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Hewlett-Packard, Delaware Medicaid Contract Extended

Zacks Equity Research

Hewlett-Packard Company’s (HPQ) Enterprise Services arm recently announced that the Delaware Department of Health and Social Services (:DHSS), Division of Medicaid & Medical Assistance (:DMMA) has extended the Medicaid contract for another five years. The contract, settled at $147.0 million, builds on the 24-year relationship between the two units.

Per the contract terms, H-P will continue to act as a Medicaid fiscal agent or primary information technology provider to the DMMA. Moreover, the deal entitles H-P to offer its interChange Medicaid Management Information System (:MMIS) fiscal agent and outsourcing services for the state of Delaware.

As a fiscal agent, the tech giant will review and process all medical claims, manage the inventory of the pharmacy and provide call center support. H-P’s services will also help the state to improve Medicaid programs and deliver more critical health information to a larger number of health care providers. In addition to making claim transactions smoother, H-P’s services will reduce the extent of fraud with prior detection, thereby eliminating risks and costs associated with the state’s Medicaid program.

H-P shares a long-standing relation with the state of Delaware, dating back to 1989. The success of the Medicaid services can be well inferred from the fact that H-P handles more than 22 million claims annually for over 10,000 health care providers in Delaware.

The tech giant is already serving as a fiscal agent to 19 other states’ Medicaid programs. The need for an efficient Medicaid program arises from the enactment of the U.S. Healthcare Reforms Bill. The goal of the reform is to make health care more affordable for Americans.  The basic objectives of the reform were presented in the Patient Protection and Affordable Care Act. Per the Act, beneficiaries are expected to join Medicaid through a registration process requiring exchange of information regarding health.

The U.S. government's endeavor to expand the information technology industry to become a major player in health reform will help drive IT spending in the health care segment over the coming years. We believe that H-P, with its strong position, would be able to capitalize on government initiatives.

However, H-P has to compete with Computer Sciences Corp. (CSC) in the Medicaid service space.
Going forward, the company is still reeling under pressure from the declining PC business and a sluggish macroeconomic environment. Moreover, competition from other technology bellwethers such as International Business Machines (IBM) and salesforce.com (CRM) makes it even more difficult for the company to gain market share in the cloud and security space.

Currently, H-P has a Zacks Rank #3 (Hold).

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