken its toll on providers, some of whom are still not being paid accurately, and on the Department of Health and Human Services staff and managers.

“We have tried to put some of our best folks down there and they’re burned out,” Wyke said, quoting the sentiment she has heard that “it feels like we are running to catch up with the past.”