Original Article:
http://groups.google.com/group/comp.databases.pick/browse_thread/thread/7a4436d052aca0f/e6c63e4ee937e66f
Article
http://www.computerworld.com/printthis/2000/0,4814,53014,00.html
High-Flying HMO Modernizes, Crashes
Oxford Health Plans Inc. was the Netscape of health maintenance
organizations. It seemed to burst from nowhere, captivate customers
and force competitors to change the way they operated. Then
Oxford decided to modernize its information technology.
It was 1995 and Oxford's old turnkey, Pick-based billing and
membership tracking system would no longer do. A complete overhaul,
using more modern Unix technology, is what the company wanted
- and fast.
The project included many custom applications that ran with
Oracle databases and other software. But key was a claims processing
system, dubbed Pulse, that Oxford's internal IT people built
with Oracle tools.
Trouble hit the Trumbull, Conn.-based HMO almost as soon
as the rollout started in late 1996. Customers suddenly got
claims laden with errors - when they got claims at all. The
company paid bills it shouldn't have and denied claims it should
have paid.
All the late and inaccurate paperwork caused New York state
to fine Oxford $3 million for violating insurance laws.
Overall, the new software overestimated revenue by $392 million
for 1997 and 1998 while also underestimating medical costs.
That awful combination led to Oxford's $291 million loss in
1997.
Angry doctors and patients abandoned the HMO. Membership
dropped 20% from 1997 to 1999, partly because of the systems
problems and partly because Oxford withdrew from four of the
seven states it did business in.
Ultimately, top executives left, and Oxford hired a new head
of operations - Kevin Hickey, then an operations manager at
Aetna Inc. - to help with an IT cleanup already under way.
Hickey immediately faced down the billing mess, which "wasn't
just an inconvenience. This was a survival issue," he said in
an interview. First, he shelved Pulse and returned to the old
Pick application. Pulse was never fully integrated with the
Oracle software, he said. Cambridge Technology Partners Inc.
and Diamond Technology Partners Inc. came in for quick-hit assignments
to help fix claims processing. Oxford also shut down its advanced
technology unit. Studying artificial intelligence software for
possible future systems was frivolous now that "emergency" IT
problems threatened to incapacitate the HMO, Hickey explained.
Oxford hired Computer Sciences Corp. to create a plan for
outsourcing its entire IT operation. But in 1998, a new CEO
swept in and swept away that idea, along with most remaining
legacy executives. Hickey, too, was replaced after just a year
at the company.
Today, Oxford is smaller and smarter. It wrote off $5 million
for hardware and software in 1998. Late last year, system fixes
even took precedence over customer acquisition, according to
documents filed with the Securities and Exchange Commission
(SEC).
Oxford has since completed major systems fixes and put in
place new quality assurance and other testing programs. But
SEC documents warn that unexpected sales calculations could
still turn up.
========================
According to:Top 10 Corporate Information Technology Failures
http://www.computerworld.com/computerworld/records/images/pdf/44Nfail...
Oxford Health Plans Inc. PROJECT: New billing and claims-processing
system based on Unix International and Oracle Corp. databases
WHAT HAPPENED? A 1996 migration to a new set of applications
for health maintenance organizations operations resulted in
hordes of doctors and patients angry about payment delays and
errors. The system also underestimated medical costs and overestimated
income. As a result, high-flying Oxford posted its first-ever
quarterly loss in November 1997: $78 million. All told, Oxford
overestimated revenues by $173.5 million in 1997 and $218.2
million in 1998. New York state fines the company $3 million
for violating insurance laws. Oxford replaced large parts of
the home-grown system with off-the-shelf modules.
========================
The Wall Street Journal
December 10, 1997
HOW NEW TECHNOLOGY BECAME A SERIOUS PROBLEM FOR OXFORD
by Ron Winslow and George Anders
Staff Reporters of THE WALL STREET JOURNAL
The annals of business are filled with Frankenstein stories
-- -- tales of technology run amok. But the computer-system
horrors at Oxford Health Plans, Inc., take the genre to
a new level.
