Oxford Rebounds from IT Disaster

FRAMINGHAM (03/10/2000) - More than two years after posting big losses - largely because of major computer system problems - Oxford Health Plans Inc. is back in the black. Analysts and company executives have credited better systems for the turnaround.

The Trumbull, Conn.-based managed care organization posted profits for the fourth and third quarters of 1999. A year ago, Oxford had almost $20 million in loss-es, excluding charges.

The third quarter was the first time Oxford had reported any major profits since mid-1997, when claims-processing failures contributed to its financial descent.

Oxford now has 1.5 million members in New York, New Jersey and Connecticut. As its membership grew, Oxford's computer network couldn't handle the load, and its software couldn't process claims accurately or quickly enough. That led to dissatisfied physicians claiming that Oxford owed them millions of dollars.

But after spending $5 million and more than a year fixing its information technology operations, Oxford reduced the average time to process a claim from a couple of months to seven days, company executives said.

To address one major issue, Oxford developed applications that allowed its business units to track the status of insurance claims. "That was one of the problems we faced in '97. We had a huge backlog of claims," said company CIO Arthur Gonzalez.

Living in a Glass House

Now, each business unit files a weekly report on claims processing into a common reporting tool. The data is available to the entire management team, said Charles Schneider, Oxford's president and CEO.

"There's transparency in what's happening in every department. [We] all live in glass houses [now]," Schneider said.

Oxford also saves money by processing 50% of its claims electronically, mostly through private networks. By year's end, Oxford plans to process 70% of its 1.4 million monthly claims electronically, Schneider said.

On average, electronic filing costs 35 cents per transaction, compared with $2 to $3 for a paper-based claim.

Electronic claims processing not only cuts costs but can also shave months off the claims-processing cycle, said Mark Anderson, an analyst at Stamford, Conn.-based Meta Group Inc. and a former hospital CIO.

Robert Booz, a vice president at health care consultancy First Consulting Group Inc. in Long Beach, Calif., said Oxford also simplified its benefits pricing structure to make claims processing easier. Before, Oxford's complicated pricing made claims processing difficult to automate, said Booz, a former chief operating officer at Oxford.

Other factors, including worker layoffs and the sale of health maintenance organizations in several states, also contributed to Oxford's turnaround.

But Melissa Gannon, an analyst at Weiss Ratings Inc. in Tampa, Fla., said the IT upgrades played a key rolet.

"They were so far behind in making their claims payments to providers, and [there was] such a lack of information to make good decisions regarding claims reserves," she said. "Unless they were able to clean that up, they couldn't have returned to profitability."

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