By Jeff Manning and Hillary Borrud

A project dubbed by one senior Oregon manager as "the most important information technology effort in the state" has been plagued by escalating costs, a bureaucratic turf battle and technical misfires.

The $166.7 million effort to automate Medicaid enrollment instead has led to delays for tens of thousands of Oregonians. The Oregon Health Authority spent three years developing the new system and has spent more than four times the initial contract.

The glitches mean the agency was dispensing billions in Medicaid payouts not knowing whether the recipients were sufficiently low-income to qualify. Nearly 300,000 have been kicked off the plan since March 2016, after the agency resumed verifying eligibility, state figures show.

Anxious Medicaid applicants flooded the state with as many as 120,000 calls a month as they waited to learn their status. While boosters of the technology said automation would reduce staffing costs, the Oregon Health Authority actually hired more than 600 full-time, temporary and contract employees to manually process applications and handle phone calls.

Problems with the system, known by the acronym ONE, were serious enough for the state to at least consider scrapping the technology outright. An internal report from October and obtained by The Oregonian/OregonLive indicated the state would replace the system with new technology obtained from the state of Kentucky.

KPMG, hired by the state as a high-level troubleshooter, questioned the move. "The transfer ... from Kentucky would decommission/replace the current ONE system instead of taking advantage of investments already made in the ONE system," the firm wrote. "Decommissioning the ONE system may indicate to the public that the money spent on the system was unnecessary."

State officials dismiss that characterization of the situation and are forging ahead with the next phase of the mammoth technology project. The Department of Human Services just entered into a $100 million no-bid contract with Deloitte Consulting, lead developer of the ONE system.

It is the first step in a larger move to expand electronic enrollment for food stamps and other state assistance programs. Total cost: $241.3 million.

At this rate, the ONE system will eventually surpass the cost of its disastrous predecessor, Cover Oregon, which failed to launch despite a $300 million investment. Cover Oregon was supposed to serve both as a health insurance exchange and benefits enrollment system.

Alex Pettit, Oregon's chief information officer, said it's crucial that the state get this one right. The system will be the key public interface for the state's two largest agencies and will serve more than a million Oregonians.

A one-stop automated enrollment system for the state's many public assistance programs has long been the holy grail for social services agencies. But those digital dreams don't come cheap. If all goes as planned, the total cost of the Medicaid enrollment system and its planned refinements will reach $408 million.

Much of that money comes from the federal government, a powerful motivator for Oregon to see the project through at a time when its own general fund budget is tight. At a May legislative hearing, Department of Human Services director Clyde Saiki and project director Eric Smith told lawmakers the agency was eager to meet the December 2018 deadline to qualify for federal match funding.

"We do have a sense of urgency," Saiki said.

The total bill looms much larger than other recent Oregon technology projects. For example, a major modernization project underway at the DMV is expected to take a decade and cost an estimated $90 million. The upgrades would track several million vehicles and drivers, communicate with law enforcement and verify citizenship status. Two years in, the state has spent just $5.6 million.

To be sure, the ONE system is no Cover Oregon-level disaster. It was finally able to handle Medicaid eligibility checks as of March 2016, allowing the Oregon Health Authority to conduct hundreds of thousands of overdue income verifications. And a state audit released last month found that the two computer systems involved were correctly determining eligibility and sending payments to health care providers.

"It took a little longer," said Lynne Saxton, director of the Oregon Health Authority. "Parts of it were smoother, parts of it were rougher. Did we get the goal accomplished? Yes, we did."

Agency spokeswoman Courtney Warner Crowell put it another way, writing in an email that "it has performed as expected given its complexity and breadth of functionality."

Still, the prodigious technology spending has dismayed some lawmakers. Rep. Cedric Hayden, R-Roseburg, figures spending on Medicaid enrollment will soon surpass $300 million, about the same as Cover Oregon. "I'm very supportive of getting help to people who need it," he said. "But I also feel like there has to be some accountability" from state agencies dispensing that assistance.

It's hard to overstate how desperate state officials were for a solution after the ugly failure of Cover Oregon. The Affordable Care Act had liberalized income rules for Medicaid in 2014, and Oregon suddenly saw participation swell more than 60 percent, to 1.1 million people.

