CMS To Invest $5+ Billion a Year in Open Source and Cloud-based IT Infrastructure for Medicaid

Roger A. MaduroAfter more than 40 years of relying on monolithic mainframe platforms to administer its services, the Centers for Medicare & Medicaid Services (CMS) has embraced a new modular, open and agile approach to Medicaid health information technology for the Federal government and States. In many ways, this is the best of what open source advocates and technology innovators could have hoped for when it comes to open source policy from a government agency.

According to Andrew Slavitt, Acting Administrator of CMS, the agency will spend more than $5 billion a year to fund this transformation. In addition to funding from CMS, each individual State will invest a substantial amount of money, adding up to several billion dollars a year in total. The Federal law to support this went into effect at the beginning of this year, and the agency is in the process of soliciting feedback from the industry on the strategy and framework of the solution as well as calling for disruptive innovations that it can leverage to transform the way care is delivered.

Background: CMS is the US Government’s medical insurance program. It pays over $500 billion a year in medical claims through Medicaid to provide medical care to more than 72 million families, children, pregnant women, adults without children and also seniors and people living with disabilities. The States administer the program and each has their own dinosaur Medicaid IT platform. All of this IT infrastructure needs to be replaced over the next ten years. None of the of the major vendors that originally built the monolithic systems are in the running for any further Medicaid projects. The business is going to go to small, agile, disruptive companies. These markets have been closed to small companies and advanced technologies for 40 years, so there is a steep learning curve all around.

The new Open Medicaid IT strategy was codified into law as of December 4, 2015 and it went into effect on January 1, 2016 (see Federal Register | Medicaid Program; Mechanized Claims Processing and Information Retrieval Systems (90/10)). The Federal Rule not only mentions “open” and “open source” 43 times, it actually explains why CMS, in collaboration with the States, has embraced an open source approach to Medicaid IT. This rule breaks standard Federal rule-making in that it wisely leaves many of the specific details of its implementation open to development in collaboration with State agencies and public servants, healthcare providers, the health IT industry, and the open source community.

CMS issued the first Request for Information (RFI) to the public on June 14th. The original deadline for response was July 14th, but it was extended by an additional month to August 15 in order to maximize public input to several of the critical components of the IT infrastructure. The RFI can be found here: Modular Solutions for Medicaid IT Enterprise and Pre-certification of Solutions.

Currently 30 States are moving ahead to implement the new open Medicaid IT strategy. Overall, there are two camps; States that are going to implement cloud-based solutions, and States that are going to replace/upgrade the entire framework (which will include some cloud-modules also). Leading the first group are Wyoming, Colorado and Arkansas, and leading the second group are South Carolina and Florida. This is a period of defining what the solutions are going to be.

The first RFI was meant to open a public discussion and CMS explicitly welcomed input to innovative companies with disruptive technologies. This in itself is a huge breakthrough as small and innovative companies have been routinely excluded from Medicaid contracts. CMS is now leveling the field and looking for the best solutions, not the biggest government contractor.

CMS is also looking for solutions to be pre-certified so they can be added to a "Medicaid IT Marketplace” that CMS is currently building. The State will be able to access the enhanced match for operations much more quickly by selecting a pre-certified module, because by default it expedites the certification process for the State. An HHS Idea Lab blog post described this marketplace and approach as a “modular pre-certification process for IT vendors to reduce the risk for states and small tech companies to work together in this area. The process would lower the barriers to entry for qualified firms to bid on state contracts.This effort will also help to reduce risk, the cost and increase overall innovation in this space.”

Andrew Slavitt, Acting Administrator of CMS

An example to illustrate the point. Say a State-run community health center, or a network of community health centers, can pick an open source EHR, a cloud-based EHR, or a modular COTS EHR solution. Whatever best fits their needs. If the EHR is pre-certified, then CMS will pay 90% of the implementation costs up front. The community health center(s)/State agency, then only have to come up with 10% of the money. This a rapid, agile approach that leaves the power to choose in the hands of the folks best qualified to make the decision, which is the local/State employees and the staff and medical personnel for the community health centers. The open source modular Medicaid framework will then allow those community health center(s) to plug into the rest of the network.

