Oxford’s IT Disaster
ON OCTOBER 28, 1997 THE FATEFUL WALLStreet "crash" of the year, one of the biggest losers was Oxford Health Plans. The largest health plan in the state of New York, and one of the fastest-growing HMOs in the country, Oxford saw its stock fall by two-thirds, from $68 to $25 per share: a loss of $3 billion on 49 million shares. That same day, Oxford announced losses of $78 million due to a host of billing problems.
Oxford, based in Norwolk, Conn., blamed its great fall on a flawed computer system that failed on both ends--receiving and collecting. The company has announced measures to get the company back on track. In the meantime, the fear for every healthcare manager is that problems like Oxford’s could surface in any health system that isn’t careful in managing its information technology.
"These organizations are absolutely, totally information intensive and information dependent companies," says Thomas Johnson, a managed care consultant with Sheldon I. Dorenfest Associates in Chicago. If the information is inaccurate, a managed care company loses its primary function: managing costs.
Johnson said his perception is that Oxford is run by a "brilliant, visionary" executive staff, but the marketing and sales force outstripped what the company’s technology systems could handle. "You had an information system director sitting there every day who had something new presented to him," Johnson said. But the system couldn’t keep up with Oxford managers’ demands. "I think they fully understand that at this stage, but it’s not an unusual problem in the industry," Johnson says.
The problem at the root of such disaster may be the frantic pace of competition in managed care. Managed care firms are being forced to merge and/or introduce innovations to attract and retain customers.
"The real question is whether or not information technology was fully to blame [at Oxford] or whether there are other factors illustrative with all the consolidation and growth in healthcare," says Ray Falci, healthcare technology analyst with Piper Jaffray in Minneapolis.
Oxford’s information technology problems began in 1992 when executives asked for more powerful and flexible technology that could respond to the company’s explosive growth. Oxford doubled in size to 1.9 million members in just 18 months.
The information systems division chose to build a new system internally, atop databases from Oracle Corp., and to move away from the older, patchwork-built system from Computer Sciences Corp.
Marc Hebert, a vice president from the Oracle Alliance Program, didn’t work on the Oxford project, but he called the Oxford situation "a classic systems management problem" of transferring a large legacy database to a new database system.
"There’s no magic to it," said Hebert, who previously was employed with Arthur Andersen on similar conversion projects. "It involves thinking through the detail of what does that data look like."
In Oxford’s case, the devil was in the details--big and small. The new system took far longer to build than anticipated. Contributing to the problem was an unusually high turnover among programmers. Over five years, Oxford employed 100 outside systems contractors. It was obvious, according to Hebert, that the new system was never properly tested to see if it worked.
The result was catastrophic. Providers were so late in receiving payments from Oxford, the New York attorney general’s office intervened. Oxford responded by advancing estimated payments to providers for unresolved claims. Oxford’s error was further compounded by underestimating rising medical expenses, especially for Medicare patients.
Worse still, customers weren’t billed on time--and sometimes not at all. When Oxford tried to bill belatedly for premiums, customers balked and some companies dropped Oxford altogether. Rather than try to collect, Oxford chose to write off its losses.
Oxford responded to inquiries for this story only by fax. A prepared statement claims that it has brought in auditors from KPMG/Peat Marwick to help straighten out the mess and it is installing new hardware to speed up claims processing. It is calling in a variety of experts, including ThinkMed Software, Milwaukee.
Maureen Willenbring Schriner is a healthcare writer in Minneapolis.
Contributions from Business Week (The McGraw-Hill Companies, Inc.) Nov. 17, 1997; Keith Hammond in New York and Susan Jackson in New Haven, Conn.
Network Helps L.A. Face Disasters
TO HELP PREPARE FOR THE "BIG ONE," OR ANY other natural or unnatural disaster, L.A. County last November simulated a 7.8 magnitude earthquake with thousands of casualties--testing area hospitals’ disaster preparedness. The county’s department of health services conducts a similar mock disaster annually, but the primary objective of this year’s scenario was to assess ReddiNet II, its new computerized emergency network.
Owned and operated by the Healthcare Association of Southern California (HASC), ReddiNet II is a mass triage system that allows hospital emergency and trauma departments to communicate during a disaster using 960 MHz microwave radio. "It is much less vulnerable than telephone lines that are often disabled or overloaded after a catastrophe," says Brian Greene, spokesman for HASC, a non-profit organization representing physicians, hospitals and health systems in Los Angeles, Orange, Riverside, San Bernardino, Ventura and Santa Barbara counties.