But after the state pulled the plug on Cover Oregon, it had no computer system mechanism to sort and track applicants. Under litigation with Cover Oregon developer Oracle Corp., the state faced a December 2015 deadline to stop using the company's software.

Oregon needed an alternative, and officials thought they found it in Kentucky. At the time, they predicted that with $30 million to $60 million worth of fine tuning, the state could have the ONE system up and running here within months.

Oregon hired Deloitte, chief architect of the Kentucky system. Together they got the ONE system running in December 2015, according to the Oregon Health Authority. It could process only new applications in those early days, and it would be another three months before the system could conduct eligibility tests for existing Medicaid participants.

In Oregon, only individuals making less than $17,000 a year and families earning less than $33,000 are eligible for Medicaid.

Federal law requires states to check eligibility once a year. Unable to meet that requirement, the state repeatedly got waivers from 2013 through 2016.

Meantime, the backlog of overdue eligibility checks grew, peaking at 60,000, the state said. The federal waivers expired last June. But due to nagging technical issues and other problems, the state couldn't catch up. And the agency continued to dispense millions of dollars despite the uncertain status of the recipients.

Oregon Health Authority officials told a legislative committee last month that the agency might have provided Medicaid benefits to some 32,000 people who no longer qualified for them.

As the state waited for its automated enrollment system, the health authority hired hundreds of employees to manually sign up and re-enroll people in the system. The state's temporary workforce peaked at 535 in May 2015, in addition to 283 permanent employees.

The eventual permanent number is expected to be about 400.

Since resuming the eligibility checks, the state has verified 549,000 Medicaid enrollees who still qualify for the program.

The technology system's issues escalated tensions between the health authority and its sister agency, the Department of Human Services, last fall. As officials debated how to split responsibility for Medicaid enrollment, eligibility checks stalled for several months.

"The result was that for 3-4 months, the two agencies had to sit down and try to resolve these very challenging issues," Robert L. Cummings, a principal legislative analyst, wrote in a recent report.

The state brought in a mediator to restore the peace, at a cost of $47,000. The health authority is now relinquishing oversight of Medicaid enrollment to human services.

At a May 25 hearing before lawmakers, the DHS chief acknowledged that top administrators at the two agencies had reached an impasse.

"To be honest with you, I think Lynne (Saxton) and I will both tell you that in the beginning the meetings were a little contentious, a little tense," Saiki said. "But I think once we engaged an outside facilitator, Coraggio Group, that came in, we began to have the kind of conversations we needed to have."

That included identifying the problems, solutions "and where accountability and responsibility with the project lies," Saiki said.

Oregon Democrats have been coming to the project's defense since Republican Secretary of State Dennis Richardson issued last month a first-of-its-kind "auditor alert," which previewed problems discovered in an ongoing review.

Richardson suggested lawmakers investigate the financial consequences of keeping thousands of people on Medicaid while their eligibility was in question.

Health officials and Democratic lawmakers have pointed out the state cannot legally kick anyone off Medicaid until it determines the person is ineligible, and the state received several waivers for the annual eligibility checks.

But a year after those waivers expired, state employees have yet to complete eligibility checks on approximately 84,000 clients. Gov. Kate Brown gave the health authority until the end of August to work through the backlog.

And at the end of May, Republicans in the Oregon House proposed a one-year budget for the health authority, to allow time for the agency to finish vetting its Medicaid rolls. Oregon's next two-year budget cycle begins in July.

After winning the turf battle for control of the system, it's now on the Department of Human Services to deliver. It has taken on the difficult task of integrating the 18 systems that track food stamps and other assistance programs with the Medicaid system.

Bob Cummings, the Legislative Fiscal Office's longtime technology analyst, says the agency is walking a tightrope.

"The history of this project's estimating to date has not been good," Cummings wrote, noting that the project's scope is still not fully defined. "While the project team has tried to make sure that there are no more surprises, the short amount of time that they've had to come up with the latest 'final' cost estimates, does not bode well for their accuracy."

Lawmakers were clearly taken aback by the enormous costs at a recent hearing of the Joint Subcommittee on Human Services. After a trio of Department of Human Services officials laid out their $241 million plan, Rep. Dan Rayfield, co-chair of the committee, asked for reassurance that the price will not continue to "dramatically increase."

The three officials declined to make any promises. "That's to be seen," said project manager Smith.

--Jeff Manning and Hillary Borrud