While the RFI and some of the initial guideline documents focus on health IT (EHRs, PHRs, HIEs, clinical data repositories, Data Warehouses, Blue Button, mHealth, FHIR, HL7, blockchain, etc.), there is an entire array of other apps and capabilities they are looking for, including business, banking and data analysis related apps. The sooner disruptive new technologies and approaches are put on the table, the better. The information gathered from this RFI will serve to issue other RFI’s as well as RFP’s.

Out with the IT Dinosaurs

The Open Medicaid IT transformation comes out of a massive crisis facing existing Medicaid IT systems. The State Medicaid platforms were built 30 to 40 years ago using old computer software such as Cobol running on aging hardware platforms. Obamacare’s expansion of Medicaid services put additional pressures on these obsolete systems. This created what an article in government technology aptly titled “Medicaid IT Systems: The Perfect Storm.” Author David Raths writes:

“To gauge the level of trouble state governments continue to have with the implementation of Medicaid Management Information Systems (MMIS), just do a Google News search on the topic. There is no shortage of recent local newspaper stories about cost overruns, critical audits, lawsuits and finger pointing between states and IT vendors. What led to this perfect storm? For one thing, Medicaid IT systems are complex, with thousands of business rules, and the federal and state requirements for what the systems must do keep changing. Because there are only 50 such systems in the country, only a handful of software vendors respond to procurements for new systems.”

The Federal government, as well as State governments, have spent billions of dollars trying to modernize these systems with little success. Most recently, Xerox, which had won a $1.7 billion contract to modernize California’s Medicaid system in 2010, had to walk away from the project and pay a substantial penalty earlier this year. The system had been scheduled for delivery later this year. All the work is a complete loss.

The articles below provide a glimpse of the problem that modernizing existing Medicaid systems represent.

With this background in mind, we can now examine the profound changes that the new approach is taking to modernizing Medicaid’s IT infrastructure.

Core Principles of the Open Medicaid IT Framework

The bullet points below summarize key elements of the Open Medicaid IT strategy. As noted above, this strategy has been codified in to law by the Final Rule of December 4, 2015. A couple of terminology explanations first: MITA stands for Medicaid Information Technology Architecture and the platform is called the MITA Framework. MMIS stands for Medicaid Management Information System.

Based on the Federal Rule and other CMS documents, the core IT concepts and strategy of the new open Medicaid strategy include;

  • The new open MITA Framework will support an enterprise approach where individual processes, modules, sub-systems, and systems are interoperable and work together seamlessly to support a unified enterprise. The open framework will promote modular development as the most efficient and cost effective long-term solution for states’ business needs.
  • Purchasing preference will be given to MITA-compliant solutions that are open source technologies or cloud-based services. Commercial-off-the Shelf (COTS) products may be used as long as they are not overly-customized, support modularity and enable other states to leverage successful solutions.
  • COTS may be employed for full systems, or for specific modules, or components within a system (e.g., business rules engine, notices subsystem).
  • CMS will no longer approve funding for the “traditional” approach to MMIS projects that are characterized as multi-year, large-scale, rip-and-replace, single-giant vendor, “lock-in software” projects.
  • The open MITA model encourages states to move to standardized, service oriented products and away from the heavily-customized solutions common in the past. CMS is emphatic that the new open MITA approach requires State solutions to promote sharing, leverage, and reuse of Medicaid technologies and systems within and among states.
  • The modular acquisition approach increases the opportunity for States to select “best of breed” technology from different vendors, along with the flexibility to swap solutions in and out. As the market for modular solutions evolves, States should take advantage of acquisition approaches that will avoid vendor lock-in and other risks of monolithic solutions. States also should be able to replace individual modules to take advantage of specific innovations without significant integration cost and other risks.
  • The modular approach supports States in achieving optimal balance in the use of open source, cloud-based, and proprietary COTS software solutions over the use of custom solutions. Thereby reducing the need for custom development, promoting reuse, expanding the availability of open source solutions, and encouraging the use of shared services.
  • The new Medicaid platforms must be interoperable with “health information exchanges, public health agencies, human services programs and community organizations providing outreach and enrollment assistance.”
  • CMS will provide States with matched funding of up to 90% for Medicaid IT design, development and implementation (including limited COTS expenses) and up to 75% for operations and maintenance of those systems and on-going COTS licenses.

