Lack of IT Integration a Factor in HMO Crisis

Once seen as a bellwether HMO, Harvard Pilgrim Health Care's spiraling financial descent culminated in a court-ordered receivership this month. One big reason for the Brookline, Mass.-based insurer's failure: its inability to properly manage its information systems, particularly as it acquired other insurers.

State officials claimed that Harvard Pilgrim's 1999 losses ranged from $150 million to $177 million. The health maintenance organization had earlier projected that losses would be $137 million. In a statement, Harvard Pilgrim blamed the discrepancy on "errors in past accounting practices."

Harvard Pilgrim deferred comments to the Massachusetts Insurance Commissioner's office.

Harvard Pilgrim had separate financial and billing systems and never fully integrated them, said Christopher Goetcheus, a spokesman at the insurance commissioner's office. As a result, the insurer priced its services far ahead of when it actually collected premiums and, in some cases, undercharged for its services, he said.

That's not a new problem, said one analyst.

"A lot of HMOs in the past 10 years have grown too quickly and can't manage their growth properly," said Melissa Gannon, vice president at Weiss Ratings Inc. in Palm Beach Gardens, Fla.

Harvard Pilgrim was formed by the merger of Harvard Community Health Plan and Pilgrim Health Plan (HCHP) in 1994. HCHP had acquired two Rhode Island groups previously.

Harvard Pilgrim "didn't have the time or resources, or the skill set" to integrate the systems from the merged organizations, said Mark Anderson, a vice president at Meta Group Inc.'s Boston office and a former hospital CIO. He said he thinks that's why Harvard Pilgrim announced Oct. 5 that it had signed a $700 million, 10-year contract with Dallas-based Perot Systems Corp. to manage its claims processing and computer systems.

Perot continues to provide claims and information technology services, said Goetcheus.

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