Review of the Administration of the Health Information and Claims Processing System (HICPS) Contract with First Canadian Health (FCH) - April 7, 2005

Summary

Introduction

The review of the Administration of the Health Information and Claims Processing System (HICPS) contract (No. H1021-6-9693) between Health Canada (HC) and First Canadian Health Management Corporation Inc. (FCH) was conducted by HC's Audit and Accountability Bureau (AAB). The objectives of the review were to assess the administration of the contract and to identify lessons learned and recommend corrective measures to better manage the current contract and its renewal.

Through a network of service providers, the Non-Insured Health Benefits (NIHB) Program provides medically necessary health-related goods and services not covered by federal, provincial, territorial or third-party health insurance plans. The Program is administered by HC's First Nations and Inuit Health Branch (FNIHB) and provides benefits across the country to about 750,000 eligible First Nations people and Inuit. These benefits complement provincial/territorial insured health care programs and include pharmaceuticals, dental services, and medical services and equipment.

For part of the NIHB Program, HC obtains claims processing services by contracting with an outside firm. In 1996, HC requested that Public Works and Government Services Canada (PWGSC) handle the procurement process leading to the award of a contract with a firm which could provide the required level of claims processing services for a five-year period, with two options for renewal of two years each, for a total potential contract period of nine years. The time frame for the first five years of the contract was to be the period from December 1, 1998 to November 30, 2003; in addition, four optional years could extend the contract to November 30, 2007. The contract value for the initial five-year contract and the additional four optional years combined was initially estimated at $75 million.

The request for proposals was limited to bidders who met requirements of the Aboriginal Set-Aside Program. At the conclusion of the contracting process, the contract was awarded to FCH. Since the contract amount exceeded PWGSC's contracting authority, Treasury Board approval was obtained.

In August 2002, the approved contract amount for the first five years of the contract was exceeded, and this meant that an amendment to the contract was needed. This over-expenditure set the stage for a complete review of the administration of the contract.

Key Findings

1. Contract

The examination of the contract revealed that it was silent both on the operation of the flow-through account, which was funded by HC and used by FCH to pay for eligible benefits claimed, and on the reimbursement of funds recovered by FCH as a result of its audits of claims submitted by service providers. In addition, the contract security requirements did not appear to be sufficient, given the volume of public funds under FCH's control. Furthermore, the "priority of document" clause of the contract lists FCH's original offer ahead of the Statement of Requirement (SOR) itself. Therefore, in the event of a conflict between these two documents, the provisions contained in FCH's original offer would prevail. The reverse should be the case. In addition, neither the contract nor the related documentation clearly defines the roles and responsibilities of HC and PWGSC. This created confusion in the administration of the contract and contributed to the difficulties encountered by all parties.

2. Contract Administration

Several weaknesses were noted in HC's management practices for the administration of the contract, most notably in the following areas: monitoring and control of expenditures, management of the flow-through account, approval and management of discretionary projects, financial incentives/penalties to encourage improved performance, and contingency planning.

Conclusion

Within Health Canada, the primary weakness which contributed to the difficulties encountered during the course of the contract appears to be related to deficiencies in the Department's monitoring and oversight roles, particularly with respect to the approved contract amount. Furthermore, the terms and conditions of the contract do not stipulate that PWGSC must be involved in the payment process, the approval of discretionary project initiatives or other administrative areas where responsibilities should be shared between HC and PWGSC. As a result of the lack of clarity with respect to roles and responsibilities in the contract, Health Canada took on the management of payments to FCH and negotiation of discretionary projects directly with FCH.

Recommendations

It is recommended that the Assistant Deputy Minister, First Nations and Inuit Health Branch:

1. ensure that a memorandum of understanding between senior management of PWGSC and HC is developed and put in place in order to define the responsibilities of each party;
2. ensure that improved financial control mechanisms are put in place to allow the proper tracking of expenditures and withdrawals from the flow-through account, as well as the proper handling of funds recovered by FCH following audits of claims submitted by service providers;
3. ensure that a process is put in place for the approval of discretionary projects involving both HC and PWGSC, including close monitoring to ensure that the total approved contract amount is not exceeded as a result of the implementation of such discretionary projects;
4. ensure that the volume of benefit claim transactions processed by FCH is closely monitored to detect any trends which might have an impact on the contract, including the total approved contract amount, and that suitable corrective measures are taken wherever necessary;
5. (a) ensure that a contingency plan is developed to address all key aspects of the delivery of NIHB claims processing services; and
   
   (b) assess the feasibility/benefit of including a clause related to the issue of Crown ownership of a non-exclusive license to use HICPS software developed in the context of any future contract for NIHB claims processing services.