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U.S. administration defends Obamacare contractor after UK probe

A Serco flag is seen flying alongside a Union flag outside Doncaster Prison in northern England in this December 13, 2011 file photograph. R
A Serco flag is seen flying alongside a Union flag outside Doncaster Prison in northern England in this December 13, 2011 file photograph. R

By David Morgan

WASHINGTON (Reuters) - The Obama administration on Tuesday defended a decision to award outsourcing company Serco Inc a $1.25 billion contract to help implement new online health insurance exchanges after word the contractor's parent company was under investigation in Britain.

Serco Inc, U.S. subsidiary of Serco Group Plc, will help review and process paper applications from consumers who apply for subsidized insurance coverage through federally operated exchanges in 34 states, according to the 12-year contract awarded by the Department of Health and Human Services.

"Serco is a highly skilled company that has a proven track record in providing cost-effective services to numerous other (U.S.) federal agencies," said Brian Cook, a spokesman for the Centers for Medicare and Medicaid Services (CMS), the HHS agency overseeing implementation of the exchanges.

"The selection met all of the requirements for a full and open competition, and the timing enables us to be ready for marketplace open enrollment starting on October 1."

In response to a Reuters query, Serco Inc issued a statement saying the investigation in Britain involves a contract covering less than 1 percent of revenues and a limited number of orders.

"There is no reason that the issue with this one contract in the UK will have any impact on the CMS contract or any other operations of Serco Inc," the company said.

Last week, Britain placed its contracts with Serco Group and another firm under review. Serco is one of the British government's biggest suppliers and runs services from prisons and immigration centers to transportation. An audit showed it was charging for prisoner-related services it did not provide.

The probe by Britain's chief procurement officer could raise more questions about the effort to implement the Patient Protection and Affordable Care Act, often called Obamacare.

The insurance exchanges have come under mounting attack from opponents of the healthcare law, including Republicans, while doubts grow about the administration's ability to launch the markets with limited staff and funding.

The administration is hoping for a smooth roll out of the exchanges, online marketplaces that are scheduled to begin offering private coverage to millions of uninsured Americans in less than 80 days.

U.S. contractors with foreign parents are required to notify the Defense Contract Audit Agency if their parent operations are involved in any wrongdoing relating to billings, according to officials. The administration said CMS has not been informed of any such notice being given.

British officials say the probe of Serco Group could produce initial findings for the British Cabinet within weeks, with a final report likely in months.

Serco Inc, headquartered outside Washington in Reston, Virginia, employs about 8,000 people in 45 states. Its work for HHS will be undertaken at sites in Arkansas, Alabama and Kentucky, the administration said.

The contract requires the U.S. subsidiary to operate a mail room to intake insurance applications. Company employees will also review documents to ensure authenticity, identify potential problems and notify consumers of issues or missing documentation.

(Reporting by David Morgan; Editing by Michele Gershberg, Andre Grenon and Tim Dobbyn)

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