Innovative Technical Solutions

Some of the key technical health IT solutions that CMS is looking for the new Open Medicaid IT framework include:

  • Innovative technological approaches that automate Medicaid business processes and services, such as systems related to: member eligibility and enrollment, enrolling clinicians and others as providers, paying claims, managing member benefits, and financial management.
  • A common security framework, cloud computing, data analytics, common data repository, consumer-facing portals.
  • Functional capabilities such as population health analytics, health information exchange (HIE), Provider Directory, and Master Person Index.
  • Information management related to: doctor's visits, prescription drugs, preventive care, nursing home care, and other long term services for seniors and people with disabilities.
  • Adaptations of existing business solutions from comparable sectors, such as: banking, commercial healthcare, or large provider systems

Andrew Slavitt Calls on the Tech Industry

The new Open Medicaid IT strategy has received the full support of Andrew Slavitt who wrote an extensive blog post less than two weeks after the Final Rule became law in January explaining the new strategy. He wrote:

“Our new regulations require that states evolve their legacy Medicaid IT systems to leverage reusable solutions, and to practice industry-proven IT methods such as use of modularity, reuse, shared services (including Software-as-a-Service),”  he wrote, adding “This opens opportunity to smaller vendors to develop focused solutions for use across multiple states or to introduce solutions from comparable sectors such as commercial insurance or large provider systems. We believe this approach will expedite states’ IT timelines, decrease overall costs, and ignite adoption of advanced technology solution.”

In May Slavitt traveled to Silicon Valley “to participate in a forum on bringing technological advances to Medicaid,” as he wrote in another blog post. According to Slavitt, the objective of the forum was to convene “States, innovative tech companies, and federal Medicaid officials on how to collaborate to improve the delivery of Medicaid health coverage in States.” During the trip Slavitt emphasized that the tech industry has ample opportunities for disruption as CMS will be investing $5 billion a year on the Open Medicaid IT framework and they are specifically looking for a whole range of agile companies as well as disruptive technologies and solutions.

Slavitt said that CMS is going to facilitate the entry of tech companies into the Medicaid market by producing a Medicaid playbook "to help companies translate states’ requests for proposals into work they believe can move the needle." In addition, he announced that CMS is recruiting a Medicaid-focused entrepreneur-in-residence to the HHS Idea Lab to further serve as a guide for startups interested in getting involved with the program. A key focus of the HHS Idea Lab effort will be to develop an Open Medicaid IT Marketplace that will provide a modern cloud-based marketplace for Pre-certified solutions that qualify under the new guidelines.

This marketplace should have an enormous impact not just modernizing Medicaid IT infrastructure, but the entire Health IT industry. It will level the playing field so that small companies with open source and cloud-based solutions, as well as modular COTS solutions will be able to compete with entrenched vendors that have multi-million-dollar marketing budgets and occupy most of the floorspace at HIMSS Conferences. The Medicaid IT marketplace will be open to not just government officials, but private sector healthcare organizations and the public. This will transform every aspect of health IT acquisition. This will marketplace will have a far greater impact on fixing the current health IT mess than any legislation coming out of Washington. We hope CMS can move quickly on this marketplace and open strategy.


Roger, Great article!


Great article! Looking forward to the next installment.

Verbus M. Counts EMR Technical Solutions, LLC

verbus at EMRTS dot us

+1 405-326-7440