Only two months ago, Oxford was basking in Wall Street admiration
for its blazing growth. This week, the health- maintenance
organization disclosed that it will post a loss of $120 million
or more for the current quarter, on top of a surprise third-quarter
loss of $78.2 million -- its first loss since going public in
1991.
Oxford's shares closed Wednesday at $17.1250, down $2.9375,
or 15%, on the Nasdaq Stock Market. Wednesday's closing
stock price was down 75% from its level just before the company
first revealed its troubles in late October.
How did disaster strike so quickly? As Oxford's business
was faltering, it never saw the warning signs. One reason
was a long list of troubles with a computer system that went
on-line last year: how it was designed, how it was installed
and how Oxford executives managed it.
The computer problems left Oxford unable to send out monthly
bills to thousands of customer accounts and rendered it incapable
of tracking payments to hundreds of doctors and hospitals.
In less than a year, uncollected payments from customers
tripled to more than $400 million, while the sum Oxford owed
care-givers swelled more than 50%, to more than $650 million.
For any company grappling with new information systems, Oxford
offers a lesson in how not to proceed -- and in how hotshot
technology can create even worse problems than the ones it was
intended to solve.
PLAN FOR GROWTH: Oxford's dazzling growth was both its distinction
and its undoing. The HMO began planning the new computer
system in 1993, when it had just 217,000 members. The
system didn't rev up until October of last year, by which time
the HMO's membership had swelled to about 1.5 million.
Thus, the new system was already outdated and outmanned.
Problems popped up immediately. Processing a new member sign-up
was supposed to take just six seconds but instead took 15 minutes
(a lag that later was fixed). And even as Oxford's backoffice
infrastructure was overwhelmed, the company continued signing
up hordes of new customers that its system couldn't handle --
more than half a million new members in the past year.
"If you drive a train at 150 miles an hour without good tracks,
you derail," says David Friend, a global director at Watson
Wyatt & Co., Bethesda, Md.
TAKE BABY STEPS, NOT BIG ONES: Build your new information
highway from exit to exit, not coast to coast. Oxford
locked into a design for the entire system in late 1993, which
made it difficult to adjust to subsequent technological improvements
as the project moved forward. Moreover, it tried to convert
the bulk of its membership-billing database in one fell swoop
-- -- some 43,000 accounts covering 1.9 million members.
Computer specialists say that such a sweeping conversion
is far too difficult; companies should switch just the records
for, say, one county or one business group at a time. "Put all
of your small customers on the new system and see how it goes,"
suggests John Salek, of REL Consultancy in Purchase, N.Y.
Oxford's all-or-nothing approach misfired, making it all
the harder to do further repairs without creating even bigger
snags. Stephen F. Wiggins, Oxford's founder and chairman, acknowledges
that a more incremental conversion would have been preferable.
BEWARE OF "DIRTY DATA": Oxford's old software was riddled
with seemingly innocuous errors in member records that turned
out to cause enormous problems in the new system. For instance,
the old VMark uniVerse database tolerated errors that let a
patient's Social Security number be entered in a box reserved
for date of treatment. But the new database, from Oracle
Corp., spit out such inconsistencies and refused to process
the data until they were corrected.
The new software is "very unforgiving. If you don't get it
right, you don't get it in," says Seth Lefferts, an information-systems
manager at Oxford.
So when the program detected a single mistake in, for example,
a 1,000-member account, it kicked out the entire group -- --
delaying billing and claims processing for all 1,000 members.
When technicians fixed the error and re-entered the account,
the new software would spit it out yet again when it detected
the next mistake in a member's record. And so on.
The volume of individual mistakes "wasn't huge," says Paul
Ricker, Oxford's vice president of information systems. "But
the effect was rather extreme."
Oracle says it continues to work with Oxford and the HMO's
other vendors to get the system working optimally.
DON'T LOSE TRACK OF RECEIVABLES: Once the Oracle software
began balking at the old system's erroneous data, Oxford was
forced to stop billing some customers for months at a time and
often sent flawed invoices to many others. The HMO had no backup
system, not even a platoon of pencil-wielding clerks, to fill
the gap. Yet the company, following standard accounting practices,
continued booking the ...